Guest blog by Dr Rajesh Tandon. Founder-President, PRIA, New Delhi.

One of the leading patriarchs of a well-known Indian business family is said to have remarked when questioned about his retirement from the helm of family business conglomerate at age 80: “What? Are you serious? I would rather move on to the other world first.”

A very large number of family business houses in India, and perhaps elsewhere, continue to be led by the founders until they die. It is known as the “succession after death” model of founder’s transition. Even when many of the companies of such business groups are managed by professionals and get publicly listed, founders do not go away. They just ‘groom’ the next generations while continuing to be active leaders of their enterprises.

You may wonder what the focus of this blog post is; simple: founder’s transition. Does it change if the founder’s enterprise is a non-profit entity? Should it be different? Why? In what ways is a non-profit enterprise different from a small business entity when it comes to founders? These questions become even more pertinent in this era when ‘business practices’ are being imported into the management of non-profits around the world.

To begin with, all organisational transitions should be carefully planned. Transitions of top leadership and CEO must be planned even more carefully. Typically, the Governing Boards of entities should be responsible for ‘smooth and effective’ transition of CEOs. So, what is so special about the transition of a founder?

Many reasons have been identified, in practice, which suggest that special attention needs to be given to founder’s transition.

  • First, founders shape, to a considerable extent, the organisation’s vision and culture. Their personal commitments and dreams are the building blocks of a new enterprise. Hence, it is difficult for someone else to step into that role (not those shoes).
  • Second, the material, intellectual and emotional investment of the founders to their ‘enterprises’ can’t be expected from those who follow them, irrespective of their professional competencies.
  • Third, the founder’s external networks and relationships are distinctive to the personality of the founder, not only an extension of the enterprise. Hence, these can’t be readily ‘handed over’ to the successor (who may bring her own networks as well).
  • Fourth, founders are ‘original’ start-ups; they took the risks to launch a new enterprise. Once successful (only then the question of transition arises?) enterprises begin to grow, the ‘failures’ of risk-taking and associated costs to founders (and their families) are forgotten. Founder’s successors may not be able to fully appreciate or understand the history of those failures as founders took risks over their life-span.
  • Fifth, unless their health comes in the way, founders continue to demonstrate certain passion towards the well-being of their enterprises.
  • Finally, the Governing Boards of entities comprise of peers and ‘comrades’ of founders, since they are, in the first instance, brought together by the founders. How do they initiate the transition of the founder without simultaneously thinking about their own transitions?

Therefore, founder’s transition in any enterprise is tricky, and needs to be carefully planned and implemented.

Now, let us bring in focus the founders of non-profit enterprises. What is so special about this set?

  • First, by its very nature, a non-profit enterprise does not ‘give ownership through shares’ to the founder. Some folks have given it another name –  ‘sweat equity’. But it does not translate into practical influence on the policies and programmes of an enterprise. So, founders in a non-profit loose executive control over the entity once succession happens. Of course, some examples exist where the founder becomes Chair of the Governing Board, and thus may exercise some policy influence. But it is not quite the same as executive authority.
  • Second, founders of a non-profit entity generally tend to have a very long stint at the helm. Very few are ‘serial entrepreneurs’. Longer the stint of the founder, more difficult is the ‘weening away’ process. As a result, founder’s transition becomes a much more complex exercise in a non-profit entity.
  • Third, most founders of non-profits have a particular set of commitments for social change – children’s nutrition, women’s health, livelihood for people with disability, protection of human rights, environmental protection, etc. These commitments do not evaporate with time, even though ways of realising them may require significant changes. So, when founders ‘move on’ from the entity they founded, what do they do about their commitments? How do they continue to advance the causes they believed in all their lives now?
  • Fourth, the approach to compensation of founders in a non-profit entity (in many developing countries) is generally linked to the overall fortunes (turnover, budgets, projects, revenues, etc.) of the entity. In early years, founders receive meagre compensation (so do other staff in the entity). As a result, founders lack resources for retirement (unless they have family wealth). In several instances, regular need for material resources (including sometimes a home) makes some founders delay and/or resist transitions.
  • Finally, most founders of non-profit entities have spent the best part of their life giving total attention and energy to the well-being of the entity they founded. As a result, several of them have become ‘distant’ from their families, friends and loved ones. Their social connection mostly revolves around their identity as founder of the non-profit. So, they do not have much opportunities and possibilities, after transition, to look forward to being grand-parents, care-givers, family elders, neighbourhood counsellors, etc.

So, are you still serious about founder’s retirement in a non-profit entity?