The Founder Effect

When analysing a management team's potential, the question that needs answering is: How good is its judgement? How can we define judgement and everything it encompasses?

Great management teams make bold decisions. Sometimes these are extremely difficult decisions that have the potential to hurt the company in the short term - but if the choices are correct, the company grows. A new step change is achieved when a new product line is launched, when customer service is improved, or when the business is able to operate more efficiently - these outcomes stem from a company's ability to evolve with its customers and adapt to societal changes.

What distinguishes great management teams from merely adequate ones is a proven track record of delivering outcomes, showcasing their ability to make sound judgement calls not just in isolated instances, but consistently over time. The first pillar to indicate a high-performing management team in the Founder Framework is therefore the collective judgement of its members - decisions that generate optimal business outcomes for the organisation.

How can we assess judgement beyond looking backwards at results that have been achieved? What attributes provide clues to the judgement of management teams? A deeper examination of the core elements of judgement can offer an objective approach to assessing a management team's performance. These essential components can be effectively summarised and collectively evaluated using the Judgement Equation (figure P1-1, overleaf).

Figure P1-1: The Judgement Equation

We can make an objective assessment, over any defined period of time, of how well a management team exercises its collective judgement (using numbers if we want to be more mathematical) by reviewing the sum of the team's decision accuracy and its ability to allocate organisational resources to achieve strategic business goals, divided by a denominator - that being the group cognitive biases existing within the management team. The first two metrics are reasonably straightforward; however, for teams that wish to self-assess their judgement performance, a heightened level of self-awareness is required to identify cognitive biases that exist at the individual level and may permeate to the rest of the management team. External observers, though not privy to internal dynamics, can still identify subtle indicators and make informed deductions about the presence of cognitive biases within executive teams, as I will demonstrate in Chapter 3.

The components of the Judgement Equation will be explored in detail in the following chapters. For now, the key takeaway is that good judgement hinges on making accurate decisions and optimally allocating company resources. In contrast, cognitive biases that arise in group dynamics can undermine sound judgement when a team makes decisions.

Before we explore the Judgement Equation in detail, let me share the story of a generationally successful founder-led company that exemplifies the value of sound judgements made over the course of many decades.

The art of bold decisions

Our story begins in 1938 when a young man, who would later go on to be a business founder, returned to his home country following a few years away studying overseas. The international experience had given him a different take on life, one where he was able to witness how Japanese business was conducted, which was of great interest to him as he himself came from a wealthy Korean family that had established its riches through land ownership. The healthy stream of income from property leasing afforded him time to think about his future and explore opportunities without the immediate financial pressure of having to support his family. He was interested in entrepreneurship, though he did not have a particular industry he was passionate about. Even at this relatively young age, his sector-agnostic approach would become a hallmark trait that would serve him well in the future.

However, at this point in time, he was focused on starting something that could generate multiple sources of income. In that sense, he was an opportunist with an adaptive mindset when it came to business. Because of the scarcity of basic goods in his native country of Korea, he saw an opportunity to open a small trading business that imported and exported goods in his hometown. Luckily, he had the financial support of his family, who gifted him an amount of money equivalent to approximately US$8 million (in 2024 purchasing power dollars) - more than enough for him to get started. Slowly, he built the business from the ground up - first by importing and exporting items such as dried fish, noodles, and other groceries,1 but eventually he expanded into producing his own brand of alcoholic beverages and packaged food. It was a prescient move as it allowed him to develop a manufacturing line, whereas previously he was warehousing and selling the goods of other companies.

It was the first instance of his decision-making accuracy that he would refine over decades, learning from mistakes and reflecting on what proved effective.

Through the 1940s, he worked to grow the business steadily, which was a credible achievement given the turbulence of those times in Korean history. At the time the country was in the midst of great political upheaval, with the north under the control of Soviet forces and the south under the control of US forces (all this came after decades of Japanese occupation until the end of the Second World War). We can only imagine the challenges of laying the foundations for a trading business against such a backdrop of confusion and with a lack of government policy stability. In fact, many wealthy families failed in their business ventures during this time, despite having the same if not more capital as our founder did. Wealth was no guarantee of success. In the end, when others saw risk, our founder saw opportunity.

By the skin of his teeth, he survived the Korean War in the 1950s and made the decision to relocate his business to Seoul to be closer to post-war reconstruction efforts. He also knew it would be a wise decision to be aligned physically and politically with the government powers, which would decide the most profitable trade contracts.2 It was a move steeped with the recognition of an opportunity to position himself favourably with his now diversified trading and manufacturing business - a decision that would pay off handsomely as his business flourished under the inaugural post-war government.

The manner in which he secured favourable trade contracts with the government might not withstand today's stringent tender processes, but at the time, corporate regulation was not a priority for policymakers. They were often willing to make compromises for the sake of trade and economic growth.2

Our founder not only had a knack for recognising favourable conditions, but also the boldness to seize them. By the late 1950s, he had expanded his empire into textiles, construction, and food processing, transforming his business into one of the nation's largest enterprises, largely due to his close ties with the government. Yet, with this success came a growing - and ultimately precarious - dependence on those in power, a reliance that was about to unravel as the new decade approached.

When the Korean army staged a military coup in 1961, our founder knew he was in trouble. Not only did his steady flow of trade contracts cease, but he was also the target of an anti-corruption investigation by the incoming military government. Call it a stroke of luck or the art of smooth business deal-making, but somehow he managed to negotiate himself out of this precarious situation. He promised to help the incoming government achieve its vision of establishing Korea as an Asian manufacturing powerhouse - to move away from a focus on trading raw materials and turn towards becoming a value-adding economy that would rank among Asia's top exporters. In return, the new government agreed to overlook any past misdeeds. Only a few companies at the time had the extensive production capacity and connections internationally that could help the government, which would prove to be a key factor in why the military government chose to negotiate with our founder. It was his earlier decision to expand broadly that helped avert his potential downfall.

With the renewed sense of purpose to align itself with the economic growth of the country, the company diversified further over the course of the 1950s and 1960s. It established and invested in businesses related to wool-spinning, chemicals, fertilisers, shipbuilding, and paper manufacturing - strategically chosen by the founder to capitalise on government policy at the time. But there were two bold decisions that would elevate the company from being a national champion into an international household brand. The first was the establishment of a sugar refiner called Cheil Jedang, now known as CJ. This business has today evolved into a leading global food producer - a multi-billion-dollar listed company that remains majority-owned by the founding family. The second was a decision to start manufacturing black-and-white TVs in 1969.

I will take a brief pause here as at this point you may have an inkling about who the founder and the company might be. Up until this point of the story, the history of this company is almost unrecognisable from what it is today. That is because Lee Byung-Chull, our founder (Figure P1-2), did not set out intending to build Samsung into a global electronics powerhouse. It was rather a series of judgement...