May 22, 2026 · 50m · y-combinator
How The Best Companies Defend Against Mediocrity And Rot · Y Combinator
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In this Y Combinator interview, Garry Tan speaks with author and Lean Startup creator Eric Ries about his book 'Incorruptible,' exploring how founders can protect their companies from corporate rot and investor extraction by implementing resilient, mission-controlled governance structures.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The partners hold 10% of the talking time here. How this is scored →
The partners as informed peer 4.9 Guest teaching 5.4 Guest disagreement 3.7 The partners pushing back 1.2
speaking balance: gold is the partners, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 30:34 Eric Ries dismantling the normative consensus
Ries aggressively dismisses conventional startup governance and shareholder primacy, asserting that builders secretly think standard profit maximization without value creation is destructive nonsense.
Hardest push from the partners ▶ 31:52 Garry Tan questioning PBC removal mechanicsGarry tests the logical boundaries of Ries's Public Benefit Corporation argument by directly probing whether mission charters also provide legal mechanisms to remove founders who drift from their stated purpose.
Biggest teaching moment ▶ 38:30 The industrial foundation counterfactual at Novo NordiskRies provides an eye-opening historical breakdown showing how Novo Nordisk's industrial foundation structure protected 13 years of GLP-1 research from being dismantled by investment bankers.
The partners hold their own ▶ 8:20 Garry Tan detailing the Twilio board dynamicsGarry showcases deep insider knowledge of tech governance by detailing the precise numbers behind Jeff Lawson's removal at Twilio despite massive revenue gains.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The partners as informed peer | Guest teaching | Guest disagreement | The partners pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome Eric Ries: Author of Incorruptible | 4 | 5 | 4 | 1 | Garry sets up the conversation by framing Lean Startup and introducing Ries's new thesis on company longevity. Ries passionately challenges prevailing startup dogma that success alone protects founders, sharing an illustrative anecdote about a founder he calls 'the professor' attending a wake for an ousted CEO. | |
| Delaware Bylaws and the Trap of Shareholder Primacy | 5 | 5 | 4 | 1 | Garry brings up Delaware corporate bylaws and how standard C Corp structures compel the relentless pursuit of profit. Ries agrees and expands, correcting common founder assumptions by explaining that modern shareholder primacy dates to the 1980s rather than classical economics. | |
| Dismantling 'Best Practices' and the Ousting of Jeff Lawson | 6 | 4 | 4 | 1 | Garry demonstrates strong contextual expertise by raising the real-world case of Twilio's Jeff Lawson being forced out despite massive long-term revenue growth. Ries dissects the flaws of short sunset clauses on dual-class stock and the harmful assumption that replacing visionary founders with conventional managers creates value. | |
| The Saul Price Story: From FedMart to Costco | 5 | 6 | 3 | 1 | Ries takes Garry through the detailed history of Sol Price, FedMart, and the founding of Costco to demonstrate how customer fiduciary duty beats shareholder primacy. Garry actively follows along, contributing financial figures from Ries's book comparing tobacco industry profits to social healthcare burdens. | |
| The Costco vs. Kroger Governance Experiment | 4 | 5 | 4 | 1 | Garry asks practical governance questions regarding how early founders can recruit aligned board members. Ries uses the historical comparison between Costco and Kroger to urge founders to reject standard governance metrics and be wary of naive assumptions regarding VC alignment. | |
| Y Combinator Startup School Announcement | 4 | 6 | 3 | 1 | Following a brief YC announcement voiceover, Garry asks about the mechanics of Public Benefit Corporations (PBCs) for early-stage startups. Ries explains why PBC filings restore purposeful incorporation and shares the 19th-century legal origins of corporate charters. | |
| The Origin of Shareholder Primacy & Independent Director Failures | 5 | 6 | 5 | 2 | Ries critiques the modern concept of 'independent directors', showing that they often retain structural biases toward VCs. Garry engages on legal practicalities by asking whether PBC status also enables removal of underperforming mission-oriented executives, prompting Ries to explain Delaware board discretion. | |
| Case Study: Novo Nordisk's $600B Mission Safeguard | 5 | 7 | 3 | 1 | Ries presents the historical case study of Novo Nordisk's two-tier foundation model, explaining how foundation trustees blocked a short-sighted merger and preserved the research that yielded GLP-1 drugs. Garry validates the insights by emphasizing the recurrent tension between short-term quarterly incentives and long-term durability. | |
| Perpetual Purpose Trusts & The Anthropic Success Story | 6 | 5 | 3 | 2 | Garry brings in his perspective on venture fund 10-year LP lifecycles and mentions Anthropic's Long-Term Benefit Trust. Ries details his hands-on role in structuring Anthropic's perpetual purpose trust and explains why mission integrity creates a tangible recruiting and operational edge. |
Statements from this episode (25)
Eric Ries: Lean Startup Failed to Give Founders Governance and Control Tools
“So I feel like Lean Startup, we created so many companies worth protecting, but we didn't give them the tools they needed to actually stay in control, to actually protect the trustworthiness of the thing that they made.”
Ries: Stock holding periods, company lifespans, and executive tenures have dropped dramatically
“Average holding time of stocks is like dramatically down. Lifespan of companies is dramatically down. Average tenure of executives is dramatically down.”
Ries: Founders prop up a value-destroying corporate governance system
“Founders either have to agree to or not this system. And so we actually are the ones propping it up. We're giving it the fresh meat it needs to survive because it's so value destroying.”
