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The owners of family businesses often have several options when it comes to planning their exit from the business. Should they sell to a private equity firm? A competitor? Their employees? The next generation?
It was about a decade ago that the families behind Milwaukee-based Perlick Corp., a manufacturer of commercial-grade refrigeration, underbar and beverage dispensing equipment, had that exact discussion.
“The fifth generation expressed interest in maintaining ownership. It was a very short discussion. There was no interest in selling the business,” said Theodore “T.J.” Perlick Molinari, vice president – special projects, general counsel and lead family director of Perlick.
Fast forward several years and the company is now working to formally transition ownership to the fifth generation, of which Perlick Molinari is a part. The latest step of that process is shifting from an advisory board to a full fiduciary board.
The initial board will have three members of the fifth generation; one member of the fourth generation, president and chief executive officer Dick Palmersheim, representing the company’s management; and two outside directors, Todd Endres, chief financial officer of Charter Manufacturing, and Jeff Schwager, president of the Sartori Co. Larry Molinari, part of the fourth generation, will assume the role of chair emeritus.
“This provides fourth generation support for members of the fifth generation in their new roles as well as a nice mix of inside and outside business perspectives,” a company announcement said. “The family members on the board will be rotated over time to make sure the entire ownership group stays connected to the business in this very important role.”
The company plans to add at least one more outside director in the future. Schwager will serve as chair initially and help train family members to step into the role.
Perlick Molinari said work on the transition began last year and just happened to land in the midst of the coronavirus pandemic.
Like many companies, Perlick has been hit by the fallout from the coronavirus. The company’s products are used in large event venues like Fiserv Forum along with bars and restaurants, which have either closed or severely limited operations
“Coincidently, it brings a great team in fiduciary capacity on board at a very difficult time for the business. In some ways, it couldn’t have happened at a better time to make this transition because we’re bringing them into the full fiduciary capacity in a very tough economic time,” Perlick Molinari said.
The process started with finding outside board members to serve in a more advisory capacity. Perlick Molinari said the family realized it did not have the internal capability, so it turned to Milwaukee-based director search firm Beal Associates, which delivered a slate of candidates for the family to interview.
“We wanted completely independent people and we got exactly what we asked for,” Perlick Molinari said, noting the family wanted directors who did not know each other coming in to the board roles and had no allegiance to any particular part of the family.
The search for outside advisors actually led the company to Palmersheim, who became CEO in late 2018.
“We poached him from our own advisory board to run the business,” Perlick Molinari said.
While the transition from an advisory board to a fiduciary model may put additional legal requirements on outside board members, in practice, there may be little change.
“We had always treated our advisors as though they were fiduciary members,” Perlick Molinari said. “And they have always treated their responsibilities as fiduciaries, regardless of what the title said, which we really appreciate, because advisors can take it very literally and say, ‘I’m just an advisor.’”
He said the process of figuring out the board structure for family members started with letting each individual identify their goals and how they wanted to participate in the business. It also benefitted from the fifth generation knowing each other well, growing up together and communicating regularly.
“The challenge of course is always getting a large group of people to align together around a common strategy, but certainly that challenge was much less for us as a family because we were so close and shared a lot of the same goals,” Perlick Molinari said.
He said Perlick has been intentional about defining the family values that have helped it in the past and incorporating those into operations and evaluations. The benefit for employees from that work, along with the new governance model and eventual ownership transition, is the company’s commitment to the area.
“The most important thing about this transition is it provides continuity to all the folks who work for Perlick,” Perlick Molinari said. “We’re not selling the business; we’re transitioning it to the next generation of ownership, which shares the values of previous generations.”