Being a CEO is a position of power. The result of sitting in a position of power is that people who want power will go after you.
This means as a CEO you will be a target for sociopaths: people who care about power, and have no concerns about lying and backstabbing to get there. Given that as many as 1 in 25 people is a sociopath, and as many as 1 in 10 people in venture capital or top management, you are almost certain to encounter backstabbers in your career (if you aren’t one yourself).
I have certainly encountered backstabbers. That’s me below as CEO of Skymeter, before the knife. Here is what happens, and how, so you can watch out for it yourself.
Betrayed by the people you trust the most
The topic came into sharp focus when I read a recent article about Oleg Gutsol being replaced as CEO of the company 500px. As he says, “I was ousted from the company I created by the people I trusted the most”.
While I don’t know for sure who he is referring to, it is a matter of public record that he chose as his COO, i.e., his partner in running the company, Andy Yang. And the board has now fired Oleg and replaced him with Andy. Andy had never before run a tech company of any size: his background was in consulting and investing. He is probably delighted to have this CEO position, which brings significant power and prestige.
I can tell you from personal experience that if the management team of a company is strongly unified, the CEO does not get fired and replaced by the COO. Oleg clearly states that some people “had a very different opinion of where the company should go”. If the management team back each other, and all feel the company should go in the same direction, the board does not replace one person taking the company in the “wrong direction” with someone else who wants to take it in the same wrong direction.
Imagine the opposite, how it looks when the management team is not unified. The CEO chooses their top management team. And then in a “chance conversation”, a board member hears doubts expressed (often artfully) about the direction the CEO is taking. The board member thinks “my goodness, the CEO can’t even get his own team behind him, there really is a problem here”. And if those reservations match the board member’s own views (often intentionally so) it is easy to start thinking “maybe we should replace the CEO, he has lost the backing of his own team”. Where to look for a replacement? “Here is someone from that same team who everyone else likes (as they will have implied) and who clearly sees the right things to do (the board member’s own views reflected back)”.
As a top manager it is easy to pick up a knife and stab your CEO in the back. I have had that happen to me twice, once at my first firm In Your Pocket, and again at Skymeter. If a management team is unified, you are unlikely to be replaced as CEO. If your team loses its unity and/or if someone aspires to your job, you are a marked man.
Your only hope is to fire the person as soon as you sense something wrong – you will be the last to know – and hope that it isn’t too late. I remember thinking about firing one of my management team at Skymeter only a couple of months before I was ousted as CEO, since he had clearly become a problem and I didn’t feel he backed me, whatever he was saying to my face. At the time I remember feeling that my position was less secure, and that the board might back this person over me and fire me instead, so it was a risk I didn’t want to take. I waited, and am now the ex-CEO of that firm.
The dynamics of boards
Boards have a lot of responsibilities in theory. In reality, they have one big job: to hire and fire the CEO. They may help set strategy and give guidance to the CEO. And ultimately the CEO is responsible for results, hence may – in fact has to – choose to listen or not to the board.
Boards spend a couple of hours a month thinking about the business of the company. They don’t know the employees, the customers or the product. They know only what is shared with them in meetings. And often, the CEO has other things on their mind – like closing a big deal, or rolling out an important product release – than managing the board. As a result the board is briefed infrequently, and poorly. That makes them starved for information, which makes them nervous … and often makes them easier to manipulate, if you are a key management member who wants to become CEO. (Maybe my past experience as a CEO has led me to create IncMind.)
Really, boards are generally powerless. Their one and only power is the ability to replace the CEO. The dynamics of a board are in some ways similar to the dynamics of a venture capitalist, as discussed in my earlier post “why 70-80% of VCs don’t add value”. The one big difference is that many times the board is passive, and is made up of friends of the CEO. That makes them less likely to take action than a VC. And they can still be manipulated by someone whose number one goal is managing the board … while the (naive?) well-meaning CEO may believe the business is their number one goal, not managing the board.
What is the outcome?
