Articles

Founder-Executive: Navigating the Complexity of a Complex Relationship

20th May 2024

The relationship between founders and executives in entrepreneurial ventures, be it startups or established organisations, is intricate and fraught with both opportunities and challenges. These partnerships are critical to an organisation’s success but to be effective, they require a nuanced understanding of each other's roles and emotional investments.

The Psychological Underpinnings of the Founder

When an executive is hired or elevated within an organisation, the role of the founder often changes. This adjusted role requires careful handling to maintain the founder's engagement and satisfaction while ensuring the organisation continues to evolve under new leadership.

(i) Psychological Adjustments and Identity Reassessment: As founders step back from day-to-day operations or take on lesser or different roles, they face a need to reassess their identity within the company. This adjustment can trigger feelings of uncertainty or diminished relevance as the responsibilities that once defined their daily life are scaled back. Here, the work of Heifetz and Linsky on managing personal vulnerabilities during transitional phases can provide valuable strategies for founders to navigate these identity shifts while maintaining their influence and legacy (Heifetz & Linsky, 2002).

(ii) Managing Organisational Culture: Edgar Schein's insights on how founders influence organisational culture are particularly relevant here. Even minor changes in the founder's involvement can impact the organisational culture, given their role as cultural architects (Schein, 2010). Ensuring that the founder's core values and principles continue to influence the organisation, albeit in a different capacity, is vital. Heifetz and Linsky's concept of “holding the environment” can be crucial as it involves creating a stable but flexible framework that allows the culture to adapt without losing its core identity.

(iii) Emotional Investment and Engagement: The emotional investment of founders in their companies makes it difficult for them to trust an executive to interpret their vision and advance the organisation. The fear that new leaders might not fully appreciate or sustain their legacy, coupled with challenges in adapting to new leadership styles, can intensify a founder's apprehensions, potentially leading to resistance or interference. This resistance can undermine new executives' authority and jeopardise strategic initiatives. Daniel Kahneman's theory of loss aversion provides insight into these emotional challenges during transitions, suggesting that founders fear the loss of their legacy more than they desire potential gains from change (Kahneman, 2011). Heifetz and Linsky’s strategies for managing systemic changes can guide founders in embracing new leadership without relinquishing control over their vision.

(iv) Empowerment to Executive: To create an environment where the executive is empowered, the transition phase must involve careful planning and execution that respects the founder's legacy while also entrusting the executive to innovate and make necessary changes. This planning should involve clear communication of the future roles and expectations of the founder, ensuring that their knowledge and insights continue to add value without overshadowing new leadership. Formalising the founder’s role in maintaining and nurturing the company's culture, perhaps through mentorship programs, cultural ambassadorship, or strategic advisory positions, is crucial. Maintaining a sense of purpose and self-worth for the founder is essential during this period so that they can redefine their contributions and find new ways to derive satisfaction and meaning from their evolving roles. Here, Heifetz and Linsky’s advice on “orchestrating conflict” - allowing for structured disagreement to foster innovation while safeguarding foundational principles - can ensure that both founder and executive work synergistically.

The Psychological Underpinnings of the Executive

 In the relationship dynamics between founders and the executives they, or their Boards, choose to scale their visions, the depth of understanding an executive has of the entrepreneurial mindset is crucial. Executives are often recruited based on their robust operational skills and a track record in translating innovative visions into sustainable practices. However, without a fundamental grasp of the psychological intricacies of entrepreneurship, executives may struggle to fully align with the founder, potentially disrupting the organisation.

(i) The Role of Emotional Intelligence: The ability of executives to empathise with founders is crucial. This empathy extends beyond mere understanding to a genuine appreciation of the founder's emotional attachment, journey, and sacrifices. Daniel Goleman’s concept of emotional intelligence provides a framework here, emphasising the importance of self-awareness, self-regulation, motivation, empathy, and social skills in leadership roles (Goleman, 1995). Executives with high emotional intelligence are better equipped to handle the emotional complexities that come with leading alongside founders, navigating the founder's passions and tempering their decision-making processes to ensure both the visionary and operational sides of the business are in sync.

(ii) Understanding the Risk Mindset of Founder: Executives must balance the innovative and risk-prone inclinations of the entrepreneurial mindset - akin to the growth mindset as described by Carol Dweck (Dweck, 2006) - with the stability required for long-term sustainability. This balance requires an appreciation of the psychological underpinnings that drive founders, often characterised by a mixture of optimism, resilience, and a high tolerance for uncertainty. These traits, while beneficial for navigating the early chaotic stages of a startup, might lead to strategic blind spots in mature phases of the business. McGrath and MacMillan’s concept of “discovery-driven planning” provides a useful framework for executives, allowing flexibility and learning in executing business strategies, accommodating the inherent uncertainties of innovative ventures without compromising on operational discipline (McGrath & MacMillan, 2000).

(iii) Constructive Challenge and Organisational Health: Executives need to master the art of constructive challenge - pushing back against founders when necessary to prevent overreach or misaligned strategies without damaging the relationship. This requires a delicate balance of respect, trust, and candour. Heifetz and Linsky’s concept of “adaptive leadership” is particularly relevant here, involving challenging the status quo while keeping the organization aligned with its core values and mission (Heifetz & Linsky, 2002). This style is effective in environments where innovation must be balanced with operational sustainability.

