The Founder Problem: When the Family Business Owner Cannot Let Go

The founder problem is one of the most predictable causes of family business disputes. Specifically, the founder has built the business from nothing over decades. As a result, the business is not just an asset to them. It is an identity, a daily purpose, and the proof of a life’s work. Crucially, the next generation usually wants the founder to step aside long before the founder is ready to do so. Importantly, this gap between when the founder should retire and when the founder will retire is the source of an enormous proportion of family business disputes.

This page explains what the founder problem is, why it is so common, why it is so hard to resolve, and what families can do about it. Specifically, it covers the psychological, structural and practical dimensions of one of the most predictable patterns in family business.

What the founder problem is

In short, the founder problem is the difficulty a family business founder has in handing over control to the next generation. Specifically, the founder has spent decades being the person who makes the decisions, takes the risks, signs the cheques and carries the weight. As a result, the role is not something the founder occupies. It is something the founder has become.

Importantly, the founder problem is rarely about the founder being unwilling to retire in principle. Typically, the founder says they intend to retire. They may even set dates. However, when the dates approach, the founder finds reasons to delay. Often, the next crisis becomes the reason for delaying again. As a result, the cycle repeats. Crucially, each cycle erodes the trust between the founder and the next generation.

Why the founder problem is so common

By all available evidence, the founder problem affects the great majority of family businesses. Specifically, research consistently shows that a small minority of family businesses have a clearly documented succession plan in place by the time it is needed. As a result, the founder problem is not the exception in family business. It is the norm.

Importantly, the reasons are well understood. For one thing, founders are by definition people who have built something significant from nothing. As a result, they tend to have strong personalities, high control needs and considerable self-belief. Crucially, the same qualities that made them effective founders make them poor at delegation. Specifically, the ability to keep going through years of difficulty is not easily separated from the inability to trust anyone else to do the same.

In addition, the founder typically has the most informal authority in the family. Often, no one else has the social standing to insist on succession. Likewise, no one else has the legal power to remove the founder. As a result, the founder problem can persist long after it is obvious to everyone else.

The psychological dimension

Importantly, the founder problem has a strong psychological dimension. Specifically, the business is bound up with the founder’s sense of who they are. As a result, letting go of the business feels to the founder like letting go of themselves. For example, the founder may have been “the boss” for forty years. Crucially, no one knows the founder as anything else. Notably, the social identity is not separate from the business identity.

In addition, the founder often associates retirement with loss. For example, loss of purpose, loss of status, loss of routine, and ultimately loss of relevance. As a result, retirement is unconsciously associated with mortality. Often, the founder resists retirement not because they want to keep working but because they want to keep being who they have always been. Crucially, this psychological resistance is rarely articulated. Instead, it surfaces as practical reasons why retirement is not yet possible.

For the wider context of family business psychology, see the three circles model and the common causes of family business disputes.

The practical dimension

By contrast, the founder problem also has a practical dimension. Specifically, the business may genuinely depend on the founder in ways the founder is reluctant to acknowledge. For example, the founder may hold key customer relationships. Likewise, the founder may be the only person who understands the supplier negotiations. Often, the founder is the personal guarantor on the bank facility. As a result, the founder cannot simply walk away, even if they wanted to.

Importantly, these practical dependencies are often the product of the founder’s own choices. Specifically, the founder may have made themselves indispensable rather than building a business that runs without them. Crucially, this is not a failing of the next generation. It is a structural feature of the founder problem. As a result, the practical dependencies cannot be unwound overnight. Often, they require a phased programme of delegation and capability-building before succession is even possible.

The next generation’s perspective

Importantly, the founder problem looks very different from the perspective of the next generation. Specifically, the next generation has often been waiting for years. They have given up other career opportunities. They have built their lives around the business. As a result, the founder’s repeated delays are experienced as a personal betrayal.

For example, the son or daughter may have been told for ten years that they will take over “soon”. Meanwhile, they have watched the founder repeatedly find reasons to stay. As a result, the next generation may begin to doubt that the succession will ever happen. Crucially, this doubt corrodes the relationship in both directions. The next generation begins to disengage. The founder begins to feel unsupported. As a result, each side reinforces the other’s worst suspicions.

