Since the past few years, more and more senior management professionals have taken the entrepreneurial plunge. Observing many of them, offers success lessons. But then, there is an interesting failure caution from these too.
The powerful hubris of the professional-turned-entrepreneur, aping a larger family business promoter's lifestyle is a path to self - destruction. Many of these new-promoters start to believe they can do no wrong. After all, many of them have had successful careers of over 20-40 years. It starts to hurt their governance, as they believe they know it all, and need board members and advisors only for optics, and to attract investors. They are happy with nepotism, bestowing favours as lord-master. They become immune to feedback. This misguided emulation not only erodes governance but also perpetuates nepotism and fosters a deaf ear to constructive criticism.
They also think that all of their personal lifestyle can be funded at their new company's cost, and is like the literal sweat-equity, and hence financial governance takes a pause. It's a prevalent mistake among successful professionals turned entrepreneurs, driven by an insatiable ambition for big-company status at any cost. Their rush to indulge in a fantasy lifestyle akin to well established promoters occurs without requisite financial stability, setting the stage for compromised decision-making and ethical lapses.
Excessive displays of wealth, from lavish cars to extravagant residences, to foreign travel with family to regular social-dos, all at company's expense, not only attract negative attention but also blur the lines of propriety. This unchecked behaviour breeds a dangerous belief in invincibility, undermining the very essence of independent oversight and corporate governance.
In promoter-controlled entities, governance concerns pivot around two pivotal hypotheses. Firstly, there's the presumption that promoters, driven by vested interests, are inherently motivated to safeguard and augment wealth. This assumption underscores the expectation that promoters act as stalwart guardians of shareholder value, prioritising long-term sustainability over short-term gains. Secondly, there's a false notion that promoters possess an unparalleled understanding of the complexities of the business landscape. This perceived expertise often leads to the sidelining of independent directors in strategic and financial decision-making processes.
While promoters may indeed possess invaluable insights gleaned from their intimate involvement in the business, the exclusion of independent voices can lead to groupthink and a lack of critical oversight. Thus, striking a balance between leveraging the promoter's expertise and harnessing the diverse perspectives of independent directors is important for fostering robust governance practices and ensuring sustained organisational success.
Professionals transitioning into the role of promoters face heightened scrutiny. Established promoters with a long history or familial lineage often benefit from wealth accumulated and shielded through diverse financial and tax mechanisms. Contrastingly, newly minted promoters, devoid of such historical safeguards, stand to risk not only their careers and reputations but also potential wealth creation. Without stringent financial and governance controls in place, these emerging promoters are acutely vulnerable to the ramifications of missteps and lapses in ethical conduct. Hence, the need for new-age promoters to adhere to rigorous financial and governance protocols cannot be overstated, as their personal and professional futures hang in the balance.
In addition, it's crucial to recognise that the demeanour and conduct of these new-promoters are closely scrutinised by investors. The lavish lifestyle and arrogant behaviour exhibited by professionals turned entrepreneurs attempting to emulate established promoters can significantly impact investor perception. Investors, particularly institutional and ethical investors, are increasingly attuned to the ethical and moral fibre of the leadership team. Any deviation from expected standards of integrity and governance can trigger red flags and prompt investors to reconsider their investment decisions.
In recent years, we have witnessed numerous high-profile scandals and corporate collapses stemming from unchecked hubris and lax governance within promoter-controlled entities. There have been many instances where the unchecked ambitions of the promoter led to financial mismanagement, investor distrust, and ultimately, the downfall of once-thriving companies.
Such instances not only inflict immediate financial losses but also erode public trust in the corporate sector and undermine confidence in the broader economy. They serve as stark reminders of the far-reaching consequences of prioritising personal gain over ethical conduct and responsible stewardship.
Moreover, the societal repercussions of corporate malpractice cannot be overstated. Beyond the boardroom, these lapses in governance can have profound implications for employees, customers, and communities at large. From job losses to trust deficit, the fallout from corporate mismanagement reverberates far and wide, underscoring the urgent need for a shift towards values-based business practices.
For prospective board members, caution is paramount. While these newly minted promoters may hail from organisations with robust governance frameworks, their transition necessitates a thorough assessment of alignment with values and behavioural consistency within the new entity. Only by embedding such processes can the integrity of the organisation be safeguarded against the pitfalls of unchecked ambition and hubris. The 'I have arrived' pitfall can ultimately derail promising ventures as it blinds new entrepreneurs, despite their years of industry experience and worldly knowledge, to the need for continuous learning, adaptation, and humility in the face of uncertainty.
