Institute For Family Business

      Kent Lutz- Advisors To Families In Business
Board Of Directors

                           Board  Constitution


The Board Constitution is not intended to be a legal document on board governance, but rather it’s purpose is to set Clear and Specific expectations and responsibilities for members of a company’s BOD or BOA. The Board Constitution should be kept as simple as possible. In other words, apply the KISS theory, as you  want to have clear alignment of expectations among members of the board.   The Board Constitution is also not the same as the company’s Articles of Incorporation or Bylaws, which contain specific legal and fiduciary language. The Board Constitution should clearly explain why you have a Board. The Board Constitution should have three main sections: 1) Statement of Purpose 2) Board Member Role Description 3) Board Parameters


Statement of Purpose


Maximize long term profitability and shareholder value

Help company achieve its mission and long term goals

Provide an invaluable source of outside, informed, and independent stimulation and advice that helps company reach its next level of success

Ensure a disciplined strategic planning approach is deployed that encompasses client needs, the company’s competitive situation, market position, external trends, and financial performance

Help CEO make key decisions that affect the overall strategic direction of the company

Hold CEO accountable to the strategic plan and related results

Ensure appropriate company policies and procedures are in place and enforced

Ensure a prudent and effective succession plan is in place

Assist the company in networking and opening doors of opportunities


Board Parameters


Independent Members-Board will have independent experts who have no inside or direct affiliation or conflicts with the company(excludes employees, family members, suppliers, and the like) A majority of the members should be independent

Number of Members-The Board will contain no less than seven or more than 9 members. There will be no more than four or five inside members(CEO and three or four others, one of which may be company CFO). A majority of independent members should be maintained at all times

New Members-New Board members will require the majority approval of the shareholders.

Chair-An elected outside Chairman will act as the Board Chair. The Chair will preside over the meetings and be responsible for establishing the agenda with input from the Board.

Secretary-The Chair will designate a Secretary whose responsibility will be to record all the Board minutes.

Meetings-The Board will meet a minimum of 4-6 times per year for half day meetings.

Attendance-Expected that all Board members will attend all meetings unless there is an emergency. Board members are to be punctual and come prepared for every meeting. Board members are also expected to available for phone conferences and emergency meetings when necessary.

Communications-Board Chair is responsible for sending a organized Board report before meetings and for keeping members informed between meetings.

Voting Protocol-The Board will use an established voting process. Specifically, board topics, actions, or resolutions requiring a vote will start with an open discussion. After the open discussion, the Chair will call for a motion. Objections will be considered and discussed. A verbal count of all those in favor and all those opposing the motion will be summarized. The vote will be concluded with a declaration that the motion has been accepted or rejected, contingent upon the vote.

Majority Rules-Majority of Board member votes will rule.

Split Votes-If there’s a tie, the Chair will cast the deciding vote.

Recorded-Anything that is voted on will be recorded by the Secretary and reflected in the minutes.

Code of Conduct-Each Board member will be familiar with and agreement with all terms and provisions of the Company’s Code of Conduct and Ethics. Annually, each Board member will be asked to certify that he or she is in compliance with the Code.

Board Terms-Board terms will be for three years. Contingent upon satisfactory performance, they are renewable until retirement age is reached.

Retirement-There is mandatory retirement at age seventy-five.

Board Evaluations-Every Board member will undergo and annual performance review process. If performance is below a certain standard, the Board member will be asked to resign.

Committees-Several committees could be created including: Audit, Compensation, Executive, Nominating, Succession, Financial. Don’t typically find committees on BOA.


Board Member Role Description


Responsible and committed to the business

Attends all meetings, is punctual, and prepared for all meetings

Demonstrates a proficient and solid understanding of the business, markets, and competitive landscape

Is accessible in between meetings, as needed( 5-10 hours per quarter)

Offers expert, objective and honest advice

Is straightforward and apolitical. Expresses own point of view firmly but not harshly. Challenges the CEO with the goal to help the business and to support the long term interests of the shareholders.

