Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The story is familiar — the visionary founder builds a successful company from scratch but as the business matures, they obstruct effective oversight. Time and again, as another boardroom drama breaks out, independent directors wonder: can a founder-led company ever truly be governed?

The drive and boldness of these leaders is essential in the early stages of growing a business. But without proper checks and balances, an over-reliance on one individual can lead to more risk taking and poor decisions. Failure is often praised as a lesson for success but there can be huge costs. Recent turmoil at OpenAI, Tesla and WeWork highlights the complexities of balancing founder influence with the structures needed to safeguard a company’s future.

“All founder CEOs need to think about evolving their company from founder-led to founder-inspired,” says Jason Baumgarten at headhunter Spencer Stuart. “By establishing a strong board of directors, having clear boundaries to their own roles and being aware of their outsized influence, founders have a better chance at ensuring their company can grow . . . beyond their leadership.”

Success depends on whether the founder wants this shift, rather than being forced into it by investors or regulators, he adds. Even then, they may retain control over key decisions and leadership appointments through voting rights that in effect mean they have not ceded much power at all.

Other founders may leave but still hold shares or meddle from the sidelines. Howard Schultz, who did not start Starbucks but led the aggressive expansion of the coffee chain, returned to the helm twice after stepping down and has had huge sway over the board. Peter Hargreaves, the co-founder of UK financial services firm Hargreaves Lansdown and its largest shareholder, has publicly criticised the former management for presiding over “a shambles” that hit the share price. Were their actions in the interest of the company, preserving their own legacy or about financial security?

The merits of being in “founder mode” rather than “manager mode” have gained traction online after an essay by tech investor Paul Graham. Many in this industry have celebrated founders who make quick-fire decisions and push through their vision with little room for dissent. These individuals may be inspiring and innovative but their style can make for workplaces that are toxic and often dysfunctional.

Companies require independent boards that support and motivate founders but are willing to challenge decisions. At earlier stages this may just be a chair role and down the line a full suite of directors.

“Lots of founders are concerned the chair is going to come in and fire them,” says Rachel Ingram at Cadmium Partners, a board services firm that specialises in tech companies. “But finding a skilled chair who can support them and help scale a business can be a game-changer.” She says chairs that succeed “understand the mindset of an entrepreneur”. Those taking a more corporate view might “struggle”.

One director who sits on public and private company boards in the UK says he would think twice about joining a founder-led business, partly because egos often “limit the ability to listen to advice”.

Pippa Begg, co-chief executive of Board Intelligence, a technology and advisory firm, suggests directors do their due diligence properly and ensure their interests are aligned before joining a founder-led board. They should consider issues such as where voting rights lie and what powers directors have. For example, if a company wants to change a product line or regional focus, does it go to the board?

Looking for clues as to how a founder has worked with the board in the past can help directors understand how their relationship might unfold. “One should be wary of a board with lots of non-executive director turnover,” says Begg. “It can be the sign of a problem in a founder-led business where the only control you have is to vote with your feet.”

She adds that staff reviews of the way a founder interacts with their team on sites such as Glassdoor can give a sense of how they will work with directors. “Do they appear curious, like to empower and delegate, or is it [a] more hierarchical ruling of the roost. The former will probably welcome input, the latter could be allergic to it”.

Spencer Stuart’s Baumgarten agrees potential directors must probe why the founder wants them. “One of the most famous founders in modern history said to us of his board, ‘I want people who are generous — someone who thinks about my company when they don’t have to, when they aren’t in a board meeting, I want their best thinking time and ideas.’” But he noted another founder had a more self-serving perspective — they wanted “mostly decent people who will not make [their] job more difficult”. “Understanding which you are potentially joining is incredibly helpful,” adds Baumgarten.

This will allow directors to decide whether it is worth entering the fray or prioritising self-preservation if they think they are being set up to fail.

Talk to 10 different wealth industry professionals about when you become super-rich (an ultra-high-net worth individual, or UHNW, in industry parlance) and you will get 10 different answers. For a law firm, it can mean having investable assets — spare cash not tied up in property — of $10mn; for a wealth manager, it can mean having at least $30mn; for an exclusive private members’ club, the hurdle can be as high as $100mn.

