Research: How Long Should a Founder Remain CEO?

On average, their value-add tends to decline after an IPO.

by

and

Christopher Bingham

by

and

Christopher Bingham

December 17, 2021

HBR Staff; kkgas/Stocksy; PhotoMelon/Getty Images

Summary.

Do founder-CEOs have an expiration date? In the wake of Jack Dorsey’s resignation from Twitter, some have begun asking whether the move could herald a new era, in which founders voluntarily step aside rather than sticking around for decades or waiting to be ousted. To explore the value added by a founder-CEO, the authors analyzed stock price and financial performance data from more than 2,000 publicly traded companies. They found that on average, founder-led firms outperform those with non-founder-CEOs — but that the difference dwindles to zero just three years post-IPO, after which founder-CEOs actually start detracting from firm value. Given these findings, they offer three strategies to help investors, boards, and executive teams support founders in transitioning out of the CEO role when the time is right, and ultimately argue that Dorsey’s decision may have been more prescient than many realized.

“There’s a lot of talk about the importance of a company being ‘founder-led.’ Ultimately I believe that’s severely limiting and a single point of failure…I believe it’s critical a company can stand on its own, free of its founder’s influence or direction.”

– Jack Dorsey, Founder and Former CEO of Twitter

Jack Dorsey’s sudden resignation from Twitter last month created a major stir, in Silicon Valley and around the world. Especially after his long-fought victory over an activist investor’s attempt to oust him back in 2020, Dorsey’s decision to hand the reigns over to CTO Parag Agrawal came as a shock to many. The move also bucked the recent trend of “founder-friendly” venture capitalists encouraging founder-CEOs to stick around for as long as possible. Dorsey’s resignation demonstrates how — and why — a founder might voluntarily step aside once their organization has reached a certain level of maturity, and invites the question: Should others follow his lead?

BH

Bradley Hendricks is an Assistant Professor of Accounting at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.
TH

Travis Howell is an Assistant Professor of Strategy at the Paul Merage School of Business at the University of California, Irvine.
CB

Christopher Bingham is the Phillip Hettleman Distinguished Professor of Strategy and Entrepreneurship at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill.

Research: How Long Should a Founder Remain CEO?

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