Sujata Deshmukh  is a leading expert and facilitator on Leadership and OD. This is her article, indeed, one of her best. Published here with her consent. Read on ….

“I Make the Rules. I Break the Rules. I Uphold the Rules.” Sounds contradictory, doesn’t it? Let me share two stories.

When the rule costs a friendship

I once asked a founder about the hardest decision he had made in ten years. He did not talk about a deal, a funding round or a market crisis. He talked about his cofounder.

The company’s first value was, “We tell the truth, especially when it is uncomfortable.” The second was, “We always stand by our people.”

Then he discovered that his cofounder, a friend since college, had been quietly rounding off delivery numbers towards target, month after month. It was not a dramatic fraud. No money had disappeared. No alarm had sounded. Just small adjustments, made repeatedly, until the numbers looked better than reality. Now his two values pulled in opposite directions.

He ordered an independent review. When the findings confirmed his fear, he asked his oldest friend to step away. A large customer left. Two families who had holidayed together stopped speaking. Many nights passed without sleep.

When I asked him why he had done it, he said, “It starts small. If I look away once, my people will learn that the truth is negotiable.”

When the founder breaks her own rule

In another case, the founder of a fast-growing Indian company had spent two years professionalising the organisation. She had documented decision rights, given business heads real authority and told her people again and again, “Don’t WhatsApp me every time there is a problem. Solve it.”

Then, at 11:45 one night, her phone lit up. A junior colleague had messaged her about a serious customer issue. She called the colleague. She called the business head. She stepped in herself.

The next morning, her senior team said, “You tell us not to bypass the hierarchy, and then you bypass it yourself.” She agreed. Then she asked a question that silenced the room: “Why did she feel she had to come to me?” That changed the room’s energy.

She had not simply broken her own rule. She had exposed a weak spot in the system. The midnight message was never about her authority. It was a signal that the escalation process was not working.

Both founders made rules. Both broke them. Both upheld them. The real question is: how did they know when?

Last month, my mentor, Vivek Patwardhan, read a post I had written about what gets in the way of startups scaling with agility. His comment stayed with me: “Among their people he was both the law and its transgression.” It captured something fundamental about the founder’s dilemma.

The instinct that builds can also block Founders are rule breakers by nature. They have to be.

In the early days, there is no time for committees, elaborate processes or three levels of approval. Founders trust their gut. They call people directly. They change direction overnight. They hustle. They decide with incomplete information. Quite often, that is exactly why the company takes off. But the same instinct that builds a company can eventually block it.

What works with 20 people the founder knows personally, when every important decision passes through one head, can break down spectacularly with 2,000 people she cannot possibly know, with multiple businesses and professional leaders at the helm.

The founder cannot remain the answer to every question. But neither can the answer be to bury the organisation under rules.

The mature founder holds two seemingly contradictory truths. There is the law: I uphold the principles that make this organisation work. And there is the transgression: I know when following a rule mechanically would betray the reason it exists. That is where judgement enters.

Rules are meant to protect something

Take a simple rule: discounts above 10% need CEO approval. If every 11% discount lands on the CEO’s desk, the CEO becomes the bottleneck. Worse, the organisation never learns to judge. But if the CEO simply says, “Use your judgement,” the company quickly produces inconsistency, politics and decisions based on who has access to whom.

So where is the line?

Vivek sir’s observation helped me think about this differently. Rules are contextual. What made sense at one point may not make sense at another. The size of the organisation changes the rules. The context changes the rules.

His distinction between just and fair is powerful. Being just means applying the law or the rule. Being fair means applying values. Both matter.

A rule can be followed perfectly and still produce an outcome that violates the value it was created to protect. That is why transgression exists. Vivek sir put it beautifully: “Transgression is felt because values change, though the rules may not.”

This is also why no two cases are necessarily the same. To decide what is just and fair, you have to consider both the facts and the rule. The ability to distinguish between circumstances is itself a form of judgement.

My own test is simple: Am I breaking the rule to protect the principle behind it, or because it suits me?

The first is transgression in service of the law. The second is indiscipline dressed up as founder instinct.

As companies grow, people need more than a rulebook. They need to know why a rule exists, what it protects and when it can legitimately be challenged. That is a very different organisation, and it needs a very different founder.