For more on the next generation’s perspective, see the next generation in family business.

When the founder problem becomes a dispute

Crucially, the founder problem moves from being a tension to being a dispute when one of several things happens. Specifically, the most common triggers are these.

• First, the next generation reaches the point of leaving. For example, a son or daughter decides to take a job elsewhere because they can no longer wait. Sometimes, they begin to set up a competing business.
• Second, a health event forces the issue. Specifically, the founder has an illness or accident that suddenly raises the question of what would happen if they could not work.
• Third, the in-laws lose patience. Often, the spouses of the next generation are the first to articulate what their partners cannot.
• Fourth, the financial position of the business deteriorates under the founder’s continued leadership. As a result, the next generation begins to argue that the founder’s hold on the business is damaging it.
• Finally, a death in the family forces the issue. Specifically, the death of the founder’s spouse, sibling or close adviser often triggers a re-examination of who is doing what and why.

Importantly, each of these triggers is foreseeable. Specifically, families that anticipate the trigger usually have a much better chance of resolving the underlying tension before it becomes a legal dispute. By contrast, families that allow the trigger to find them often end up in unfair prejudice litigation or family breakdown.

The legal dimension when the founder is also the majority owner

Importantly, the legal dimension of the founder problem depends on the founder’s ownership position. Specifically, where the founder still owns the majority of the shares, the founder has the legal right to remain a director. Likewise, the founder controls the appointment of other directors. As a result, the next generation has limited legal leverage to force the issue.

However, this is not the whole picture. Specifically, where the family business is a quasi-partnership and the founder is using majority control to entrench their position at the expense of legitimate expectations of the next generation, there may be grounds for an unfair prejudice petition. For more on this, see quasi-partnership in family companies and unfair prejudice petitions in family business disputes.

The legal dimension when the founder has given up control

By contrast, where the founder has already transferred shares to the next generation but is still trying to run the business, the legal position can reverse. Specifically, the founder may now be a minority shareholder. As a result, the founder may have rights that the next generation, now in control, must respect. Crucially, founders who have given up legal control sometimes underestimate how exposed this leaves them.

Importantly, where the next generation is excluding the founder from decisions in a way that breaches the founder’s legitimate expectations, the founder may themselves have an unfair prejudice claim. Notably, the cases include situations where the founder transferred shares on the expectation of continuing involvement and was then sidelined. As a result, the founder problem can produce legal claims in both directions, depending on the ownership and governance arrangements.

What families can do about the founder problem

Importantly, the founder problem can be addressed. Specifically, there are several approaches that have a strong track record.

Document the succession plan early

First, the family should document the succession plan while the founder is still healthy and in control. Specifically, the plan should set out who will take over which roles, on what timetable, and on what terms. Importantly, the document does not need to lock everything in immutably. By contrast, it needs to be specific enough to remove the ambiguity that allows the founder problem to grow. For practical guidance, see succession planning for the family business.

Bring in a non-executive chair

Second, an experienced non-executive chair can do work that family members cannot. Specifically, a non-executive chair can hold the founder to account on succession in a way that the founder’s own children cannot. Likewise, the chair can give the next generation room to grow into leadership while still treating the founder with the respect their position deserves. For more on this, see the role of the non-executive director in a family business.

Build a phased handover

Third, succession is often best handled as a phased programme rather than a single event. Specifically, the founder steps back from operational matters first. Then from strategic decisions. Finally from chairmanship. Crucially, each stage gives the founder a new role rather than no role. As a result, the founder is not asked to choose between everything and nothing. Importantly, phased succession works best when the stages are documented and committed to in advance.

Address the founder’s identity question

Fourth, families that handle succession well usually address the founder’s identity question alongside the practical one. Specifically, they help the founder identify what comes next. For example, a non-executive directorship at another business. A philanthropic role. A specific advisory remit. Crucially, the founder needs something to retire to, not just something to retire from. Often, the absence of a next chapter is what holds the founder in the current one.

