The role of managers is to make decisions that maximise the long-term value created on behalf of shareholders. In reality, this does not always happen due to conflicting interests – a situation known in finance as the 'agency problem'.
In response, various incentive structures have been designed to more closely align the interests of managers and shareholders.
In my view, perhaps the best alignment of interests occurs when investing in founder-led companies. Founders often have a clear long-term vision and a large financial and reputational risk at stake.
Back in May, Edward Vesely cited research from Bain & Company showing the outperformance of founder-led companies. The interesting takeaway for me is how the outperformance relates to innovation.
"S&P 500 companies where the founder is still CEO are more innovative, generate 31% more patents, create patents that are more valuable, and are more likely to make bold investments to renew and adapt the business model — demonstrating a willingness to take risk to invent the future".
Why is this particularly important for technology companies?
Venture capitalist Ben Horowitz has said:
"Innovation is the core competency for technology companies……. if a technology company ceases to innovate, it will die" and "founding CEOs tend to have the three key ingredients to being a great innovator: comprehensive knowledge, moral authority and total commitment to the long term".
Clearly, there have been many high-profile founder-led success stories, such as Steve Jobs at Apple, Bill Gates at Microsoft, Mark Zuckerberg at Facebook, and Jeff Bezos at Amazon.
So does it make sense to preference technology companies led by their founder? In my view, it is definitely a factor worth including in your decision-making checklist.
Here are five of the most innovative founder-led technology companies on the ASX today. All were featured in this year's Tech Pioneers Report.
XERO FPO NZ (ASX: XRO)
Named as the World's Most Innovative Growth Company by Forbes in 2014 and 2015, Xero continues to innovate at a cracking pace, launching in new markets, and implementing upgrades to its cloud accounting platform every 3-6 weeks.
CEO Rod Drury founded Xero in 2006 and currently holds around 15% of the shares on issue.
Freelancer Ltd (ASX: FLN)
Freelancer has won several innovation awards for its outsourcing platform which connects businesses with global talent.
Matt Barrie founded Freelancer in 2009 and remains CEO and the largest shareholder with nearly 45% of the issued shares.
Aconex Ltd (ASX: ACX)
Aconex has developed cloud-based construction collaboration software and is working to become the dominant global platform through continued innovation and acquisitions.
Robert Phillpot and Leigh Jasper started Aconex in 2000 and together still own around 15% of its shares.
WiseTech Global Ltd (ASX: WTC)
Another cloud-based software company – WiseTech's supply chain management platform is central to the operations of many of the world's largest logistics companies.
WiseTech has been operating since 1994. Founder, Richard White holds around 50% of shares and is the current CEO.
Redbubble Ltd (ASX: RBL)
Redbubble has a mission of creating the world's largest marketplace for independent artists. With around 400,000 artists currently on its platform, it sold products to 2.2 million customers in the last year.
Redbubble was founded in 2006 by Martin Hosking who retains a large stake of around 25% after the recent IPO.
