Governance

March 2013 » Columns » LEADERSHIP
Ed Friedrichs, FAIA, FIIDA

Governance seems to be a painful discussion topic for most firms because it involves personalities, egos, emotions, and conflicts. So it has been shoved under the carpet or out the door and ignored for years. People nibble around the tactical issues without addressing the core question: What needs to be governed and who's going to do it?

Governance is a tricky issue to address because the role, requirements, and the time that the governance function consumes vary broadly as a firm scales from a handful of people through various sizes. Fundamentally, governance embodies the following tough decisions on difficult subjects that no one wants to confront, let alone stay with long enough to resolve:

Leadership – Where is the firm going and why? Who serves in a governance role and how will they transition over time? What businesses should we be in and how will these businesses be led and managed?

Key roles in the firm – when to hire senior people from outside the firm and whom; promotions to new levels of responsibility and authority; and termination of under performers.

Decision-making responsibility – Who has authority for what? What are the rules by which we all agree to live?

Financial performance – assuring rigorous process management and reporting; responsible oversight of the firm's balance sheet and profitability; investment decisions about new offices, new practice areas, acquisitions or divestitures, new hires, equipment, and training; and compensation, reward systems, and benefits.

Every firm needs to identify where guidance and direction for these issues is going to come from and where the buck stops when direction needs to be chosen and tough issues must be confronted. When a firm forms around an individual, he or she just calls all the shots. Partners add complexity. They're never perfectly aligned so they must come to terms with each other's differences to avoid confusion for the firm. Corporate structures in larger firms add another level of potential for conflict over authority and direction. And, of course, generational succession requires the firm's leadership to come to terms with new personalities – and often values – as governance transition takes place.

Most of the firms in this country have fewer than 10 people in them and small firms simply don't have sufficient cash flow to generate a sufficient margin to dedicate some thinking time to these issues, let alone to "professionalize" them. They are, indeed, run out of the hip pockets of one, two, or three partners who got together and hung out the proverbial shingle. The problem is that if you start to grow, you find that the time commitment that needs to be dedicated to governance issues grows as well. You wake up one morning and say, "I just want to go back to doing engineering," decide not to grow, and self-limit your potential.

But, projects are becoming more complex, larger, and sophisticated, requiring larger, well-integrated teams of specialists; clients have become regional, national, or global. While small, one-off projects still exist and are suitable for small local firms, the work they do is often with unsophisticated purchasers of their service – clients who don't know how to buy from or work with an engineer and tend to be high-risk, low-reward relationships. A handful of small firms have been able to expand their geographic and project scale and reach by developing a world-class, narrowly focused expertise that is unique in the marketplace, but they usually grow to 25 to 50 people, a size too large with clients too sophisticated and responsibilities too great to allow firm governance to be done out of your hip pocket.

There are no one-size-fits-all formulas for governance. I can't even give you five templates – a menu from which you can find the model that fits your firm the best. Nor is there a model that, once you've fitted yourself into it, will guide your firm well forever. In a healthy and growing firm, size, work mix, geographic footprint, and personalities (who is best suited to lead various functions) will and should continue to evolve.

At Gensler, we grew from one office in one city with a handful of people when I joined the firm in 1969 to 2,400 people in 25 offices around the world when I retired in 2003, to 3,600 people in 43 offices with a truly global reach today. Our governance structure needed to adapt continually, and it did. According to Gensler's current leaders, governance continues to evolve. For me, our most difficult times were when we were smaller (offices with fewer than 50 to 100 people; overall firm size under 500) because we had difficulty finding firm role models, or leaders who had figured out how to govern. There simply weren't large, complex firms out there in those days. We had a great deal of difficulty finding someone to talk to.

It's different today. There are people running around (like me and a few others in the profession) who have "been there/done that." I'm here to help you. Call me!

Ed Friedrichs, FAIA, FIIDA,is a consultant with ZweigWhite and the former CEO and president of Gensler. Contact him at efriedrichs@zweigwhite.com.

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