A founder of the company can be fired from the company if a majority of the votes are cast against the person by the Board of Directors of the company.
One of the major driving forces for the younger generation toward entrepreneurship is the ability to be one’s own boss. But in reality, whether running an own establishment is this glamorous is a difficult question to answer, especially if the business is thriving well. In such an establishment, often the founder only comes second to the Board of Directors, shareholders, and investors. This denotes that a founder has the risk of being dethroned by the board at any point in time.
Role of the Founder of the Company
The founder of the company is nothing less than a creator. A founder builds the business from the scratch, making a business out of nothing. The founder has to work from the bottom level and slog to bring the business to a higher level. The founder is involved at every step in the course of the business. Right from carrying out the market research, finding the investors, building up various teams across the business set up, to hiring the best talents available, the founder does not leave any stone unturned.
Can the Founder of a Company be Thrown Out?
It is unfortunate that despite being the backbone of the company, the founders still run the risk of being fired from their own companies. Ironically, despite being the founding father of the business, the position of the founder is always shaky. The ugly truth is that, once a business is well established, the founder is the not only sole head around whom the business revolves, especially if the business has gone public. Sadly, there have been numerous cases, wherein well-known business tycoons were thrown out of their own companies by tearing their business apart from them.
So, one might still wonder how can a person be thrown out of a business that was built step by step by their own selves. Ideally, when a business is just commenced the founder owns 100% of the equity of the company. The founder would have been the sole decision-making authority then. But to make the company prosper to higher levels, the founder has to bring in prospective investors. These funds are pitched in either as debts that the company will have to pay back or in the form of equity in exchange for the funds given by the investors. Equity is often preferred as in that case the company only owes funds that are proportional to the profits earned by the company in the given time period. Learn about founders agreement, to make a good and lasting partnership.
But on the other hand, opting for equity would mean that the founder is giving the ownership to others, though in bits and pieces. By doing this, the founder also spares a potential seat at the table of the Board of Directors. Therefore, it would mean that by giving the equity, the person receiving it gets to take part in the decision-making process of the company. Every time the founder accepts to give the equity to someone, another person gets added to the Board of Directors. This implies that more and more members get the power to vote for decisions, on par with the founder of the company.
This is the most crucial point as if the founders fail to stay vigilant, the voting power can slip from their hands completely and the investors could take control. Once the control passes over to them, they could simply vote and remove the founders as per their whims and fancies. For instance, in the early stages of the company, the founder would have had 100% of the equity and hence all the votes would vest with the founder alone. Suppose in the search for funds, the founder agrees to give 30% of equity to investor A, and another 30% of equity to another investor B. This leaves the founder with 40% of the equity in total and the investors together hold 60% of the equity. This implies that the investors now have 6/10 votes on the panel of the Board of Directors.
If the investors collectively feel that the founder is not competent to lead the organisation, they could simply fire the founder of the company. However, the founder still has 40% of the equity and owns 4 votes on the Board. But, failing to have the majority of the votes, the founder can no longer be the CEO or the sole decision-maker of the company.
Although this might sound way too theoretical, this has happened quite a number of times in real time as well. There would be very few of us who can’t recall how Steve Jobs was fired from his brainchild company, Apple. Jobs was fired by the CEO he hired himself. How he got back to Apple a decade later is however another story that may not be relevant to our topic of discussion. The founder of UBER, Travis Kalanick, was forced to leave the board after there were allegations of discrimination and sexual harassment against him. Another classic example would be the firing of Sachin Bansal and Binny Bansal, the masterminds behind the online retail line Flipkart.
It may sound ironic that the person who raised an organisation from the shacks gets to stay there only at the mercy of the shareholders and the Board of Directors there. A few of the examples stated here show that the founders not only have to exhibit exemplary talent towards their work but also stringent business etiquette. A founder or a CEO, especially of a gigantic organisation must be conscious of their actions as it has the potential to go against them and the position they hold. Further, the founder should always be on track and should not lose focus on the goals of the company. There should be no desperation when it comes to gathering the funds and serious thought has to be given when it comes to allocating the equity to the members of the Board.
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