We're talking family business governance. I know that sounds really official, but essentially what we're talking about is how you run a business successfully when it involves family members. Because you know, and I know, the family dynamic can screw up everything.

It can also make the business a pleasure. We're gonna talk about how to make sure it's the second part and not the first part on this edition of The Inside BS Show. Hey now, it's Dave Lorenzo.

I'm the godfather of growth, and this is the show number 796. It's The Inside BS Show number 796. We're recording this without editing.

We're recording it live and putting it out there for you on YouTube, on Spotify, Apple Podcasts, wherever you get your podcasts. And it's also going to be available on LinkedIn. So today we're talking about family business governance.

So you got a business that you run with your brothers and your sisters, with your cousins, with your mom and your dad, with nieces, nephews, aunts, uncles, whatever. You got family, and then you've got business. And you're always told, keep work and business separate, but you're one person, you're a human.

So it's hard to do that. There's three things I want you to pay attention to, three specific things when it comes to family business governance. And that word governance, it means decision-making, it means roles and accountability, and it means succession planning or continuity planning.

I'll explain what the difference is between those two things. These three things, if you get these three things straight, that's gonna make your life a lot easier from a family perspective and from the perspective of running the business. So let's take the first one, decision-making.

You have to have a very clear process in place for the different types of decisions. Now, my recommendation is that you write out a family business charter and you spell out the different types of decisions that will have to be made by dollar amount. And you say that the head of the business, the CEO, and you appoint one person as the CEO of the business, has decision-making authority up to a specific dollar amount, say $500,000.

The head of the family can make decisions on spending up to like $500,000. Above that, the head of the family has to get approval from the family business board of directors. Then this is the second point.

You want to spell out what types of decisions the board votes on and what the vote of the board needs to be in order to make those decisions. Now, who has a voice and who's on the board, all of those things, that needs to be determined by the people who are the shareholders of the business. So if everybody in the business has equal shares, but dad is the CEO, then you're gonna allocate voting rights based on what positions these people hold in the company.

So you set a dollar amount for specific decisions and then when you talk about decisions that need to be made by the family board of directors or the business board of directors, I should say, you determine who has voting rights and what each vote is worth based on ownership in the business. So decision-making process in the charter should outline who makes what decisions, how those decisions are made, and then who votes and who gets a voice. The decision-making process should be clearly outlined in your family business charter.

Think of it like the Constitution in the United States and think of the board as Congress and everybody in Congress gets a vote, the president gets maybe two votes to every one person's vote. So if there's six people on the board, the president gets the tie-breaking vote and his vote counts as two or her vote, if the president is a woman, counts as two, let's say. So that's the decision-making structure and that goes in your family business charter, which is your governing document.

The second thing to think about is defined roles and accountability. Now this is really, really simple and it's exactly the same in the corporate world as it is in the family business world. Every role in the business from the person who sweeps the floors up to the president and the CEO should have a job description.

And the job description should include the title and the roles and responsibilities and then something that I put in every one of my job descriptions is the minimum requirements of the position. So everybody knows what the minimum expected of them is, everyone knows what the responsibilities are because they're clearly spelled out in the job description and then you spell out how the person in this role will be held accountable. So in other words, what the performance criteria that they're going to be judged based upon is.

This helps you avoid any entitlement from family members, it helps avoid resentment when people aren't doing the minimum and it also helps, it keeps you from losing your top talent because there's always minimum expectations of everyone. So if the talent is from outside the family and they're exceeding expectations but the people in the family know what the minimum expectations are for them and there's a family member and a non-family member in the same role, everybody knows what the minimum is. If the family member isn't doing the minimum, you can call them accountable, you can hold them accountable and call them out if necessary.

Defined roles and how to hold them accountable spelled out in job descriptions for everyone in the entire company. The third point that you need to talk about when you're talking about governance is succession and continuity planning. So succession planning is who the next person is for each role, who the next up is for each role.

And Nicola Gellarmino, my business partner and I, do an entire presentation on this. We believe that succession planning should be a part of the performance appraisal process. And one third of everyone's review in the organization, from the janitor all the way up to the CEO, should be to get someone ready to fill their position.

One third of their performance review should be holding them accountable for getting the next person for their role ready to help them. If they're never going to advance beyond their role, then that's continuity planning. So if that person goes on vacation for two weeks, they've trained someone to fill in for them.

If that person gets sick and they need to be out of the business for an indefinite period of time, six weeks, eight weeks, they've trained someone to fill in for them. So succession planning should be done for every role in the organization, and it should be built into the performance review process. And you're essentially teaching someone how to do your job in advance.

Now this could be as a permanent replacement or it could be as a temporary replacement. Permanent replacement, that's succession planning. Temporary replacement is continuity for when they're on vacation or they need to step out of the business, step out of the role for a temporary period of time.

Build that into your performance review process and you never have to worry about anything. So when you hear people talking about family business governance, these are the three main things they're talking about. They're talking about the decision-making process and the structure of the leadership and the decision-making hierarchy in the organization.

They're talking about defined roles and how to hold people accountable and being fair with family members and non-family members. And they're talking about succession and continuity planning, long-term replacements and short-term replacements. That's the essence of family business governance.

This is the Inside BS Show. I am Dave Lorenzo and I'm here with you every day with a brand new show. We'll see you tomorrow at 6 a.m. right here.

We are here to help you grow your business and make a great living and live a great life. We'll see you tomorrow at 6 a.m.