What good boards get right

Outside directors can help AEC firms challenge assumptions, strengthen accountability, and make better decisions about growth, leadership, and risk.

I’ve been fortunate – or maybe crazy enough – to spend a lot of my career sitting in board meetings of architecture, engineering, construction, and related firms. I’ve been an owner, CEO, chairman, advisor, inside director, and outside director. I’ve watched firms grow dramatically, struggle unnecessarily, make brilliant decisions, make some really dumb decisions, and occasionally do both in the same meeting.

Being an outside director has taught me a few things I wish every AEC firm owner understood:

1. You can see things from the outside that are almost impossible to see from the inside. When you are running a firm every day, you get caught up in projects, people, deadlines, clients, and problems. Everything feels urgent. An outside director doesn’t have that same emotional attachment. We can step back and ask, “Why are you doing this?” Sometimes that’s the most valuable question anybody can ask. On top of that, when you are an inside director you probably report to the CEO of the company. When that person is your direct supervisor it can be very difficult to turn the table and instead function as their superior.
2. A lot of firms don’t really have boards. They have committees that approve things. There’s a big difference. A board shouldn’t exist simply to hear reports, approve the budget, and rubber-stamp whatever management wants to do. I have wasted more time reviewing historical financial performance than I care to admit. If the board isn’t challenging assumptions, asking uncomfortable questions, and talking about the future, I’m not sure why you need one. And here’s another uncomfortable truth: sometimes the board is afraid of the CEO. That’s backwards. The CEO works for the board. The board isn’t there to make the CEO feel good. It’s a big problem with all inside directors.
3. Owners routinely underestimate the importance of financial literacy. I’ve sat through meetings where everyone had plenty to say about backlog, projects, and growth, but very little to say about cash flow, working capital, overhead, utilization, labor multiplier, receivables, or return on invested capital. That’s a problem. You don’t have to be an accountant to serve on an AEC board, but you better understand how the business makes money – and where it loses it. I’ve seen firms with record revenue that were financially unhealthy. I’ve also seen smaller firms with less glamorous growth rates that were extraordinarily profitable and generated tremendous cash. Revenue is crucial but cash pays the bills.
4. While I am a big fan of growth, it can magnify weaknesses. If you have mediocre project management, adding more projects doesn’t fix it. If your recruiting is poor, hiring faster doesn’t fix it. If your leadership team can’t communicate, opening five more offices won’t help. Sometimes the best strategic decision a board can make is to tell management to fix the existing business before chasing the next big opportunity.
5. The CEO is the most important decision a board makes. Period. I’ve watched boards spend months debating acquisitions, ownership structures, compensation plans, and strategic initiatives while giving far less attention to whether they have the right person leading the company. That’s backwards. A great CEO can overcome a lot of problems. The wrong CEO can turn a good company into a bad one surprisingly quickly. Boards need to spend considerably more time thinking about succession, leadership development, and whether the person running the company has the skills and temperament required for the next stage of growth.
6. Culture isn’t what you say it is. It’s what people do when nobody is watching. You can put your values on the wall and talk about collaboration, accountability, and excellence. But look at turnover. Look at write-offs. Look at receivables. Look at utilization. Look at who gets promoted. Look at how people behave when a project goes bad. Those things tell you what the culture really is. As an outside director, I often find that the numbers and the behavior tell me considerably more about a firm than the PowerPoint presentation does.
7. A good outside director has to be willing to say the uncomfortable thing. If all you do is agree with management, you’re not much use. You don’t have to be the smartest person in the room. You just need enough experience and independence to ask, “What are we missing?” or “What happens if we’re wrong?” Sometimes the most valuable contribution a director can make is simply slowing everyone down long enough to examine an assumption that everybody else has accepted.

That’s the real value of an outside director: not running the business, not showing everybody how smart you are, and not proving you were right. It’s helping good people make better decisions. After years of sitting on both sides of the table, I’ve come to believe that is what good governance is really about.

Zweig Group’s board advisory services help AEC firms strengthen governance, improve board effectiveness, and bring the right outside perspective to the table. From independent director placement and board readiness assessments to succession planning and governance consulting, our team helps firms build boards equipped to make better decisions around growth, leadership, transition, and risk. Learn how Zweig Group can help strengthen your board and prepare your firm for what’s next.

Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.