What they do agree on, however, is that the base figure is rising, and quickly. The monetary definition has shifted significantly, reflecting not just the growth in wealth globally, but also the changing expectations of what it takes to be considered part of this elite group.

David Gibson-Moore, president of consultancy Gulf Analytica, says the traditional $30mn level “allows for significant investments across multiple asset classes — stocks, bonds, real estate, private equity” — while also furnishing luxuries such as private-jet travel. But, over time, as the financial world has expanded and the accumulation of wealth has accelerated in certain sectors, particularly technology, “the bar for what it means to be ultra-wealthy has risen” he observes. “The $30mn threshold . . . doesn’t carry the same weight or exclusivity it once did. In today’s world, $30mn might secure you a luxurious lifestyle but, in the realms of the ultra-rich, it’s increasingly viewed as just the starting point,” Gibson-Moore adds.

“The ultra-rich today are being measured by new standards, with some financial commentators now suggesting $100mn is the new yardstick for anyone who wants to keep their head held high at private equity parties.”

The $30mn threshold doesn’t carry the same weight or exclusivity it once did

Charlie Wells, managing director of high-end property buying agency Prime Purchase, agrees: “The dial keeps ticking upwards when it comes to defining ‘UHNW’. Forty years ago, a millionaire with a Rolls-Royce may have been the epitome of wealth. But, thanks to inflation, the numbers are constantly growing. Only recently, someone worth £20mn-plus would have been considered very wealthy but now you need £50mn-plus to be truly UHNW.”

This shift is driven by several factors. First, says Gibson-Moore, is the explosion of new wealth in technology and entrepreneurship. “Over the past two decades, we’ve seen the rise of tech billionaires, cryptocurrency pioneers and venture capitalists who have amassed fortunes at an unprecedented pace,” he says. “The ability to build companies worth billions seemingly overnight has compressed the time it takes to reach UHNW status and these new wealth holders often operate in a different financial universe than the more traditional wealthy class.”

Dominic Volek, group head of private clients at Henley & Partners, which advises wealthy individuals on citizenships and residencies, says: “There has been a jump in wealth creation — and one only needs to look at the tech sector, where billionaires are now common. The diversification into asset classes like cryptocurrencies and NFTs [non-fungible tokens] has also created UHNW individuals almost instantaneously.”

If you take $30mn as the accepted definition for what it takes to be a UHNW, data from consulting group Capgemini shows the number jumped from 157,000 in 2016 to 220,000 last year.

The scope of what super-rich individuals invest in has broadened, too. It is no longer just about having a diversified portfolio; today they might have stakes in disruptive tech start-ups, sustainable ventures or even space exploration. This new frontier of investment requires much larger sums of capital and comes with greater risks — but also offers the potential for exponential returns.

Inflation in luxury assets — such as property, fine art and collectibles — also means it takes far more to maintain a lifestyle traditionally associated with super-rich status. Volek says: “$30mn just doesn’t stretch as far as it did a decade ago.”

A painting by Jean-Michel Basquiat, for example, sold for $57.3mn at an auction in 2016 then again for $85mn six years later. Likewise, the price of entry into exclusive property markets such as Monaco, Mayfair or Aspen in Colorado has soared, with the average price of a house in London’s Grosvenor Square, for example, stretching to around £20mn. The costs of maintaining private aircraft, yachts and other luxury assets have similarly grown, making it far costlier to maintain the hallmarks of ultra-wealth. Experts suggest the annual running cost of a $10mn superyacht can now easily be as much as $1.5mn.

For the owners of R360, an invitation-only private members club, it is clear what the number should be to be considered ultra-rich and eligible for membership: $100mn. Barbara Goodstein, managing partner and chair of the New York chapter of R360, which offers members exclusive investment opportunities, confidential support groups and private getaways, says: “We focus on serving centimillionaires.”

