How The Best Companies Defend Against Mediocrity And Rot
Eric Ries, author of 'The Lean Startup,' discusses his new book 'Incorruptible,' which examines why successful companies lose their founding mission and how founders can use structural governance tools to protect their companies from shareholder primacy and hostile takeovers. He argues that the dominant corporate governance model — shareholder primacy — is a relatively recent and destructive invention, and that mission-controlled companies with proper structural integrity consistently outperform traditional Delaware C-Corps. Through case studies like Costco, Novo Nordisk, and Anthropic, he makes the case for Public Benefit Corporations and foundation-backed ownership structures.
Summary
Eric Ries opens the conversation by reflecting on how 'The Lean Startup' gave founders tools to build companies, but left them without tools to protect what they built. He introduces the central thesis of his new book 'Incorruptible': that the more successful a company becomes, the more valuable it is as a target for takeover, and that founders are systematically unprepared for this threat because they're told success will protect them.
Ries tells the story of 'the professor,' a founder building cutting-edge AI-bioscience technology who had unknowingly signed a standard Delaware C-Corp charter that legally obligated him to maximize shareholder value — including selling to bad actors if the price was right. This leads into a broader discussion of shareholder primacy: the legal-but-not-legislated doctrine that emerged in the 1980s from academic op-eds and court interpretations, not any democratic process. Ries argues this doctrine replaced centuries of purposeful incorporation, where companies were chartered to do specific things for the public benefit.
Ries tells the story of Sol Price, the founder of FedMart (predecessor to Costco), who operated as a fiduciary to his customers rather than shareholders. Price was eventually locked out of his own company by a new board that wanted higher prices and lower wages. FedMart went bankrupt within seven years. Price rebounded with Price Club, which eventually merged with a company founded by a former FedMart employee to become Costco — which still embodies Price's customer-first ethos today, protected by what Ries calls a 'governance fortress.'
Ries then introduces the concept of mission-controlled companies as a third way beyond investor control or founder control. He argues that dual-class founder shares, while better than nothing, are routinely defeated over time — through stock price pressure, investor ultimatums, share expiration, or the death of the founder. He uses Jeff Lawson's ouster from Twilio as a case study: despite growing the company to $4 billion in revenue and 390% stock appreciation since IPO, Lawson was removed within 199 days of his super-voting shares expiring.
The most structurally robust solution Ries advocates for is the two-tiered foundation model, exemplified by Novo Nordisk. Founded in the 1920s by August and Marie Krogh, who feared that a for-profit company selling life-saving insulin would eventually exploit patients (decades before Martin Shkreli), Novo Nordisk was structured as a for-profit subsidiary of a nonprofit foundation. In the early 2000s, when the for-profit board tried to merge the company, the nonprofit trustees blocked it — preserving a GLP-1 research program that was in year 11 of 13 and had no visible evidence of success. That program eventually produced the drugs that drove Novo Nordisk to a market cap exceeding Denmark's GDP. Academic research shows companies with this industrial foundation structure are six times more likely to reach their 50th year.
Ries discusses Anthropic as a modern example of a mission-controlled company. He describes helping them design their Long-Term Benefit Trust — a perpetual purpose trust with outside trustees who appoint directors to the for-profit board. He argues this structure is a key reason Anthropic can attract top talent, maintain alignment, and act courageously (e.g., turning down a $200 million contract), and that it provides structural resistance to the same forces that have felled other companies.
Throughout, Ries emphasizes that Public Benefit Corporations (PBCs) are an easy, two-page legal filing in Delaware that restores purposeful incorporation and should be a baseline for all founders. He stresses that founders must read their corporate charters, understand what they're signing, and proactively choose governance structures — because the legal and financial ecosystem will not volunteer this information to them.
Key Insights
- Ries argues that shareholder primacy — the doctrine that corporations must maximize returns for shareholders — was never passed as a law or subject to any referendum; it emerged from 1980s academic op-eds and court interpretations and is described by legal scholars as a 'normative consensus' rather than a legal duty.
- Ries claims that the standard 'best practices' of corporate governance, including independent directors and single-entity Delaware C-Corp structures, are empirically value-destroying — citing research showing independent directors fail their mandate due to a structural conflict of interest: they gain future board appointments by appearing pro-investor.
- Ries contends that companies structured as industrial foundations — where a nonprofit foundation holds trustees who appoint directors to a for-profit subsidiary — are six times more likely to survive to their 50th year compared to standard corporations.
- Ries argues that founder control via dual-class shares, while better than investor control, is routinely defeated over time through mechanisms like share expiration, investor funding pressure, stock price decline, and founder death — making it an insufficient long-term solution.
- Ries claims that Novo Nordisk's nonprofit trustees blocking a merger in the early 2000s preserved a GLP-1 research program that was 11 years into a 13-year development cycle with no visible results, ultimately leading to a market cap that exceeded the GDP of Denmark — a direct $600 billion consequence of governance structure.
- Ries argues that Jeff Lawson was removed from Twilio within 199 days of his super-voting shares expiring, despite growing the company to $4 billion in revenue and 390% stock appreciation since IPO, illustrating that even strong business performance provides no protection once founder control mechanisms lapse.
- Ries contends that Anthropic's structural use of a Long-Term Benefit Trust — a perpetual purpose trust with outside trustees — is a primary reason the company can attract top talent, maintain mission alignment, and resist external pressure, rather than the quality of its models or inference costs alone.
- Ries argues that Sol Price's fiduciary-to-the-customer model at FedMart, which included directing customers to competitors with lower prices, was the engine behind Costco's enduring success — and that FedMart went bankrupt within seven years of investors removing Price and reverting to standard business practices, providing a natural A/B test of the two governance philosophies.
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