Founder led vs. External CEO

There are two types of CEO, original founders or corporate leaders.


It’s pretty obvious that we as external investors would much prefer companies to be run by their original founders, as a opposed to a table of corporate suits. 

Corporate leaders have one incentive, which Warren Buffett calls the ‘institutional imperative’: their incentive being maximising their end of year bonuses.

As discussed in the short stock’s portfolio, bonuses are usually tied to earnings per share growth. EPS can be very easily manipulated: Mangers could cut expenses (like R&D, wages) or conduct share buybacks, which increases EPS by reducing shares on issue.

These same managers will often partake in foolish acquisitions, by paying far too much for anticipated ‘synergies’ of the proposed takeover (read more here..)

Corporate managers have no real emotional attachment to the company, no matter what they tell you. They are working there for the salary, and the bonuses. No corporate managers will work for free at a company, take out a second mortgage to finance that company etc.



Let’s contrast this with a founder led CEO.

Think of all the blood, sweat and tears a company owner/creator poured into his/her work. The long days and sleepless nights, the constant fear of failure.

When a company that was created from the above goes public, you can assume that they have finally become successful. Why would this owner want to jeopardise that? This company is a part of them, they wouldn’t do anything to tarnish the hard work they’ve done, nor the image of the company they built.

Many of these founders are absurdly wealthy, yet still working. This sounds odd to a bystander, however if someone loves what they do, it doesn’t feel like work.


These are the kind of managers we want running our companies we invest in. Their incentives relate only to the business’s success and long term growth. There is no short term EPS manipulations or foolish acquisitions, as the failure of the company in the long run is effectively the public failure of that individual.