Does not mico-manage-addresses strategy and policy issues and does not lead or manage the day to day business

Brings fresh ideas and new points of view for the CEO and management team to consider

Does not become stale(energy and enthusiasm needs to remain high)

Shows initiative by constantly looking for ways to improve the business

Works well with other Board members and management, by respecting their opinions and not dominating board meetings. Further demonstrates a willingness to work with other members by listening to and building upon suggestions

Identifies opportunities and risks and contributes to solving strategic problems

Helps CEO network

Holds CEO accountable and is focused on improving the company results in part by ensuring management is accountable to those results

Participates in and is receptive to an annual evaluation

Conducts an annual review of the CEO’s performance

Is familiar with and in complete agreement with all of the terms and provisions of the company’s Code of Conduct and Ethics

Helps with succession/exit plans

Holds all discussions and information in complete confidence


Kent Lutz


Institute for Family Business


Assistant Professor, Business

Entrepreneurship/Family Business/Finance

University of Cincinnati/Blue Ash College


                          Board Information


Benefits of a Good Board

 Expert, Objective Advice

 Vital Strategic Advice

 Help Innovate

 Reduce Risk

 Help Protect Shareholder Interests

 Define Priorities

 Expand Your Network-Strategic Partnerships, Acquisition or Divesture Leads,

  Competitive Intelligence, Sales Leads, Market Research, International Connections,

  Knowledge Sources(Books, Articles, Web, Organizations, Associations), Sources

  Of Employee Talent, Financing and Capital Needs, Benchmarking Leads, External

  Resource Leads, Supplier Leads, Outsourcing Leads, Intro to Government Officials,

  Sources for Additional Board Members, Succession and Exit Strategies

 Foster Accountability

 Enhances Credibility

 Great Return on ROI

 Reduces Loneliness

 Improves Overall Results


Perceived Concerns for Creating a Board-I’ve Heard it all Before

 Change is not Easy

 I Don’t Want to Lose Control

 I Don’t Want to Put my Job in Jeopardy

 Boards Are Not Effective-Depends on Quality, Framework, Process, Focus,


 I’m Not Able to Attract Good Candidates

 I’m Too Busy-Just Don’t Have The Time(Effective Boards Can Save You Time-Helps

 Avoid Conflict And Crisis)

 An Outside Board Seems Costly-May Help Save Costly Recruiting Fees, May Lead to

 New Customer, May Help Enter a New Profitable Market, Many Other Possibilities

 Board Members Don’t Want The Liabilities-D&O Insurance Can Address That

 Our Business is Not Big Enough to Consider an Outside Board-Size Does Not Matter-

 The Board Can Evolve as The Business Grows

 Outsiders Won’t Know My Business-Partially True-But Also One of The Best Reasons

 To Have Independent Thinking-Board’s Role is to Focus on The Strategic, Long Term

 Picture For The Business Not The Day to Day Operations

 Already Have a Board-But Mostly Insiders-How Effective are They

 My Management Team Won’t Like It-Board is Not There to Second Guess or Threaten

 The Management Team But Rather be a Resource

 Family Members(or Shareholders) May Object-(May Feel Threatened, May Not Trust

 Board Members, May Feel Board Will Interfere With Private Family Matters)

 I Don’t Want to Share Private Information With Outsiders-(Must Highly Trust All Board



 We Already Get Good Advice From Our CPA, Lawyer, And Others-Are They Too

 Problem Specific And Not Strategic

 We Don’t Have a Strategic Plan-A Fundamental Area That a Board Can Help-Most

 Business Owners Have a Strategic Plan But It’s in Their Head And Not Formalized

 No Perfect Plan Exists, But a Board Can Help You Improve Your Plan


Why A Strategic Plan

 Maps a Course

 Clarifies an Organization’s Purpose, Mission, Strategies, Goals, and Measures

 Enables a Company to Set and Communicate Priorities, Responsibilities, and Measures,

 And Monitors Success or Failure and Areas Where Improvement is Needed

 Aids in Working More Effectively and Efficiently to Grow Profits


What to Include In A Strategic Plan

 Purpose or Vision-Why The Company Exists-Inspire Change and Progress-Far Off Star

 Mission-A Bold Compelling Goal That Defines a Specific Destiny-The Mountain(s) You

 Must Climb to Reach Your Star

 Core Values-The Standards or Principles a Company Operates Under-The Relationships

 The Company Has With Its Customers, Employees, Shareholders, Suppliers,

 Community, and Other Stakeholders

 SWOT-Strengths, Weaknesses(Internal) Opportunities, Threats(External)