A CEO whose number one goal is managing the business is likely to have more success with the business than their successor, whose primary goal is power. The business normally suffers. Key relationships based on mutual trust become eroded. The company’s culture changes for the worse.
Interestingly, backstabbers tend to be more visible to the people they work with day-to-day. It is easier to manage a board in a few hours per month than it is to manage a person you work day in and day out with. A successful and talented backstabber may smoothly take over as CEO (and will likely implement draconian rules channeling all board communications solely through them to protect their position). If they don’t take over as CEO they are likely to be pushed aside, since their successor often believes ‘once a backstabber, always a backstabber’. The CFO who criticized me to the board of In Your Pocket, and apparently wanted the CEO job herself, was swiftly ejected by my successor as CEO, who I had foolishly chosen as my COO only months before (yes, I’m good at this).
In the case of Skymeter, my ultimate successor as CEO, a man called Roger d’Hollander, showed many of these traits. He tightly controlled communication with the board, which allowed his views to be dominant. I have heard that he blamed me – over a year after my departure – for his results with a business I had no connection with. He was seen favorably the board, and generally unfavorably by his peers, except for the original founder (and largest shareholder), who Roger both cultivated and then tightly managed, to provide a unified story to the board.
Although Roger acted as CEO, he never joined the board or even became a formal employee. This meant that when the company terminated the top management staff without paying a day of severance pay (which is illegal in Canada) he had no legal liability. One VP was called in specially from the middle of a two week summer vacation for an ‘important meeting’ … where he was told that he was terminated and would receive no more salary or vacation pay, effective that day. I was getting calls from Canada Revenue up to three years later about Skymeter, as a former director (thank goodness I resigned from the board within a couple of months of my termination). Officially and legally, Roger was responsible for nothing, yet he was still granted all the power of the CEO.
I believe the goal of Skymeter’s receivership was to reconstitute the company, with a smaller shareholder base, and likely a much larger shareholding for the new CEO. The company entered receivership with two contracts in the million dollar plus range, a completed product, suppliers in place and needed only to ship. In the receivership process, the relationships with key suppliers were destroyed, including the designers of some key hardware components. The result was that the company could no longer ship. It lost the customers. And people ended up owning a bigger piece of a much, much smaller pie. Over two years after their relaunch, it’s not obvious from their website if they have made a single sale.
That is unsurprising. People who aspire to power may grab the CEO role from those who aspire to build. Who is better at building?
What should you do?
I can only share failures as an example. And there are a couple of obvious things to consider.
The first thing to do is to gather reference checks widely on anyone you ask to join your management team. If they are a sociopath or backstabber, their boss may very well not be aware of it. Their peers, and especially subordinates, will be. So use your own networks (thank you, LinkedIn) to track down people who worked for and with them. While I always reference check, a mistake of mine has been to check only references provided by the person and/or their direct boss.
A second thing, that Roger’s case brings up, is to make sure that you always make your CEO a director of the firm, so they share legal liability for whatever is done. If they refuse to be a director, don’t take them on. They’re clearly afraid of something.
A third thing you could try is psychological testing. I am a director of Founder Institute in Toronto. We give all applicant founders a variant on the ‘big 5 personality test‘ used for standard psychiatric testing, and filter out those who seem to have disruptive or deceitful personalities. I haven’t looked for or found a good source for this testing yet … let me know in the comments or by email if you find one.
A fourth thing, mentioned earlier, is to trust your instincts. If you see someone as disruptive, but they are now in a position of strength which makes it hard to get rid of them, don’t delay: just do it. Unity in the management team is crucial to your success (I mean unity of purpose and belief in each other, of course; allowing people to voice different points of view before reaching unity is important).
And lastly, manage your board as a CEO. You hold your position only because of them. Keep them fully informed, of the good and the bad. Be transparent. More information tends to reduce their concerns … as I know from my time as an angel investor. Maybe IncMind, the stakeholder relations platform we offer, will help you with this … and do it however you feel best. Just do it!