The founder’s job shifts from making decisions to building people and systems that decide well without her. The challenge is not to remove judgement from the organisation. It is to distribute it.

Turning instinct into organisational judgement

I saw this in a mid-sized Indian manufacturing company. Early in its journey, it faced a product recall. The founder personally visited every distributor to explain what had happened and what the company would do about it.

No contract required it. No process demanded it. But he believed that if the company had made the mistake, his word had to count for more than the contract.

Years later, the company had grown far beyond his reach. He could no longer visit every distributor or manage every crisis. But his instinct had become a formal recall and communication protocol. He no longer needed to be everywhere, because the organisation had learned what he once demonstrated personally. That, to me, is the real meaning of scaling.

You don’t replace instinct with rules. You turn instinct into organisational judgement. Netflix took a different route when it walked away from detailed expense and leave policies and bet on one principle: act in Netflix’s best interest. It did not abolish rules. It made sure people understood the principle well enough to exercise judgement. That is much harder to build than a rulebook. Founders must therefore make a strange transition. They must stop being the operating system of the company and start building one.

The rule must apply to the person who made it

There is another side to this. Founders who make rules for everyone else and exempt themselves create hierarchy, not governance.

You cannot demand financial discipline while treating the company’s money as your own. You cannot ask for excellence while holding a permanent exemption. You cannot write a code of conduct for employees, vendors and partners and then behave as though it does not apply to you or your family. People notice. Culture is not the values printed on a wall or the beautifully produced film with a baritone voice speaking about integrity. It is what leaders do when following the rule becomes inconvenient.

I have seen family businesses build extraordinary advantage on values never written down as strategy: customer service that wins loyalty, fair partnership with vendors that builds resilience, speed of innovation, ease of doing business, and frugality that funds better value for customers and better rewards for employees. But these values become culture only when the same standards apply to the promoter, the next generation and the professional managers. Otherwise, they remain slogans.

When the transgression has no law

I have also seen the opposite extreme: founders who cling to the transgression and never embrace the law. One well-known entrepreneur effectively burned his company rather than admit he had made a wrong appointment at the CEO level. The original mistake was recoverable. The refusal to acknowledge it was not. In another case, a promoter repeatedly ignored his strategy team, which had recommended a moderate-risk path after extensive analysis. He kept speaking of vision and ambition, and the organisation followed him.

It eventually followed him into bankruptcy. Vision matters. Conviction matters. But when a founder can no longer tell conviction from certainty, vision turns into hubris. Ultimately, this is not a story about rules. It is a story about the evolution of the leader.

The consciousness of an organisation can never be higher than that of its leaders. Every process is only as good as the judgement behind it.

Knowing when to step in, and when to leave

The most mature founders know when to intervene and when to get out of the way. I have seen founders hand over to professional management and return briefly when something fundamental in the governance they had built began to slip. They stepped in, restored the principle and stepped away again.

That is very different from a founder who cannot let go. The first uses authority to protect the institution. The second uses the institution to retain authority.

From founder to institution

The bigger danger is when all of this stays locked inside the founder’s head. What happens when the founder is no longer in the room? Does the principle survive? When the next generation takes over, does the judgement?

Dr Verghese Kurien answered that question better than almost anyone in Indian business in his time. What he built through Amul was anchored in a powerful principle: the farmer who produces  the milk should also own the enterprise built around it. Dr. Kurien did not merely hold that belief. He turned it into a replicable institutional model, the Anand Pattern. It spread across the country and carried on long after he was no longer at its centre. His instinct became a template. His conviction became institutional design. The founder became unnecessary. That is not a diminishment of the founder. It is perhaps the clearest proof that he had built an institution.

This is the real test when professional leaders take over. Do they understand not only what the company does, but why? When circumstances change, can they tell which rules are sacred, which can evolve and which must occasionally be broken to stay true to the original intent?

That is the real work of institution building. Codify what must never be lost, build governance around it and leave enough freedom for what must change. The goal is not an organisation where everyone follows the founder. It is one where people carry the founder’s intent without needing the founder’s presence. That is when a business becomes an institution.

And perhaps that is the ultimate founder paradox: you build the company by being the exception. You build a magnificent institution by making yourself redundant.

And that is the bittersweet choice every founder must make.

Sujata Deshmukh