Poorly structured and unfocused corporate governance in A/E firms both small and large is a frequent contributor to poor financial performance, lack of growth, and stalled ownership transition plans. Governance issues we frequently encounter include:
- Management by committee: This happens as first generation firms begin to add new shareholders and fall into the trap of giving every shareholder an equal voice in corporate governance, no matter how small their investment. Pretty soon you have the sort of gridlock that would make the U.S. Congress look efficient.
- Confusion over roles of managers vs. directors: When the board of directors overlaps completely with operational management, board meetings are often consumed by operational topics. The board should instead be focused on big picture strategic discussions. Directors that cannot shed their operations hat should not be on the board.
- Turf Protection: Related to the above, when your board includes “representatives” of every office or department, meetings often devolve into turf battles, with each representative defending their office or department, or lobbying for what they want or need, often to the detriment of the company as a whole.
- Not applying the best talent: Often firms choose their highest ranking, closest allies and most tenured leaders to make up a board rather than those who are the most strategic thinkers and will constructively challenge the board and bring different perspectives. And there is often no mechanism in place to continually refresh the team that comprises the board.
- Lack of Outside Perspective: In other industries and in larger firms, you frequently see boards made up of directors from outside the company. They might include consultants, attorneys, accounting/finance professionals, or retired executives—in other words, people that can bring unique and valuable perspective. But for some reason, most boards in the A/E industry seem to be composed entirely of members of the company’s senior management.
Gerry Salontai of the Salontai Consulting Group is the former CEO of Kleinfelder and currently sits on the boards of several successful A/E firms. According to Salontai, “The key to a great board is getting the right people as directors or advisors and focusing on the right topics. A great board will ultimately drive exceptional results for the shareholders of the firm.”