No, companies don't usually fire their founders

Dov Charney

Founder and CEO of American Apparel Dov Charney poses at The NASDAQ Stock Market in Times Square to ring the closing bell in 2006 in New York City.

Chopping off the head of the person who started it all is risky, so boards and investors are often slow to oust the founders of their companies.

"Almost always the decision is made to oust a founder when it just becomes intolerable," says Dave Logan, a management consultant who also teaches at USC's business school, "The amount of evidence, the amount of risk just reaches that overwhelming point."

Even so, it's not easy to fire a founder.

"Usually the founder owns a lot of the company's stock. Usually the founder has a lot of people who are still loyal to him or her at the company. So it's not something to be undertaken lightly," says Chris Yeh, a Silicon Valley startup investor. "There are all these fallouts that come out of ousting a founder: bad publicity, dirty laundry, potentially even lawsuits."

The company's profits and reputation have to be at great risk for a company to ax a founder. In the fashion world, American Apparel and Men's Wearhouse did so, for different reasons. But those perhaps most at risk: Young tech company founders, backed by venture capital. Dartmouth management professor Sydney Finkelstein says investors don't play around.

"They're looking for quicker returns and if they're not gonna get it, they're gonna make the tougher move, and so founder CEOs are [going to] be at bigger risk," says Finkelstein, "But it comes with the territory. If you're willing to take their money, that's part of the deal."

Groupon founder Andrew Mason learned that, but took the bullet with humor in a remarkable public goodbye letter. He started with the standard leaving to spend time with family bit and then, "Just kidding - I was fired today."


By Shea Huffman/Marketplace

About the author

Mark Garrison is a reporter for Marketplace and substitute host for the Marketplace Morning Report, based in New York.

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