How much control does a CEO have over a company, and how do they exercise it?

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JASON LEMKIN

As founders, we often worry about CEO control. Would the board fire me? Would they bring someone in to replace me?

But the CEO has two types of control — legal/contractual, and de facto.

Legal/contractual control often wanes over time, but is usually very strong in the early days. If the founders and CEO own the majority of shares, and have the majority of board seats, it’s very hard to remove the CEO. The CEO in this case will have legal/contractual control of the company.

But even more important is de facto control by the CEO. Someone has to be the CEO. And it is a very unique, hard job. Odds of success plummet when founders are replaced involuntarily in the early days by almost anyone else as CEO. So if the founder CEO is transparent, ethical, and does even an OK job … just grows revenue at all, and is transparent about the challenges … the board will likely think there’s no one better for the job. The last thing most boards want to do is change CEOs. Especially if they don’t believe there is anyone better out there.

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Published on May 6, 2018
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