Tan: Delaware C Corps Require Relentless Pursuit of Profit
“Basically, you know, if you're a Delaware C Corp, you have to relentlessly pursue profit. Otherwise there's grounds to remove you.”
Ries: Early Governance Choices Protect Multi-Decade Startup Longevity
“There are actually choices we can make as founders, and especially choices we make early that can change the trajectory of the company so that, as you say, its longevity could be measured in decades and centuries, not quarters.”
Ries: Traditional corporate governance 'best practices' destroy corporate value
“The thing I didn't really understand is how much evidence we have that these so-called best practices suck. They're like literally value destroying.”
Tan: Jeff Lawson was ousted from Twilio 199 days after voting protections expired
“Our friend Jeff Lawson at Twilio built that company from nothing. To four billion dollars in, you know, actual revenue, like stock up 390% since IPO. I mean, by all accounts, you know, smash rip roaring success. And then his super voting shares expired after 1…”
Ries: Twilio fired Jeff Lawson despite revenue growth since IPO
“So at the time he was fired, the stock was down like 80% from the peak. And it's like, oh, well case closed. But if you measure from the IPO or even from the pandemic peak, revenue was up. It's like, did the business go down? Was revenue down? Was there some k…”
Ries: Polaroid never invented another major product after firing founder Edwin Land
“Polaroid used to be an R&D powerhouse, had like, 1500 research scientists on staff. Steve Jobs, like, loved that company, admired them so much. When Edwin Land was fired, he called it the dumbest thing he'd ever heard. Yeah. And like, they never invented anoth…”
Ries: Mission-controlled governance outlasts founder or investor control models
“What I really think is that we shouldn't be just building Investor controlled companies or founder controlled companies. There's a third way. Interesting. We can be building mission controlled companies where the mission itself has sovereignty and these compan…”
Ries: Making shareholder value the primary goal degrades product quality
“Everyone who's ever studied this and looked at it seriously understands that shareholder value is like the exhaust that comes out of the engine. When you take the exhaust pipe and put it in the intake and make that your explicit goal, now you don't stand for a…”
Ries: Philip Morris generates $600B in annual US external costs
“They have something like eight billion dollars a year in net income. But there's been all these studies. They create six hundred billion dollars a year in costs just in the U.S. That have to be borne by others. I think it's three hundred billion in direct heal…”
Ries: FedMart went bankrupt within seven years of ousting Saul Price
“In branch A, FedMart's investors got what they wanted. They got Saul out of the way. They converted FedMart to traditional business practices. It was bankrupt within seven years.”
Ries: Costco routinely receives the worst corporate governance ratings
“Costco came under attack in the early 2000 for having these non-standard governance practices. In fact, Costco routinely gets the worst possible governance rating from governance rating people.”
Ries: Founders Forget VC Investment Ties Control to Firms, Not Partners
“You forget that you take a venture investment from a venture firm. You're not taking investment from that individual person. You're taking investment from a company. Then that person leaves. And now you're stuck with some new person and you've given all these …”
Ries: Incorporating as a PBC is an absolute must-do for founders
“I think PBC is an absolute must do and kind of like an utter no brainer of all the things in the book. It's by far the easiest thing. If you want to pick one thing to do, it's the easiest thing to do. It's a two page legal filing in Delaware.”
Ries: 19th-century corporate charters never specified maximizing shareholder value
“If you look at the 19th century, like companies that were created and you read their charter, none of them say maximize shareholder value. That would have been considered a crime.”
Ries: Shareholder primacy was never enacted by statutory law or referendum
“In the history of the world. Shareholder primacy has never been subject to any referendum, any legislative action, nothing. So it's weird. If you learned in school, how a bill becomes a law, There's no law for shareholder primacy.”
Ries: Founder control is not a viable long-term governance model
“Founder control is not that great either, because I know a lot of people who are like basically trapped They can never quit their company because they're like the one, they're like literally the human shield blocking every, that's too much. And of course peopl…”
Ries: A 2-2-1 startup board structure effectively gives investors control
“So if you have a board, like classic Silicon Valley board would be two VCs, two founders, and an independent. That's supposed to be fair because it's two and two balance. That is basically just investors control your company.”
Ries: Novo Nordisk would have canceled R&D without foundation merger veto
“So we know for sure That if they had not done this, all of the major R&D programs of Nova Nordisk would have been canceled. We know because the company they were going to merge with two years later was bought by Merck, and that's what happened.”
Ries: Foundation-owned companies are 6x more likely to reach year 50
“Companies with this structure are six times more likely to live to year 50. 10% versus 60% probability.”
Ries: Dual-class voting structures fail when companies need capital
“Dual class is defeated all the time. I give a bunch of examples in the book, like, you know, the stock price drops. Everyone panics. Founders forced out anyway, because at the end of the day, like having the votes is not the only thing that matters. There's a …”
Ries: FTX bankruptcy's Anthropic stake exceeds the entire fraud value
“Apparently the stake that the bankruptcy has of those shares is worth more than the whole, than all of the entire fraud by a lot.”
Ries: Anthropic created a perpetual purpose trust at Series C
“I think it was a series C when they finally established this thing called the long-term benefit trust, which is not a nonprofit foundation. It's actually what's called a perpetual purpose trust, which is a different legal category, but the same idea outside tr…”