- Founder-CEOs clinging to the top job post IPO can hurt a firm's fortunes, according to new analysis.
- Founders typically don't posses the skillset needed to manage a public company, the researchers said.
- The analysis comes after Twitter CEO Jack Dorsey stepped down after activist investor intervention.
How long should a founder stay at a company?
Investors and execs can be divided on the question, but researchers believe they've worked it out: any time in the three years after IPO.
Not only should founder-CEOs step down within three years of taking their company public, staying longer could have a detrimental effect on the firm's value, according to preliminary findings from researchers at the University of North Carolina and the University of California.
The paper, titled "The Founder Premium revisited", analyzed the financial performance of 1,900 public companies — half were founder-led at the start of the study.
The analysis is ongoing, but the researchers have already found that founders, while a positive influence on valuation ahead of and during an IPO, can hurt a company's fortunes if they stay on too long.
"We found that the value added by a founder-CEO essentially dwindles to zero approximately three years after firms go public, and they then start detracting from the value of the company in the longer term," wrote authors Bradley Hendricks, Travis Howell, and Christopher Bingham in the Harvard Business Review.
CEOs may add more value in a non-CEO position or as a board member after their firm goes public.
This is because the creative drive and skills needed to found and grow a company are often very different from those required to manage a company once it is public said the researchers.
Post-IPO, chief execs typically find themselves managing bigger headcounts, plus more complex demands from investors to streamline operations or grow into new markets. Skills which many typically don't possess, the researchers say.
The findings are indicative of a trend, rather than a conclusive result the researchers suggested. The personality of an individual CEO and the specifics of each individual firm will also have an impact.
The long-term success of Amazon, led for years after IPO by founder Jeff Bezos, defies the findings, for example. But for every Bezos, there are founders who outstay their welcome such as WeWork's Adam Neumann, who stepped before the office-sharing company even floated; Uber's Travis Kalanick, who resigned after internal politicking and Groupon's Andrew Mason, who was fired 18 months after the firm's float.
Jack Dorsey's exit from Twitter — for the second time — in November 2021 is the most recent high-profile example of a founder-CEO stepping away from a business. Dorsey said he wanted to focus on his other company, payments firm Square (now renamed Block) after previously splitting his time between the two firms.