what am I giving up by letting someone else become the CEO?


6

My software based LLC is on the verge of explosive growth... I don't want to be the one managing the people and dealing with all the politics, negotiations, marketing etc.

I want to continue doing what I am really good at: Being a technology visionary, keeping development of new exciting products. ("CTO"?)

Although I am the one who established the company and led it to an impressive state, I don't mind someone else taking the lucrative title.

But with that I am also giving up some rights and authority.

What am I giving up exactly?

How can I protect myself from the CEO taking over the company and robbing me of the fruits of my hard labor?

Legal CEO

asked Jan 10 '12 at 02:39
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Bill The Ape
133 points
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5 Answers


7

Based on your post, I am going to make an assumption (that could be totally wrong) that you are the lead/primary investor or owner of this company, and that there is little (if any) outside investors or related "interested parties".

You are only "giving up" as much as you want to. Within the corporate hierarchy, the CEO is typically the top level position, which all other department ends report into. The CEO makes the day to day decisions of the business, including managing strategic goals, partnerships, and growth plans.

At the same time, there is often a board of directors, which represents the owners of the company in proportion to the stock shares they hold. The board therefore can ultimately vote or veto anything that goes on in the company, since they are the TRUE owners, for whom ALL other employees (including the CEO) ultimately report to.

Assuming you are the primary stock holder, you would also be Chairman of the Board, and would still have final say over any core decision of the CEO.

The more important (and more difficult) thing is to find a CEO who shares your general vision and has the capacity to execute on all of the details. If you have a mutual respect for each other and the same goals in mind, him deciding to fire you should hold the same odds as him (or her) suddenly deciding to pivot into the vending machine business... It should never even be a remote consideration.

In order to attract a really good CEO, you are going to need to give that person the latitude to operate, and understand that they will likely have different ideas than you in some cases, or may take a different path towards the same end. Outwardly into the company, it needs to be clear to all other employees that this person is in control, and that they cannot run to you as a backstop for anything less that what might be considered clear and indisputable incompetence by this person.

Just as you don't really get a kick out of being CEO, the CEO will not have any desire to replace your position, unless it seems that YOU are the weak spot in the organization. But you can protect yourself somewhat by ensuring that you maintain majority stock ownership and/or some kind of preferred voting rights. You may sometimes have clauses to the extent that "key" decisions on executive hirings and firings cannot be made without a majority vote or unanimous vote, but this is fraught with its own complications.

So, you will certainly give up some authority, which is what it seems you really want. If you have any particular "sacred cows", those should be discussed and agreed upon immediately. You should not run the risk of being fired, both by way of maintaining control of stock, and by hiring the right person, and continuing to be a high-value employee of your own right.

answered Jan 11 '12 at 03:55
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Brian Karas
3,407 points

3

Congratulations on building a company to the point where explosive growth is imminent and realizing that you may not be the best person to lead it during that period (not that many founders have the guts to say that).

By stepping down as the CEO, you relinquish your decision power over the majority of daily operations in the company except for the department that you will be heading. You will have to execute the CEO's strategy, reach his/her goals, and may be fired for the failure to achieve them. However, if you retain the majority control of the company's stock, you can fire the CEO for poor performance, too.

answered Jan 10 '12 at 04:58
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Dnbrv
1,963 points

3

You wrote that you have an LLC. That means everything about rights and obligations will be set forth in the Operating Agreement.

Retain a lawyer to create or amend the Operating Agreement to give you appropriate protections.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered Jan 10 '12 at 06:56
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Dana Shultz
6,015 points

1

Remember it is not about titles, it is about power. Do you own over 50% of the stock? If so, you can always vote the CEO out of office at any time provided you have not given up that right.

Another option is to make the new person president and you could be chairman of the board.

You have lots of options.

answered Jan 10 '12 at 04:34
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Jonny Boats
4,848 points

0

Consider President.

There is a difference between CEO & President... roughly:
CEO - overall outlook and strategy of the company. Think long term, working 'on' the business.
President - working within the business to oversee and ensure that things are moving towards the goals.

You could remain CEO / CTO title and hire a President who then will handle day to day activities and hire people to assist him in achieving the necessary goals. CEO & President would work close.

But anyway you cut it if you own the company you can't really be fired. It may come a time where there are others in the company who can do your technical job better and it might be suggested that you let others do certain work. But, you couldn't get fired ;)

answered Jan 10 '12 at 12:29
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Ryan Doom
5,472 points
  • Downside of having both a CEO and a president is it confuses people: who do I want to be dealing with? If the person in charge of running the company and in charge of sales is called CEO, and the person in charge of keeping the tech running and developing new tech products is called the CTO, everyone knows who they need to be talking to. (No-one but investors cares which one of them is chairman of the board.) – Darren Cook 9 years ago
  • I would agree with that. – Ryan Doom 9 years ago

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