Corporate founders battle boards to overturn forced exits
By Nadia Damouni
NEW YORK (Reuters) - From American Apparel Inc APP.A to Lululemon Athletica Inc (LULU.O: Quote), Men's Wearhouse Inc MW.N and Best Buy Co Inc (BBY.N: Quote), a series of boardroom battles across North America underscore how difficult it can be for companies to part ways with their founders.
In each of these cases, the boards decided it was time for the founders to step down from their roles either as chief executive or chairman, but faced stiff resistance from the founders, some of whom used their substantial equity stakes to fight back.
Corporate governance experts expect more such corporate dramas as shareholders are increasingly holding boards accountable for succession planning, investment returns and overall fiduciary duties. As a result, boards are asserting their authority more frequently, which can put them on collision courses with CEOs, including founders.
"Today's boards are increasingly feeling pressure to anticipate the CEO leadership needed to drive future success. This is especially true when the CEO is the founder of the company," said Jane Stevenson, head of the global CEO succession practice at Korn Ferry International.
"In these situations the board can feel significant conflict between appropriate homage to the past and the leadership needed to drive success in the future."
As many as 42 Fortune 500 companies have founders in CEO positions, according to data compiled by recruitment firm Heidrick & Struggles for Reuters. These founder-CEOs have an average tenure of 22.5 years, compared with around six years for non-founder CEOs.
"Founders are often the ones that have the 'special sauce' that makes a company's offering and culture work, so they might be given additional latitude ... as their vision drove value creation in the first place," said Heidrick & Struggles' Vice Chairman John Wood.
American Apparel, under Charney's leadership, was known for its racy advertising and "Made in the USA" sweatshop-free model. However, the company has posted losses in almost every quarter in the last four years and came under fire in 2010 for lax financial controls. Continued...