Use mediation if the conversation has broken down

Finally, where the founder problem has reached the point of a dispute, mediation is almost always a better forum than litigation. Specifically, mediation allows the founder, the next generation and the wider family to address the structural issue alongside the legal one. For more on this, see why mediation is usually the right starting point.

What families should not do

Importantly, certain responses to the founder problem reliably make it worse. Specifically, families should avoid the following.

• Avoid waiting for the founder to retire of their own accord. Generally, this does not happen.
• Avoid having the conversation through in-laws or third parties. Typically, this hardens positions rather than softening them.
• Avoid public pressure. Specifically, asking the founder to retire in front of the wider family or the board reliably triggers the founder’s defensiveness.
• Avoid threats of litigation as an opening move. Crucially, the threat may be legally justifiable but is almost always practically counterproductive at the early stage.
• Finally, avoid ignoring the issue and hoping it will resolve itself. Typically, it does not.

How the founder problem looks across generations

Importantly, the founder problem does not only affect first-generation founders. Specifically, second-generation owners who have grown the business significantly often face the same problem when their own time to step aside arrives. Likewise, third-generation owners can replicate the pattern. As a result, every generation in a family business needs to think about how it will handle its own version of the founder problem.

By contrast, the families that handle succession best are usually those that have learned from the previous generation’s experience. Specifically, they have seen what the founder problem cost their parents or grandparents. As a result, they design their own retirement well in advance. Crucially, the lessons from one generation’s founder problem are some of the most valuable assets a family business can carry forward.

Frequently asked questions

What is the founder problem in a family business?

In short, the founder problem is the difficulty a family business founder has in handing over control to the next generation. Specifically, the founder has spent decades being the person who makes the decisions and takes the risks. As a result, the role becomes bound up with their identity. Importantly, the founder problem is one of the most common causes of family business disputes because it affects almost every founder and almost every family business at some point.

Why do founders find it so hard to retire?

Typically, founders find retirement hard because the business is not just an asset to them. Specifically, it is an identity, a daily purpose, and the proof of a life’s work. As a result, retiring from the business feels to the founder like retiring from themselves. In addition, the practical dependencies the founder has built into the business often make full retirement genuinely difficult, even when the founder wants it.

Can a family force a founder to retire?

Generally, no, where the founder retains majority ownership. Specifically, the founder retains the legal right to be a director and to control board appointments. However, where the founder’s continuing control is being used to entrench their position at the expense of legitimate expectations of the next generation, there may be grounds for an unfair prejudice petition. For more on this, see quasi-partnership in family companies.

What is the best way to resolve the founder problem?

In practice, the most effective approach is a combination of three things. Specifically, a documented succession plan, a phased handover, and a non-executive chair to hold the parties to the plan. Importantly, the founder also needs something to retire to. Often, the absence of a next chapter is the main reason the founder will not leave the current one. For wider guidance, see succession planning for the family business.

When should the next generation take legal advice about the founder problem?

Typically, the next generation should take legal advice once it becomes clear that the founder is not willing to engage with succession in good faith. Specifically, this includes situations where the founder has repeatedly missed agreed milestones, is using majority control to entrench their position, or is taking decisions that prejudice the next generation’s interests. Importantly, early advice from a direct access barrister does not commit you to litigation. By contrast, it gives you a clear picture of where you stand and what your options are.

Further reading on this site

• Family Business Disputes (main page)
• What Makes Family Business Disputes Different
• The Three Circles Model
• The Common Causes of Family Business Disputes
• Early Warning Signs of a Family Business Dispute
• The Next Generation
• Succession Planning
• The Role of the Non-Executive Director
• Quasi-Partnership in Family Companies
• Unfair Prejudice Petitions in Family Business Disputes
• Why Mediation Is Usually the Right Starting Point

Get advice on your situation

If the founder problem is affecting your family business, early specialist advice is one of the most valuable investments you can make. Specifically, I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers the founder problem and succession dynamics in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for founders and the next generation.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.