Founder’s syndrome: why the board has a responsibility to rein in its hero

Posted on 11 Oct 2023

By Chris Borthwick, Thinker in Residence, Institute of Community Directors Australia

Founder start up

First comes the hero. An out-of-the-ordinary citizen sees a glaring abuse in our society, hits the alarm, and starts things moving.

It’s a big abuse, and isn’t going to be fixed quickly, so they’ll need an organisation to back them up. So they start one, rounding up their friends and supporters to sit on the board, and the board hires the founder to be the CEO (who knows more about it?). And you’re away!

Then comes the long haul, though, and the hard grind. Most founders quickly develop the talents and skills necessary to run a small organisation, or a big organisation.

Some don’t. And if the founder falls short the organisation is in diabolical trouble, because it’s very hard to come out and tell George Washington that he should step down.

The basic idea of the not-for-profit board is that the board is the ultimate authority and that no particular employee has a privileged position. If the founder’s the CEO – or on the board – good luck with that.

For good or bad, founders are sometimes hard to deal with. Almost by definition, founders are charismatic, or at least persuasive; strong characters, or at least hard to deter; and good at working with clients, which quite often means unaccustomed to working with accountants.

Sometimes founders are pigheaded, or at least insistent; they can be one-eyed, or at least single-minded; and they have a large role in picking their friends and supporters to sit on the board.

In fact, these same characteristics can apply to any person who identifies so strongly with the organisation that they think they own it, regardless of whether they founded it. Similarly, volunteers who’ve stuck with the organisation for years can feel like they have greater rights over its direction.

All of these factors make it very difficult for the board to do its job and maintain an impartial oversight of the business. We’ve seen a couple of splendid examples of that mode of failure. In Australia, the charity Street Swags provides durable and waterproof sleeping bags to homeless people – 50,000 of them since Jean Madden founded it in 2005.

More recently, Madden had upped the ante, bringing in a new scheme to build homeless people tiny homes. She thought they could come in at under $10,000, and that the group could build 50,000 of them.

As a PR concept this was almost flawless, right down to the estimate of the jobs that would be created in the timber industry.

The problems, as so often happens, came with implementation. Without the board’s approval, Ms Madden contracted with her de facto partner for $500,000 to build 44 cabins per year. Only eight cabins were made; none was sold; the only one that was used was a demonstration model on her land, occupied by her father.

The board dismissed Madden, Madden called general meetings to dismiss the board, the police eventually closed their inquiries without prosecution, and Madden sued for wrongful dismissal.

It was in the wrongful dismissal case that Fair Work commissioner Jennifer Hunt noted, “It is impossible to know where to start in describing the appalling conduct engaged in by Ms Madden” and “The use of a charity’s money to pay to the CEO’s boyfriend this payment, particularly in light of his declaration of his financial position is beyond extraordinary”.

The commissioner also noted, “The charity in 2021 clearly does good work … In my view, the charity should not be punished for the acts of Ms Madden engaged in during a period in 2015 and 2016.”

It was punished, of course. Street Swags was placed into liquidation in April 2021.

If some founders engage in “appalling conduct”, some are just innumerate.

Camila Batmanghelidjh
Kids Company founder Camila Batmanghelidjh in full flight at a TED talk before the organisation's implosion.

In England, the much larger charity Kids Company also imploded spectacularly. It was founded by Camila Batmanghelidjh in 1996 to provide support to disadvantaged and vulnerable young people, and grew quickly, its income doubling in size every five years to an eventual £23 million, a third of that from the government.

Like most founders, Batmanghelidjh was charismatic and persuasive. But she struggled to keep the charity’s finances on track.

There were reports of mismanagement within the organisation – and, more damaging still, unsubstantiated claims of child abuse.

Donations dried up, and Kids Company crashed. After the crash, the Official Receiver went to court to have the directors (and Batmanghelidjh) disqualified from any future board positions.

The court refused to do that. The directors were cleared, but that didn’t bring Kids Company back.

Board meeting

The symptoms

In full-blown Founder’s Syndrome:

  • the organisation is strongly identified with the person of the founding CEO
  • the founder makes all decisions, big and small, without any formal process or any input from others
  • there’s little forward planning, because the CEO doesn’t want to limit their options
  • key staff (and board members) are selected from among the friends and colleagues of the founder, and see their role as supporting the founder rather than the mission.
  • the founder responds to challenging issues by doubling down on rewarding loyalty and punishing dissent
  • there’s no succession plan.

Breaking free from Founder’s Syndrome is very, difficult and can be , damaging even when it’s the only way forward. In the last analysis, though, the board’s responsibility is to the mission, and even the memory of that first fine careless rapture can’t be allowed to stand in the way of the best interests of the organisation.

So what can be done about it?

The cure

Administrative fixes

  • Introduce the governance procedures, the strategic planning processes, and the succession plans that are absent (and then get the founder to observe them, which is something else again)
  • Get your intellectual property (IP) sorted out. Jean Madden, for example, threatened to take her IP – including the name Street Swags – out of the organisation with her. Check your IP policy to see that it will cover problems like that.
  • Have a meaningful review of the CEO’s position yearly, so that they’re aware of any concerns the board may have and get a chance to answer them. As far as possible, have written (and ideally measurable) goals for the coming year.
  • Have the treasurer check regularly on the bank accounts. This isn’t paranoia; it’s a normal element of good governance.

Personal fixes

If you are trying to move the founder out of the way, don’t skimp on the gratitude. Where possible, preserve their self-esteem by creating another kind of (honorary) position. Give them responsibility for a particular aspect of the organisation – mentoring new people, say –and see if that takes their interest away from the board.

Shared decision
Trouble could ly ahead in an organisation where the founder makes all decisions, big and small, without any formal process or any input from others

What’s worth preserving

At this point, we have to pause and reflect. Not-for-profits aren’t exactly like commercial businesses. Survival isn’t everything, and some values must be upheld at all costs.

Passion, deep knowledge, instinctive connection with the clients – founders link the organisation to its origins and its heart. It’s perfectly sensible, whatever law and managerial theory says, to give them a status different from any other random volunteer.

Founderish problems are the primary cause of very few failures. All not-for-profit organisations begin as very small businesses that want to grow fast.

Most small businesses fail. Most businesses that grow fast run into complications. There’s no reason to suppose not-for-profits are exempt from these statistics. More often, perhaps, the difficulty is the tendency of good causes to drift off course into bureaucratic and administrative trivia and lose sight of their original ideals.

The founder is sometimes right, too, and the board wrong. Catherine Hamlin, the founder of a charity tackling birth injuries caused by fistula in Ethiopia, had a massive disagreement with her Australian board, who wished to see a greater emphasis on Christianity.

The board cut off funds for the venture; Hamlin rebelled. She threatened to walk away from the Australian group and create a new company with a new board of directors.

As her name was in the charity’s title Hamlin prevailed, and the charity continues successfully (though Hamlin herself died in 2020, at the age of 96). Her case, though, still shows where the problems are.

“Catherine is very charming and charismatic, but she can cause havoc with the administration at times,” her nephew told the Australian. “She is saintly and devoted to the patients but if she doesn’t like something, she’s very determined to make sure it changes. I think sometimes that can cause problems …”

Founders are charismatic, boards are by their nature bureaucratic. The task of the board is to find a way to harness the founder’s inspiration while resisting their disorganisation. It can be difficult.

More resources

Help sheets: Leadership and ethics | Organisational culture

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