Founders

Alan S. Gutterman

• Publisher: Business Expert Press
• Year: 2018
• ISBN:
  9781948976565
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

This book is a must-have guide for anyone thinking about launching a new business and also is an excellent resource for attorneys and other professionals providing advice to their clients and academics teaching entrepreneurship classes.

The terms founder and promoter are used frequently when discussing new businesses. Neither of these terms has a particular technical legal meaning and they are used somewhat interchangeably in practice. However, it is useful and accurate to think of a founder as a person who assists in the formation of a new business and then continues to devote a significant amount of time and resources to the operation of business once it has been formed. The founders often become the officers, directors, general partners or managing members, and the term "founding shareholder" or "founding president, " for example, is often used to refer to one of the first shareholders of a corporation or a corporation's first president. A promoter, on the other hand, is a person, including possibly a legal entity, who assists in the formation of a business entity or obtaining subscriptions for its ownership interests, but who does not necessarily have any continuing relationship to the business once it is formed and funded. It is not surprising to find that founders play a pivotal role in the success of any new business even in situations where the founder is active in the business for only a short period of time and responsibility for oversight of the business is turned over to professional managers who were not affiliated with the business at inception. Founders not only bring the original business idea to the table, they also have a substantial influence on the organizational culture and values and goals of the initial managers and employees that lives on for a significant period of time.

This book covers a variety of topics relating to founders, beginning with an overview of the motivational traits of prospective entrepreneurs and the role that entrepreneurs play in launching new businesses and then moving on the personality traits and skill sets of those persons who seek to form new business followed by a discussion of some of the practical issues relating to founders with respect to their pre-formation duties and liabilities, particularly their relationships with prior employers, and their relationships and agreements with other members of the founding group. The book also examines the role that founders have on the organizational culture of their firms and the positions that founder occupy if and when their firms reach the point where they are ready to take on the rigors of public company status and complete an initial public offering of their securities.

CHAPTER 6

Founders and Organizational Culture

Introduction

Not surprisingly, there are differences of opinion regarding the definition of organizational culture and how it develops. Schein offers one useful definition of the term by declaring that

[o]rganizational culture . . . is the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and ­internal integration—a pattern of assumptions that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.1

Schein has noted that the founders of an organization not only ­create the group but also launch the process of defining and shaping the group’s “organizational culture” through the force of their own personalities and by applying their own theories about how the organization can be successful based on their own previous experiences in the cultures in which they grew up.2 Schein cautions that while founders may prepare and ­disseminate formal “charters” that describe their preferred ­philosophy or value system, the actual organizational culture is the assumptions that underlie the values and which have been embraced by the organizational members in a way that determines acceptable behaviors by those ­members. In other words, while the assumptions and theories that the founders bring to the group are important they will be tested by the actual experiences of the group before they are ultimately accepted as part of the organizational culture.3

Role of Founders in Creating Organizational Culture

The role of the founders with respect to creating the organizational culture can be understood by following the “typical” progression of the firm as suggested by Schein. The first step, of course, is the identification of an idea for a new enterprise by a single person—the “founder.” While the founder could presumably act on his or her idea without the help of ­others, what generally happens is that others are brought into what becomes a “founding group” that operates based on a consensus that the idea is viable and worth pursuing even in the face of known and unknown risks and uncertainties. The founding group begins to take the necessary steps to launch and organize the firm, including obtaining capital, forming a business entity (e.g., a corporation), preparing and filing patent applications, and other things. As the launch process unfolds and resources become available the founding group brings other necessary parties into the process, including employees and external advisors and business partners, and the group begins to cope with its problems of external adaptation and internal integration and gather the information necessary to settle upon an organizational culture.4

While the actual experiences of the group in coping with external adaptation and internal integration will determine which values and assumptions are accepted as part of the group’s organizational culture, Schein had no doubt that the founder will have a strong influence for several reasons. First of all, the initial idea for the enterprise will almost certainly be accompanied by strong views about how the idea can be fulfilled and those views will be a by-product of the founder’s personality and his or her previous experiences in other cultural contexts. Second, the founders observed by Schein were generally quite strong-minded about what should be done and how it should be done and this included “strong assumptions about the nature of the world, the role their organization will play in the world, the human nature, truth, relationships, time, and space.” In other words, founders bring to their role of organizational leader a distinct and pre-determined “view of the world.” Finally, the founder, in his or her role as the president or other titular leader of the group during the formation process, will necessarily have a strong influence on the strategies that are used to address the firm’s initial set of external survival and internal integration problems.5

Founder’s Methods for Embedding Preferred Cultural Elements

Schein noted that in order for the founder to be successful in ­injecting his or her preferred values and assumptions into the organizational ­culture he or she must first determine the best way to “teach” those ­values and assumptions to other members of the group. Once the teaching ­process has been perfected group members can express their views as to whether or not those values and assumptions will work in overcoming the ­problems—external and internal—threatening the survival of the group. Schein suggested the following list of “mechanisms” that founders and other key organizational leaders can use to “embed” their preferred ­cultural elements within the group6:

1. Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection, and socialization.
2. Design of physical spaces, facades, and buildings.
3. Deliberate role modeling, teaching, and coaching by leaders.
4. Explicit reward and status system and promotion criteria.
5. Stories, legends, myths, and parables about key people and events.
6. What leaders pay attention to, measure, and control.
7. Leader reactions to critical incidents and organizational crises (times when organizational survival is threatened, norms are unclear or are challenged, insubordination occurs, threatening or meaningless events occur, and so forth).
8. How the organization is designed and structured. (The design of work, who reports to whom, degree of decentralization, functional or other criteria for differentiation, and mechanisms used for integration carry implicit messages of what leaders assume and value.)
9. Organizational systems and procedures. (The types of information, control, and decision support systems in terms of categories of information, time cycles, who gets what information, and when and how performance appraisal and other review processes are conducted carry implicit messages of what leaders assume and value.)
10. Criteria used for recruitment, selection, promotion, leveling off, retirement, and “excommunication” of people (the implicit and possibly unconscious criteria that leaders use to determine who “fits” and who doesn’t “fit” membership roles and key slots in the organization).

Schein listed the mechanisms from more or less explicit ones to more or less implicit ones and noted that the mechanisms will vary in terms of potency and effectiveness. Further complications arise from the fact that the mechanisms often are in conflict with one another, as well as the fact that different subgroups within the organization may have different assumptions about the way that the world should be viewed. Finally, as noted above, the process of “embedding” calls for teaching skills and tools and founders do not always do the best job of clearly conveying their meaning and may often unwittingly communicate implicit messages that they are not even aware of.7

Stanford Project Study of Influence of Founders on Organizational Culture

An interesting study of organizational culture among early-stage technology companies in the Silicon Valley was undertaken by the Stanford ­Project on Emerging Companies (SPEC).8 Among other things the researchers were interested in how the founders of those companies addressed key organizational design issues during the startup period. The SPEC was concerned not only with the actions taken, and decisions made, as these companies were launched and began to grow but also wanted to learn more about the long-term impact of those actions and decisions on the company as it continued forward and became larger and more mature. The researchers postulated that in order for a company to be successful it was necessary to develop and i...