Do small firms even need a board of directors?

Jul 24, 2015

Here's a small excerpt from the A/E Board of Director's Manual.... In short, some do and some don’t....Since a majority of firms in the industry—most of which are small—have boards, it would seem that boards are a popular solution for many small firms. But even so, size is definitely a factor when it comes to deciding whether or not to create a board of directors. For some firm leaders, once the company hits a certain number of employees, creating a board becomes an imperative. For 470-person environmental engineering firm Woodard & Curran’s CEO and Chairman, Albert Curran, the magic number of employees the firm should have before considering creating a board of directors is about 100 people. “At less than 100 people, with all the issues a small firm has, dealing with the nuts and bolts of converting from a private practice to a professional firm, is probably beyond what’s necessary. But certainly, from 100 employees on, should move toward having a board of directors.” For other firms, the question is not the number of employees, but the number of owners or shareholders, the number of branch offices, a major ownership transition, incorporating the firm, or hitting a certain revenue milestone that precipitates the implementation of a board of directors. Some firms have a board in place from the day they are founded and others have “theoretical” boards that are not active but could be pressed into service should the need arise. For these firms, the question is not whether to create the board, but whether they need the benefits a board can provide. Whether to have an active board at all is a perennial question among firm leaders, especially in the thousands of small firms that make up the majority of the companies in the industry. Many leaders wonder how the board can provide any additional benefit to the firm, especially because in most cases, and almost always in its initial stages, the board will probably be made up of the same people you see every day and talk to regularly—the other owners, shareholders, and business unit leaders. Although A/E/P and environmental consulting firms tend to be owned, managed, and staffed by the same people, there are some good reasons to have a designated group of people serving as a board of directors. Instituting a board of directors—even if it is drawn entirely from the ranks of top management—will professionalize the governance of the firm. A board that meets regularly and discusses things other than the day-to-day issues of running the firm and focus on more of the global issues facing the firm can only help organizations that are looking to grow long-term. Board meetings are an opportunity to sit down together to talk about the overall business. Every A/E/P and environmental consulting firm can benefit from this. Most firms are too project-oriented and get caught up in the details of getting the work done. External, client-imposed deadlines make everything else seem secondary. How many major initiatives has your firm abandoned partway through because everyone seemed to get too busy to keep pushing the ball forward? This is one of the vital functions the board can serve: keeping the bigger picture goals and programs on track. Sometimes, you need to look at and discuss the entire firm, not just a project or a problem that became evident in the course of doing a project. The board meeting is the only time when this occurs in many firms, and having a board to follow through on lessons learned from such meetings can make the difference between your firm makeing the same mistake again or getting better. Board meetings provide a forum to talk frankly about the other owners. Unless every owner has been named to the board of directors, which many firms do but should avoid, the board meeting is a good chance to compare notes on key people and observations about how they are doing, particularly the other principals and owners. Reviewing other owners and top management personnel should be a standing agenda item at board meetings. If changes in key personnel are needed, the board meeting is the right place to talk about it and come up with alternatives that management may not have even considered. At some levels, this should be an operational question, but when it comes to executive leadership, such as the CFO or someone who heads up a business unit that comprises 40% of your fee volume, it becomes a big picture issue and one appropriate of the board’s attention. Board meetings and having a board in general can be a refocusing experience. Sometimes firms go off course and forget their strategic plans. In the rush to get projects done and move onto the next deadline, busy firm executives and board members sometimes forget why they are in business and what the global priorities, core values, and mission of the firm are and should be. The board meeting is a good opportunity to Board of Directors Manual for A/E/P and Environmental 16 Consulting Firms remind the key people (board members) what it’s all about and what their jobs really are (including the CEO). Board meetings are a formal opportunity to share personal information. Whether that includes plans for the future, retirement issues for major shareholders, or what each board member wants personally from the company, it’s good for the top people to know what issues their fellow board members are grappling with. Often these issues would not come up unless these individuals sit down and talk about them. The board of directors meeting, as well as the social warm-up prior to it and whatever fun activities might be planned as a wrap up, is the perfect place to share these kinds of thoughts with fellow board members. It’s also a chance to inject a little more humanity into the sometimes sterile day-to-day world of running a business. People work to support families and achieve personal goals, and it’s important to remember that sometimes. Meeting regularly with an advisory group like a board can help reconnect decision makers with that fundamental truth of the modern workplace. Board meetings are a good way to keep others informed, especially when the firm is multifaceted or spread out geographically. Although most informational meetings can be successfully and inexpensively conducted via conference call, these types of distance meetings have their limits—the best people don’t always get a chance to comment or ask questions of each other and the distance can stifle free discussion. The board of directors meeting can be such a time for the key people to really gain an understanding of the problems each geographic location or service division is facing and offer up solutions. Board meetings can function as a company-wide checking-in and brainstorming session. Board meetings are also a chance to train others in how to run the business. Board meetings are a great place to apprentice the up-and-comers in your firm. Use the board to develop younger talent. And while you may have a great branch manager, division manager, or project manager, you cannot assume these individuals all understand the broader issues related to running the firm, so an early introduction may be the right approach in your firm. Inviting the bright young stars to a board meeting to see the inner workings of the firm can provide an opportunity for these future leaders to gain valuable exposure to those who were there first. It’ll probably make them feel like a “chosen one” which can be a huge motivator for them to work harder, bring in more business, and remain with your firm for the long haul, effectively keeping them right where you want them. A board of directors that meets regularly, has a tight agenda, and perhaps even has one or two outsiders on it, can easily develop into one of your firm’s biggest assets as the firm grows and evolves.

About Zweig Group

Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.