MWH Global Inc., a privately held engineer-contractor that has five outside directors on its 12- to 15-person board, selects participants on "term agreements" of two terms, each three years in duration, says firm Chairman Robert Uhler. The firm employs a lead outside director, who is allowed a second set of similar terms. The board's major area of dispute tends to revolve around "risk-to-reward discussions," says Uhler. "Usually this is manifested in critical go or no-go decisions on projects." While he credits the outsiders' "cold eyes" and independent reviews, "at times we need to remind them that we are still a private company."

PSMA's Stasiowski says firms that are ready for outsiders are often in the second, third or fourth generation of family ownership. Such firms often have no one with an ownership stake above 50%, have 20 or more shareholders who are not already officers or directors, established bylaws and "sophisticated accounting."

Contractor The Conti Group added its first outside adviser 12 years ago and now has four, but they do not have fiduciary or voting status, says the firm. Advisers "often work one-on-one with our staff in a coaching or mentoring capacity on specific challenges or opportunities that impact our business," says CEO Kurt Conti. "It helps make sure we aren't drinking our own Kool-Aid." A company spokeswoman says the firm is not considering changing the outsiders' voting status.

Design firm Freese & Nichols also does not plan to convert its outside advisers to voting directors. "This will be a big step for us culturally and a perceived loss of control. New outside board members are not known internally, and they may not be the right fit," says CEO Robert Pence. "It requires a more diligent recruiting process and a process for assessing the effectiveness of the outside members." But he credits the outside advisers for preventing the firm from "making some key mistakes," such as acquiring its corporate headquarters building before the recession hit.

Engineering firm VHB added its first outside director last year as it transitioned to a second generation of ownership and now has more than 200 owners, says CEO Robert Brustlin. "The idea of having outside board members was percolating for years, so when it happened [the board] was ready," he points out. "This is a big issue. With a down economy that will not quit, the company's direction is under much greater scrutiny by both stockholders and employees. You need to reach outside your circle to evolve. We live in a world where you can buy a new laptop every three years and expect to get twice the functionality for half the price. Our clients expect that of us. It makes sense that we would reach outside our companies to find directors that can help us meet that challenge."

Gerry Salontai, the former CEO of engineering firm Kleinfelder Inc. who joined VHB's board, says outsiders can advise inside board members to "focus on board issues, get out of the weeds and push back on the nitty-gritty." He says the firm also is focusing on bringing younger employee-owners to the board table. Other firms also are adopting more formal direc- tor "rotation" policies to foster new board talent "without offending" more veteran shareholders who had come to expect board service as a company perquisite. "At Kleinfelder, we did [that] because the board had not changed in 15 years," says Salontai.

'Control is the Real Issue'

Formalizing boards can be eye-opening for chief executives as firms broaden company ownership. "In public firms and those owned by employee stock- ownership plans, a majority of outsiders is the norm and control is a real issue," says FMI's Rice. "But a CEO who is not the major shareholder of the firm should, and does, expect to answer to the board. This is where a bright line of demarcation between board authority and responsibility versus that of the executives is important. Most private firms have never had to deal with that. The board's real power is to replace the CEO."

Haskell's Halverson says he doesn't see a conflict between executive authority and the role of directors. "All of our directors are sophisticated business people with considerable experience serving on and working with boards. They understand the distinction between governance and management and respect boundaries," Halverson says. "I serve on two public-company boards and have experience from the other side. In short, it works well and without conflict."

Financial advisor Matheson says that independent board members can be used as "catalysts to also confront underlying issues in firms and give the CEOs some fire power in making certain hard decisions."

He adds that while by-laws can be written to make it easier to remove directors, "it would not send the right message to new investors to see a firm that is unable to keep its board members for some reasonable period of time. Investors, even employee investors, do still want to see some stability in leadership."

Merger and acquisition impacts on boardrooms will be a key topic of discussion at an M&A-related conference for AEC firms that Matheson's firm is convening on June 7-8 in Chicago.

Firms are evolving their board structures and missions. "We are currently making some changes to the schedule to have fewer than four meetings per year, but more in-depth ones," says Pence. "We have developed a matrix of what topics to cover, and we are now working on a formal board charter."

Thomopulos has fielded many requests to serve as a board adviser but says he prefers to have voting authority and fiduciary responsibility. He credits his board service on a $3-billion, Iowa-based insurance provider with benefitting Stanley's own operations. "I used [the insurer's] leadership-succession planning-process model at Stanley, and the firm paid for me to attend several director training and education sessions," he says.