(iv) Leadership Versatility and Resilience: Adding to the complexity of leadership roles, Robert Kaplan and Robert Kaiser’s work on leadership versatility suggests that the best leaders balance driving results with nurturing their teams (Kaplan & Kaiser, 2006). This versatility is essential when executives must align their operational acumen with a founder's entrepreneurial spirit. Moreover, incorporating Karen Reivich and Andrew Shatté’s research on resilience provides insights into how executives can develop skills to thrive in adversity, maintaining their effectiveness amidst the ups and downs typical of scaling a business (Reivich & Shatté, 2002).

(v) Incentives and Ownership: For executives to be effective, they must feel a sense of ownership, both emotionally and practically. Incentives play a key role in creating this ownership, and while the executive needs to have the requisite entrepreneurial mindset to be rewarded by the organisation’s success, incentives must also be sensitive to the psychological underpinnings of the executive which may differ from the founder. Therefore, incentives should not only be around role and compensation structure but need to be viewed holistically and this includes the executives’ priorities and motivations. Providing incentives that reflect the executives’ risk tolerance and work-life balance priorities as well as and career aspirations, the organisation can enhance the executive’s sense of ownership and engagement.

Boundary Setting in Founder-Executive Relationships

Establishing clear boundaries is a key factor for maintaining a healthy and productive relationship between founders and executives. Diane Halpern's work on cognitive psychology emphasises the importance of clear communication and mutual understanding in any interpersonal relationship, particularly in high-stakes professional settings (Halpern, 1996). Her research highlights how structured communication can mitigate cognitive biases and enhance decision-making processes within teams. Effective boundary setting in founder-executive relationships is about more than just clarifying roles; it’s about creating a structured framework within which both founder and executive can operate with autonomy yet remain aligned with the organisation's goals, effectively preventing the misunderstandings and conflicts that can arise from such a complex relationship:        

(i) Defining Roles and Responsibilities: It is crucial to clearly define the roles of the founder and the executive. This clarity helps reduce the risk of micromanagement or boundary overstepping, ensuring that each party understands their areas of authority and autonomy. Clear role definitions help each leader operate within their designated space, fostering a more efficient and respectful working relationship.

(ii) Establishing Communication Protocols: This can be informal such as regular check-ins but also more formal elements such as scheduled meetings or update memos are vital to maintaining transparency and alignment between the founder and the executive. These communication protocols ensure that both parties are informed of developments and can promptly address any concerns, which is critical for the dynamic environment of entrepreneurial ventures.

(iii) Respecting Emotional Boundaries:  Acknowledging and respecting each other's emotional boundaries is crucial. Founders often have a deep emotional investment in their companies, while executives might bring new perspectives that could challenge the status quo. Maintaining respect for these emotional boundaries is fundamental to building trust and facilitating collaborative innovation.

(iv) Creating Decision-Making Frameworks: Structured decision-making frameworks are necessary to ensure that major strategic decisions are made efficiently and equitably. Whether decisions are reached through consensus-building, delegation, or consultation, predefined processes help clarify who has the final say in various contexts, thereby preventing potential conflicts and ensuring smooth governance.

At Bridgewater Associates, the concept of boundary setting is woven deeply into the company’s management philosophy. For instance, Bridgewater’s "believability-weighted" decision-making process is an innovative approach where decisions are weighted according to the credibility of team members, based on their track record and expertise. This process is a practical application of boundary setting that ensures decisions are not only made transparently but are also deeply rooted in the collective wisdom of the organisation. Founder Ray Dalio also promotes "radical transparency" and "radical truth," allowing the balance between openness and respecting personal sensitivities to be maintained through training on how to provide feedback effectively and engage in constructive disagreements without overstepping emotional boundaries. This practice is particularly relevant in founder-executive relationships, where the ability to communicate openly while respecting emotional investments is crucial.

Conclusion

In the intricate dynamics between founders and executives, mutual understanding and adaptation are essential for harmonising visionary zeal with pragmatic execution.  Executives must employ emotional intelligence to genuinely connect with founders and appreciate their deep emotional investments (Goleman, 1995), while also demonstrating the leadership versatility needed to adapt their styles across various scenarios (Kaplan & Kaiser, 2006). Incorporating strategies for resilience and stress management (Reivich & Shatté, 2002), alongside transformational leadership (Bass & Riggio, 2006), further prepares executives to inspire and lead through the complexities of business scaling. Bridging these aspects with insights from neuroleadership (Rock, 2008) ensures that leadership practices are effectively aligned with cognitive behaviours, enhancing decision-making and emotional engagement across the organisation.

Simultaneously, founders must embody flexibility and openness to new leadership approaches, demonstrating a commitment to evolution that is essential for the sustainable growth of the enterprise. This willingness to adapt and delegate significant responsibilities not only empowers executives but also ensures that the founder's vision adapts to meet evolving market demands. Founders should actively champion the values of trust and mutual respect, which are foundational to any successful leadership transition. Additionally, fostering an environment of psychological safety (Edmondson, 1999) allows for open, constructive challenges, which is crucial for innovation and growth. By supporting executives in their strategic roles, founders facilitate a smooth passage of operational control, ensuring that their legacy is not just preserved but also primed for future innovation. References to transformational leadership practices, as described by Bass & Riggio (2006), can illustrate how founders can inspire and motivate executives to exceed the expectations inherent in their roles. Additionally, drawing on Kotter's principles of change management (Kotter, 1996), founders can effectively guide the organisation through the critical phases of growth and restructuring by setting a clear example of leadership adaptability and strategic foresight.

These strategies, deeply informed by cognitive psychology and organisational behaviour, are indispensable in managing the unique dynamics of founder-executive relationships, ensuring a balance between stability and innovative growth within entrepreneurial ventures.