Boards that Excel

Director and author Joe White: A board that excels is one that does the right things and does things right.

B. Joseph White, Director, Gordon Food Service: “Be insistent about strong results. It is vital that directors know what the results are that they are working to.”

 

  Paul Gordon, then chairman of Gordon Food Service, walked into B. Joseph White’s office at the University of Michigan 27 years ago. What Gordon wanted to talk about with the dean of the university’s Ross School of Business was the company’s governance needs. At that time Gordon Food Services had $400 million in revenue, covering a three-state market with two distribution centers.

  That was 1987. In 2013, with its revenues now in excess of $10 billion, Forbes ranked Gordon Food Service as America’s 34th largest private company. The food distributor now has 20 distribution centers, 150 stores, and covers the eastern half of the U.S. as well as coast-to-coast in Canada. And it has Joe White as a board member and shaper of its progressive governance practices for a private company.

  White is the author of an eagerly anticipated new book, Boards That Excel (to be published in August 2014 by Barrett-Koehler Publishers). For his keynote presentation at the 2014 Private Company Governance Summit, White previewed some of the key learning points from the book on what makes for board excellence.

  The book’s subtitle hints more fully at what the book promises: Candid Insights and Practical Advice for Directors. In the book White synthesizes his own board experience, interviews that he has done with chairs, CEOs and experienced directors, and academic research into practical guidance for board members — how to be more than just overseers and monitors but to do great things in their role as a director.

  White not only is a board member of Gordon Food Services but he also is a director of Equity Residential (an S&P 500 company led by real estate maestro Sam Zell), where he chairs the governance committee. Currently he is an experienced nonprofit director and a distinguished academic leader. He is the James T. Towey Professor of Business and Leadership at the University of Illinois, where he teaches corporate governance to graduate law and business students. After his deanship at the Ross School he went on to serve as president of the University of Illinois and now holds the title of president emeritus of the university

  Is there a secret to being a board that excels? Yes. White’s proposition is that board members should not be just overseers and monitors of management. Directors, he said, must set high aspirations, serve as stewards who know the organization in all its dimensions, and make decisions that create value for all stakeholders—owners, employees, customers, and society. The goal is not just achieving short-term success but ensuring that the company retains control of its destiny over the long term. When that happens, it is the organization that excels. As Paul Gordon said to him, “We’ve been around almost a hundred years. We need governance that will enable us to thrive forever.”

  White structured his presentation much as he structured his book:

  • High Aspirations and Strong Results: The Bookends of Great Governance — “Be insistent about strong results,” he emphasized. “It is vital that directors know what the results are that they are working to.”

  • Understand the Role: Stewardship Thinking — “Maintain and hold management accountable for performance and results,” he said, but an equally important role of the board is to “support and help management develop a successful enterprise.”

  • Understand the Enterprise

  • Do the Right Things: The Substance of Great Governance

  • Do Things Right: The Process of Great Governance

  • Embrace the Best of ‘Good Governance’ — Practices that he highlighted include having shareholder-friendly policies; eschewing “busy” directors; conducting executive sessions; designating a lead independent director; having a strong audit committee with financial expertise; and crafting compensation that is performance-based. He said that one of his “best ideas,” particularly for family companies, is to “create policies before they are needed,” such as a family employment policy — at Gordon Food Service, the policy is that family members first must work outside the company before they look to be employed at the company — and a debt policy, so that management and the board know how much “firepower” the company has to work with.

  White drew lessons from his own experiences serving on boards as well as interviews with more than a dozen high-performance directors, including General Motors’ board chair Tim Solso, Siebel Systems founder Tom Siebel, and the aforementioned legendary real estate investor and Equity Residential Chairman Sam Zell.

  Back at Gordon Food Service (GFS), the governance structure that White — upon joining the board in 1988 — helped Chairman Paul Gordon put in place consisted of a board of advisors that would be a governing body between the Gordon family and the formally designated board of directors. (Paul’s son Dan is now chair of the company.) The board of advisors would consist of five members, primarily family or their designees, whose function would be to maintain and exercise family control of the company and appoint the board of directors, among other responsibilities. The board of directors would be made up of the five advisory board members plus several independent directors. It would look and act much like a “normal corporate board,” according to White, with a separate chairman and CEO and committee structure embodying an executive, audit, and strategy and risk committee.

  [Sidebar]

  Tell a CEO What He or She Needs to Hear

  One day I got a call at the office. I could hear the emotional distress in the CEO’s voice. “I have to see you,” he said. “I want to sell the company. I’m talking with each director.”

  I was shocked. There had been no warning of this and the company had been in existence for many decades. I agreed to meet with him that afternoon.

  When he walked in, I could see the stress on his face. He saw bad times coming and did not – did not – want to be at the helm through another recession. He had put out some feelers and found a buyer willing to purchase the company for a particular sum. He asked what I thought.

  The answer he was looking for was obvious. He was seeking support to do what he desperately wanted to do. Providing it would have been easy. I had no ownership stake in the company, I served as a director at his and the family’s pleasure and the modest directors’ fees were of no great consequence to me.

  Yet with several hours to consider the matter, I had decided what I thought and was candid with the CEO: “I understand. I had to lay people off at Cummins and it was the hardest thing I’ve ever done professionally. So I empathize. But I cannot in good conscience advise you to sell the company or support your doing so. This is a family business built over generations. I believe its market value is exceptionally low right now since you’re not the only one who believes a recession is coming. A fire sale of the company today at a low point in its value would be wrong — for you and the family. I urge you to lead the company through this downturn and use the time to fix everything that will increase its value when volume returns. Then, reconsider whether to sell the company at a value that reflects the work that you, your father and others have done over so many years to make it what it is today.”

  The CEO was disappointed and disagreed. We all like to hear what we want to hear, not necessarily what we need to hear. One of a director’s most important duties is to be candid and honest, especially when doing so challenges a consequential direction that management or the board wants to pursue but with which the director disagrees.

  — From Boards That Excel by B. Joseph White (www.boardsexcel.com)