Founder-CEO Succession and the Paradox of Entrepreneurial Success

Understanding the relationship between founder–CEOs and firm performance

“…5 The literature examining the effect of performance on the likelihood that a founder retains the title of CEO is considerably more sparse. An exception is Wasserman (2003), who uses a sample of 202 small Internet firms to examine founder-CEO successions. Although his sample is very different from ours, his main findings are consistent with ours.…”

“…the worst performing companies. However, because Wasserman (2003) does not examine the effect of founder-CEOs on performance measures, the interpretation of his results is potentially compromised by an endogeneity problem (i.e., performance is also a function of whether the CEO is a founder of the company or not).…”

“…Founder-CEOs might also distort investment decisions because they are not well-diversified. As firms evolve, founders may no longer have the necessary expertise to run their companies (Wasserman, 2003), but they may be unwilling to relinquish control ). When they do give up control, they may have a preference for passing it on to potentially underqualified family members (Pérez-González, 2002).…”

“…Thus we conclude that the negative effect of performance on founder-CEO status appears to be driven primarily by founder departures after periods of good performance, rather than by an entrenchment effect that allows founders to remain as CEOs following poor performance. We conjecture that the effect of good performance on founder-CEO departures might be due either to a "controlled succession" effect (Morck, Shleifer and Vishny, 1989), whereby founders who wish to transfer control to their heirs can accomplish this more easily following good performance, or more simply to the fact that founders leave their companies only when they are in good shape (Wasserman, 2003).…”

Top management teams and the performance of entrepreneurial firms

“…But survival is a crude measure of success, and fails to distinguish between very successful firms and those that cling to life as the ''living dead''. IPO and other positive exits like acquisition are better measures than survival, but still do not discriminate well among firms (e.g., even weak firms can IPO) and fail to capture relevant differences among top management teams and their investors such as their preferences for liquidity versus control (Wasserman 2003). Our study was also novel in its combining the significant main effects that seem likely to influence performance, including the top management team, market, strategy, and their interactions, in a single study.…”