She says, at that level, they get people who are “less focused on short-term investment opportunities and more interested in becoming stewards of wealth”. Goodstein notes that the $100mn threshold has been the criteria for membership at R360 since inception in 2021. “While we don’t anticipate an increase in the near future, we recognise that the average wealth of our members has steadily increased over the past few years and is now more than $400mn.”

The age of members ranges from 28 to 84 but Goodstein adds that R360 is seeing a notable rise in younger members, “with many recently successful entrepreneurs joining in their late twenties and early thirties”.

The question that follows — irrespective of the definition — is why it is so important to the very wealthy to be classified as such. What extra doors does it open?

UHNW individuals receive significantly different treatment because of the scale and complexity of their wealth, Volek adds. “Not only do they have access to better investment opportunities and more diversified portfolios, but they also have dedicated relationship managers who look after them and are available 24/7.”

They often get access to pre-initial public offering deals, private placements and other high-return opportunities that the “broader market doesn’t even know exist”, says Gibson-Moore. For example, Stripe, a fintech payment company, has conducted several rounds of private financing, most notably raising $600mn in 2021 at a valuation of $95bn. This funding round was only available to a select group of institutional investors and the super-rich.

Lifestyle perks can vary. One of the most lavish examples seen by Samuel Wu, chief investment officer of Hong-Kong-based Tridel Capital and co-founder of Chartwell Family Partners, was a European trip given to a super-rich family by a bank in return for their custom.

“More commonly, perks include invitations to concerts, meetings with celebrities [and] successful figures as well as economic leaders,’’ says Wu. ‘‘This is a form of marketing, and these costs are often reflected in the prices being charged. One particular Swiss bank is humorously known to run its entertainment programme better than its banking.” Wu says.

On the flipside, Volek at Henley & Partners says that he also knows of banks “off-boarding” private banking clients with less than $5mn in assets because they were deemed not profitable enough to have as customers. He says it shows that size now really matters in the world of the ultra-rich and that, while the definition might still be up for debate, the level at which you can be classified as UHNW is only going one way: up.

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment

Robert Shrimsley’s ingenious notion of Labour’s three brains (Opinion, October 11) penetrates the paradox in each of our two major parties.

David Hare’s Labour party plays (including Absence of War) suggest the problem for Sir Keir Starmer’s party is that its main thread is social justice but every minister and member has a different view of what that should be and how to get to it. So the thread unravels.

As for the Conservatives, the British sociologist Geoff Whitty, among others, maintained that the Conservative contradiction was between belief in free markets and authoritarian central control. We have been watching this play out in the contest for leader (not to be confused with a leadership contest — one is a title the other is a quality). All of which suggests that the current prime minister’s best bet, if Labour cannot provide earnest pragmatism, is to run an organised hypocrisy; that was Disraeli’s definition of Conservative government.

Simon Crosby
Aysgarth, North Yorkshire, UK

Some of the largest trade groups in the UK have warned the government that its plans to reform electricity prices by introducing zonal or regional pricing would be burdensome to key industries rather than reducing financial pressures as intended (“UK power market reforms pose danger to industry and investment, ministers told”, Report, October 7).

The decision to back zonal pricing is based on evidence showing that such
a policy would reduce costs. The UK’s energy and gas regulator, Ofgem, found that regional pricing could benefit consumers, including industry,
by saving £28bn to £51bn across the period from 2025 to 2040. Octopus Energy has also found that businesses would enjoy a significant reduction in wholesale energy costs, and that consumers would see their bills go down.

But there is still a basic problem at the heart of zonal pricing: many energy-intensive industries have vast factories and infrastructure that cannot simply be relocated. These industries may find themselves in more expensive zones and have to shoulder the burden of high electricity costs through no fault of their own, while other businesses will be able to situate themselves in more favourably priced regions.

This is a critical time for Britain’s energy ecosystem. The UK needs to have a national conversation about its electricity supply, the grid, the nation’s industrial competitiveness and climate change — and in particular about how it can build out the grid quickly and strategically, and reform wholesale power markets.

Mann Virdee
Senior Research Fellow in Science, Technology and Economics, Council on Geostrategy, London SW1, UK