Parting Sorrows Not Always So Sweet for Company Founders

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One of the hardest things for founders of publicly traded companies to do is let go. Having created, nurtured, and grown their businesses into successful operations, giving up control of their offspring -- despite the lure of hundreds of millions of dollars in funding from capital markets -- is the greatest challenge they face.

The recent ouster of Men's Wearhouse (NYSE: TLRD  ) founder George Zimmer is a case in point. Where Zimmer says he was fired as a way to silence him, the board of directors issued a fuller explanation today that highlighted his unwillingness to let go of the reins.

From clashing with his hand-picked successor, Doug Ewert, wanting "veto power" over things like executive compensation, and suddenly desirous of taking the company private, the board concluded that "Mr. Zimmer wouldn't accept anything other than full control of the company," and its hand was forced into firing him.

It's often difficult to separate the passion that allowed an executive to build his business from the ground up to transition to the more mundane and decentralized systems of most larger, publicly traded companies. 

Steve Jobs was a notorious control freak at Apple (NASDAQ: AAPL  ) , which got him ousted once himself, and Aubrey McClendon was just deposed at Chesapeake Energy (NYSE: CHK  ) because he had forgotten his public energy company was no longer his personal fiefdom from which he could take resources at will. SandRidge Energy (UNKNOWN: SD.DL  ) founder Tom Ward -- who happened to co-found Chesapeake with McClendon -- just got the boot last week, too. He also came under scrutiny for related-party transactions, and though the board generously found nothing actionable, the time was apparently right for new leadership.

Founder friction is not always a control issue. Groupon's founder was fired earlier this year because his tenure during the coupon site's public life was rocky from the get-go, from the use of controversial metrics in its filing papers to poor performance in attracting and keeping customers. Richard Schulze at Best Buy (NYSE: BBY  ) stepped down because of an inappropriate relationship, but then he sought to take his company back through a going-private deal. When that fell through for a lack of financing, Schulze returned as chairman emeritus. Yet it seems more often than not if a company is going to have trouble with its progenitor, it's because he has separation issues.

Naturally, Warren Buffett does things differently, tending to leave management in place when he buys a business through Berkshire Hathaway, though when it comes the investment vehicle he founded, he likes the control he retains, thank you very much.

Breakups are such messy affairs, and Men's Warehouse's board was probably prodded to reveal the dark underside surrounding the collapse of the relationship because of how it was being portrayed during Zimmer's media tour. Investors would do well to realize that outsized egos go hand in hand with the personalities needed to grow a business, and when the self gets in the way of the larger company vision, it's often necessary to sever the ties that bind.

The clothier's stock had pulled back 8% since Zimmer's ouster, no doubt because the board kept everyone in the dark. With greater insight into the causes of the falling out, Men's Wearhouse just might be ready for a buttoned-up performance.

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  • Report this Comment On June 26, 2013, at 3:55 PM, c0wpatty wrote:

    Tom Ward did not "nurture" his offspring, he raped it. We can only hope she can survive the ordeal. Greed overshadowed any vision which Tom Ward may have once had for his company.

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9/29/2016 2:47 PM
TLRD $15.23 Down -0.12 -0.78%
Men's Wearhouse CAPS Rating: **
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Apple CAPS Rating: ****
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CHK $6.21 Down -0.54 -8.00%
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SD.DL $0.00 Down +0.00 +0.00%
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