 Unique Business Model-Most Meaningful Company Competitive Advantage-


 Team Strength and Bench Strength-Right People in the Right Place-Depth in Talent

 Objectives, Goals, and Measurements-Right Goals and Objectives-Key Milestones-

 Focused Activity-Measures-Correct Measures-Reliable Measures

 Who Participates in Developing Plan-Executive Team/Board

 Long Term Shareholder Value

 Creates Accountability


Qualities Of A Great Board Member

 High Integrity-Stewardship

 Shares Expertise

 Responsible Actions-Perform Duties in Good Faith

 Hold Confidences

 Good Judgment

 Focus is on Long Term Strategy and Policies Not Day to Day Management

 Help Innovate, Fresh Ideas, Challenge Boundaries, Find New Solutions

 Participate-Prepared, Accessible, Listen, Respect Differences, Outside

 Availability, Always Active

 Objectively Communicate-Honest Advice, No Hidden Agendas, Speak Their

 Mind, Constantly Probe

 Passionate-Speak in Terms of Our Company, Show Initiative

 Team Players-Right Chemistry, Respect Opinions, Respect Other Expertise

 Identify and Manage Risks


 Identify What’s Missing-Where Are Some Missing Parts

 Network-Help Key Managers Network in Many Different Arenas

 Ensure Accountability-Always Recognizing That The Business Environments

 Are Constantly Changing And The Company Must Always be Looking for

 Ways to Stay Ahead of The Competition in Goods Times as Well as Slow


 Help With Succession and Exit Planning-A Succession Plan Should be in Place

 At All Times-The Annual Strategic Plan Could Address The Question

 (Hit by the Bus or Become Disable Circumstance) Next Generation Development

 Next Generation Competition


What To Avoid In Board Members

 Unethical Member-Gut Check

 Poor Judgment-Good People Sometimes Make Mistakes But be Sure it Wasn’t Because

 Of Poor Judgment-Peel the Onion Back a Bit

 Conflicted-No Hidden Agendas

 Expertise Redundancy

 Risk Adverse-Want Calculated Risk Takers

 Poor Team Players-Chemistry of Board Must be Good-Professional Working


 Know It Alls-Avoid Those That Want To Compete to Show How Smart They Think

 They Are

 Theoretical Thinkers-You Want Real World Experience-Business is Common Sense

 Status Seekers-You Want Board Members Who Want to Accept Responsibility


 Friends and Family-You Want Objective and Independent Experts

 Normal Professional Advisors

 Customers and Suppliers-Avoid This Conflict of Interest

 Executive Team-Most Members Should be Outsiders. The Board Should not be Bogged

 Down With Short Term Tactics But Deal With Strategy and Policies


Recruiting Board Members

 Have a Written Board Search Description

 Statement of Need

 Select Independent Expertise

 Recruit in Order of Expertise Sequence-Former CEO-Retired Senior Marketing

 Executive-Seasoned Operational Executive

 Select Industry Expertise

 Select High Level of Expertise(Encoded)

 Select Balanced Team of Experts

 Use Existing Board to Help Identify Other Board Members

 Aggressively Network-Look Everywhere

 Ask Peers

 Ask for Recommendations

 Help From HR Function and Administrative Staff


 Consider an Executive Recruiter

 Look Outside the Geographic Area

 Interview and Get References

 Present The Board Opportunity Accurately

 Provide Information About The Company-History, Scope of Business, Type of Business,

 Markets Served, Products Offered, Strategic Position, Company Culture, Top Line

 Financial Snapshot, Future Strategic Direction,

 Set Clear Board Expectations-Meeting Times, Availability Outside Meetings,

 Responsible and Committed, Understanding of the Business and Market it Serves,

 Expert Advice, Objective, Challenge CEO and Other Key Inside Board Members,

 Do not Micro-Manage, Identify Opportunities, Fresh Ideas, Show Initiative, Good

 Chemistry With Other Board Members, Help CEO Network, Hold CEO Accountable,

 Agree With Code of Conduct and Ethics, Succession and Exit Planning, Hold All

 Information in Complete Confidence

 Checklist of Competencies-Knowledge of Industry, Business Passion, Marketing

 Expertise, Operations Expertise, Sales Expertise, Financial Expertise, Sarbanes-

 Oxley Expertise, HR Expertise, Leadership Experience, Prior Board Experience,

 Integrity, Strategic Thinking Expertise, Business Judgment, Innovative, Willing to

 Express Owns Point of View, Challenges Status Quo, Networking Benefits,

 Family Business Expertise, High Growth Expertise, Union Labor Expertise,

 Technology Expertise



Kent Lutz


Institute for Family Business

Advisors to Families in Business

Assistant Professor, Business

Entrepreneurship/Family Business/Finance

University of Cincinnati

Blue Ash College



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