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At E&E, hopes that fresh eyes can get company on right track

David Robinson

Ecology & Environment is getting a makeover.

After being tightly controlled by its founders for more than four decades – and surviving a nasty split in that partnership five years ago – the Lancaster-based environmental services firm has new leadership in place amid growing influence from a Connecticut-based investment firm that had criticized the company's management as E&E's sales fell and its profits weakened.

It's a major change at a publicly traded company that, for most of its 48 years, had been tightly controlled by its four founders.

Now, E&E has a new president for its U.S. operations, Todd Musterait, who joined the company last year after a career that included stops at engineering and environmental consultant WSP USA and Rich Products Corp. The company's CEO, Gerard Gallagher III, whose father was a longtime E&E director and retired senior vice president, remains in that role and now is focusing on the firm's international operations and on key client relationships.

E&E's board of directors is changing, too. Four of its 10 members joined the board since the spring of 2017. One of those new directors, Marshall A. Heinberg, an investment banker who joined E&E's board last year as a company-backed director and its eventual chairman, has taken a more active role by becoming its interim executive chairman overseeing Musterait, Gallagher and E&E's other senior executives.

"Marshall now has the ability to be involved – not necessarily day to day – but in the discussion," Musterait said.

In other words, E&E's business is getting a new look, from executives who are looking at it with fresh sets of eyes.

"We need a diverse set of thinking at the table to move forward," Musterait said. "I think it comes down to leadership, having people in the company who come from different venues, have different experiences and having a discussion."

That's a big change for E&E, which was dominated by its four founders for its first 40 years. It remained a close-knit management group when longtime CEO Gerhard Neumaier retired from daily management to become E&E's chairman, replaced by his son, Kevin.

Father and son chairman and CEO ousted at Ecology & Environment

But Kevin Neumaier's tenure was tumultuous. A bid to expand into China failed when the company couldn't collect from many of its clients. The company's profits turned into losses as sales plunged. Kevin Neumaier was ousted in 2013 and his father resigned as chairman shortly before his sudden death that same fall, leaving a bitter rift in its wake.

While E&E's business has stabilized under Gallagher, its sales have tumbled by almost 40 percent from their 2011 peak, and profits are less than half of what they were. That prompted Mill Road Capital, an activist investment firm, to launch a proxy fight last year that it dropped after reaching a last-minute settlement to gain two seats on E&E's board.

That type of upheaval is all too common at the region's smallest publicly traded companies, where founding families long held tight control, only to fall into discord when the time comes for the founders to step aside.

It happened in the early 1990s at Taylor Devices, when longtime CEO and company founder Paul Taylor was ousted from the North Tonawanda shock absorber manufacturer in a coup orchestrated by his son, Douglas.

It happened more recently at Servotronics Inc., when the Elma motion control equipment maker's founder Nicholas Trbovich Sr., annointed one son, Nicholas Jr., as the company's president, only to oust him in 2012 and replace him with his younger brother, Kenneth. The dispute was so bitter that, after Nicholas Trbovich Sr. died in August 2017,  Nicholas Jr. wasn't able to attend his father's calling hours, despite two court orders aimed at allowing it. He did attend the funeral without incident.

Musterait said E&E is trying to put its own drama in the past.

"I think we're running the business the way you'd run a publicly traded business," he said.

For E&E, that means trying to get the company growing again. Its sales have flat-lined for three years and its profits are just a fraction of what they were as recently as six years ago. Its stock, which peaked at around $20 in the spring of 2011, now trades for about $12.

The solution, Musterait believes, is to focus on segments of the environmental services market that have greater growth potential. That includes environmental issues arising from climate change, the rise in sea levels, coastal restoration work and resiliency.

"We're going to be really laser-focused on the priorities," Musterait said. "That means being a little patient, but also being very purposeful in how we deploy our resources."

Those resources primarily are the skills and expertise of E&E's employees, which includes about 180 people at the bucolic oasis that includes its Lancaster headquarters. In all, E&E has more than 700 employees worldwide and more than 400 workers across the United States.

"It's not really a new E&E, but it's a shift toward what's relevant today," Musterait said.

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