WiseTech and MinRes are prisoners of their founders’ success
Investors love founders for their skin in the game and long-term thinking. But the dramas surrounding Richard White and Chris Ellison highlight the dark side of founder worship.
Oct 21, 2024 – 10.31am
AFR
We don’t need a crystal ball to see where the Mineral Resources board’s investigation into founder and CEO Chris Ellison’s alleged tax evasion scheme will land.
Never mind that Ellison himself has described the alleged scheme to use a tax haven to hide profits from Australian taxpayers as “a poor decision and a serious lapse of judgment”.
Never mind the fact that the investigation is incomplete.
MinRes chairman James McClements has already written this off as a personal tax matter that should be condemned to the past; Ellison self-reported to the Australian Taxation Office and has repaid outstanding obligations. The board, McClements says, “has full confidence in Mr Ellison and his leadership of the MinRes executive team”.
And how could they not? Without Ellison’s visionary leadership, without the hard graft that saw him create a $9 billion company, there is no MinRes – and no MinRes board.
Welcome to the world of the founder-led company, where the best ones work brilliantly – until they don’t.
The dramas engulfing MinRes and Richard White, the founder of the $41 billion tech giant WiseTech, have exposed the dark side of the ASX’s unique brand of founder worship.
While WiseTech shares plunged a staggering 17 per cent on Monday morning, and MinRes shares fell more than 8.6 per cent, investors generally love investing in companies run and controlled by founders.
They love the skin they have in the game – those large shareholdings that give them a long-term mindset.
They love the soul they have in the game, too – that emotional attachment that dispassionate fund managers aren’t supposed to have.
Most of all, they love the returns they generate – there’s endless amounts of academic research suggesting founders drive better performance. Indeed, earlier this year, an analysis of the performance of the top 12 founder-led companies in Australia over the past five years by Solaris Investment Management showed they delivered a return of 400 per cent over the past five years. The ASX 200 managed just 65 per cent.
There are few better case studies than Ellison and White, whose board is now re-examining serious allegations made against White by a former sexual partner, which ultimately resulted in White paying her millions to settle the matter.
Both men are seen in the Australian market as mavericks who have charted their own course, defied the doubters and delivered fabulous growth. They talk passionately and directly about their businesses. They slap down critics and exude self-confidence. When they speak at a conference or event, it’s invariably standing-room only. A double-edged sword
But the current controversies are a reminder that all the advantages founders bring can also turn against investors.
When things go wrong, that long-term focus starts to look like refusal to change, or at least acknowledge the need for it.
That soul in the game can blind the founder to the need for accountability.
And the founder’s large shareholding – all that skin in the game – inevitably changes the traditional power dynamic between the board and founder-led management.
How do the boards of MinRes and WiseTech deliver accountability to the founders who’ve delivered so much value, when those same directors wouldn’t be there if not for the founders’ hard work?
How do these boards show investors that they are alive to the real questions investors will have about the founders’ alleged failures of judgment?
Again, these questions are particularly acute in the cases of White and Ellison, who stand out as the singular architects of their companies’ future.
You don’t need to spend long talking to White for it to become clear that he remains the visionary with the decades-long plan and product road map inside WiseTech.
Ellison is more publicity-shy, which is part of his mystique, but there’s never any question that it is his hand on the tiller, nimbly judging the vagaries of commodity cycles, which partners to buddy up with, and knowing when to abandon one growth plan in favour of another.
From the outside at least, both leaders have lieutenants, rather than successors. Indeed, Chanticleer wonders how many investors could even name the internal leaders most likely to be able to step up. When you’re backing the founder as much as the company, this is the risk you run.
Perhaps the boards of WiseTech and MinRes have a better sense of what emergency succession might look like – that is their job, after all. As one wag suggests, maybe former test cricketer and current MinRes board member Justin Langer could step in as a temporary CEO. At least he’s familiar with short-pitched bowling.
But the succession dilemma isn’t the only one these directors face. If the investigations under way at both companies reveal conduct requiring the removal of the founders, the boards would face the prospect of operating under the shadow of a disaffected major shareholder with enormous residual influence.
The MinRes and WiseTech boards are in no-win situations. So far they’ve done nothing – either because they weren’t aware of the matters or because they felt there was no need.
But if their new investigations find serious failures of judgment, or worse, the boards must hold these founders to account on behalf of minority investors. But to do so may mean derailing the same founder-led growth those minority shareholders have bought into.
These companies are now essentially prisoners of their founders’ success. There are no easy paths out of this.
This is why strong, truly independent corporate governance matters in public companies. Shareholders in MinRes and WiseTech are about to find out if they too can rely on that.
