Founders Behaving Badly? Why Controversial Leaders Still Matter – and How to Spot the Right Ones

Understanding the High Stakes of Betting on Founders: The Fine Line Between Visionaries and Liability

Founders Behaving Badly? Why Controversial Leaders Still Matter – and How to Spot the Right Ones

Watching a founder grow a business is akin to watching someone start a campfire: brilliant returns can be ignited when the spark grows into a roaring fire, but it can quickly spiral out of control if the fire is not carefully managed. History has proven that founders are often the architects behind transformative companies. From Henry Ford and Steve Jobs to Elon Musk and Richard White, founders see around corners, break molds, and get results. Yet, their journey often comes with baggage—big egos, unpredictable behavior, and at times, a complete disregard for the script.

As headlines continue to swirl around founder antics, institutional investors are shifting their focus. They’re asking the right question: not “should we avoid founders?” but rather, “how do we pick the right ones, and spot the trouble early?”

Founders Have Always Driven the Big Wins

Founders are often the catalyst behind the world’s most transformative companies. Lee Byung-chul revolutionized mass-market electronics manufacturing with Samsung. Eugène Schueller’s creation of hair dye laid the foundation for the modern beauty industry. Akio Morita made Sony a household name globally. Today, innovators like Melanie Perkins (Canva), Toby Lutke (Shopify), and Jensen Huang (Nvidia) are shaping industries in ways that no committee ever could.

Despite the inherent risks that come with founder-led businesses, we cannot overlook the fact that founders frequently drive the extraordinary upside that investors crave. Their ability to lead, innovate, and see opportunities where others don’t has made them indispensable to the growth of some of the most valuable companies in the world.

But When They Go Off the Rails…

The entrepreneurial fire that fuels innovation can sometimes become a wildfire that harms both business and investors. Elon Musk, while undeniably a genius, has made life difficult for Tesla investors with impulsive behavior and erratic public statements. Richard White of WiseTech has delivered phenomenal returns, but his approach to board control and personal entanglements has raised eyebrows.

The real question, therefore, isn’t “Do founders create value?”—they undeniably do—but rather, “How do we know when a founder is becoming a liability instead of an asset?” It’s crucial to understand when a founder’s behavior starts to pose more risk than opportunity.

Behavioral Red Flags

From extensive research into founder-led companies, several common red flags emerge when founders begin to tip from “visionary” into “problematic.” Recognizing these signs early can help investors avoid costly mistakes:

1. Too much power, not enough pushback – If a board can’t say no, that’s a major red flag. Founders who maintain unchecked power risk making poor decisions that have long-term consequences.
2. No scalable leadership system – Founders who fail to embed their philosophy into a repeatable decision-making framework will become bottlenecks, stalling growth and making the company overly reliant on them.
3. Ego – Every leader needs confidence, but when personal ego starts to override logic, it leads to poor decision-making. Founders with inflated egos may prioritize personal recognition over the company’s best interests.
4. Personal motivation – Motivation should align with the company’s mission. When a founder is seen running the business primarily for personal gain, it signals a lack of alignment with the broader goals of the company.

One red flag on its own might be manageable. However, when these factors start to compound, the risk grows exponentially.

So What Makes a Founder Worth Betting On?

While there are many risks associated with founder-led businesses, there are key traits that set exceptional leaders apart. These traits are observable and consistent across industries, stages, and geographies. Whether a founder or a non-founder, great leaders share three common characteristics:

1. Judgement – Great leaders make smart, thoughtful decisions, especially under pressure. They have the ability to take unpopular paths when necessary, prioritizing long-term success over short-term comfort.
2. Alignment – They are in it for the long haul. Their incentives align with shareholders, and they exhibit traits of psychological ownership, showing dedication to the company’s success.
3. Influence – More than just charisma, influential leaders attract talent, shape company culture, and drive execution. They inspire loyalty and motivate customers, teams, and stakeholders alike.

Leadership effectiveness isn’t about being loud or universally liked—it’s about being effective where it truly matters.

Not All Founder-Led Businesses Make Headlines—and That’s a Good Thing

Some of the most successful founder-led businesses fly under the radar. Take William R. Berkley of W.R. Berkley—he’s a quiet operator, a crystal-clear thinker, and has built a durable global business. Tadashi Yanai’s leadership at Uniqlo has helped propel the brand into a global force through principle-driven leadership. Mario Rizzante of Reply SpA and his daughter, Tatiana, continue to grow their business with a decentralized, quietly effective approach.

These founders lead with substance, not noise—demonstrating that you don’t need controversy or a loud personality to create lasting value. Their focus is on building businesses that stand the test of time, with a clear vision and a strategic approach to growth.

Premium or Discount? Depends on the Founder

So, is a founder-led business a premium or a discount? The answer depends on the founder. A great founder, with the right guardrails in place, can be a premium worth paying for. They drive long-term value in ways traditional leadership can’t. However, a founder with too much ego, too little accountability, and a reluctance to adapt? That’s where you’re buying volatility, often at a painful price.

The key is discernment. Investors don’t need to avoid founders altogether—they need to know which ones to back and which ones to avoid. When you get it right, a founder isn’t a risk—they’re an edge.