Ousted

Document Type

Article

Publication Date

7-10-2024

Abstract

Founder-CEOs often wield significant power within corporations through managerial control and shareholder voting rights, utilizing mechanisms like board seat designation and dual-class structures. In the era of ‘founder-friendly’ governance and tech company market dominance, debates surrounding these control mechanisms and the influence of founder-CEOs have become central to corporate law and governance discussions. However, a notable yet overlooked observation is that numerous founder-CEOs have been ousted from their positions while retaining control. This article argues that various countervailing forces can limit a founder-CEO’s power, potentially leading to their ouster or pressured resignation despite holding substantial voting power or other control methods. These forces include company performance issues, poor financial position or stock value, legal challenges, employee and public pressure, and personal motivations and struggles. Often, founders facing strong opposition and negative impacts on company performance are better off stepping down rather than maintaining control. Additionally, we explore the limitations of these forces on influential founder-CEOs, recognizing that they can only serve as temporary guardrails against true voting control. Ousting may be temporary, and even controversial founder-CEOs can return to power or succeed in new ventures. Lastly, we examine how understanding these forces and limitations can illuminate why public investors may be willing to accept multi-class structures in venture-backed startup IPOs.

Keywords

founders, CEOs, controlling shareholder, dual-class stock, multi-class stock, high-voting, sunset, CEO turnover, ouster, startups, venture capital, Corporate governance, capital structure, IPOs, agency costs, margin loans, technology industry, shareholder activism, ownership, control

Publication Title

Theoretical Inquiries in Law

Publication Citation

25 Theoretical Inquiries L. 231 (2024).

DOI

https://doi.org/10.1515/til-2024-0010

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