Gordon Food Service’s two-tiered governance

In 1987, Paul Gordon, third-generation leader of Gordon Food Service, paid a visit to the University of Michigan’s business school, seeking guidance on a bold initiative. He and his brother, John—respectively president and secretary/treasurer of the Grand Rapids, Mich., company—wanted to create a governance structure that would help their company to thrive in perpetuity.

Gil Whitaker, then Michigan’s business school dean, introduced Paul to B. Joseph White, who at the time was a professor and associate dean at Michigan’s business school and is now president emeritus and James F. Towey Professor of Business and Leadership at the University of Illinois. As White recalls it, Paul, a Michigan alumnus, asked for help with his “quote-unquote, little family business.”

By 1987, Gordon Food Service was in its 90th year. It was a family-owned business, but it was no longer “little”; sales had reached $400 million. The company had two large distribution centers, in western and eastern Michigan, and “was on a rapid growth path,” White explains. Paul and John Gordon instinctively realized they needed more formal governance and the perspective of independent directors.

“Paul and John always looked a long way ahead to think about the future of the company,” says White. “As they got into their 60s, I think they began to think about the company beyond themselves.”

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White and David Gray, the former president of Sara Lee Bakery Company, soon signed on as Gordon Food Service’s first two independent directors, charged with setting up a governance system that would help the company achieve its ambitious goal. “We wanted a structure that would ensure the growth and vitality of the business in perpetuity, and yet would be manageable as the family grew exponentially over several generations,” says Paul’s son Dan Gordon, 65, now the company chairman.

The plans and structures they created have had a high payoff. In 2014, Gordon Food Service generated revenues of more than $10 billion. The company now has 175 stores, 24 distribution centers and more than 17,000 employees. It serves markets in the eastern U.S. and across Canada.

Business growth has been among the family’s main objectives over the years, says Dan’s brother Jim Gordon, 61, the CEO. “We want to always be pushing ourselves to grow our business and to grow at a rate and a level that outperforms industry averages.” At the same time, the company culture is grounded in the family’s strong faith and sense of stewardship.

” ‘Purpose, people and perspective’ would, to me, summarize everything you need to know about what we’re trying to achieve and how we achieve those ends,” says Dan. “And under ‘purpose,’ I put, ‘to help our customers succeed, our employees to grow and prosper, and God’s kingdom to thrive.’ So that’s kind of our overriding purpose as a family in a business. And then under ‘people,’ I put that we strive to foster a culture of high performance, inclusiveness, teamwork and sharing. So those would be some of the fundamental values that really make up our culture. And then our perspective is long-term and permanent.”

Modest beginnings

What is now a vast enterprise began modestly as a butter-and-egg delivery service founded in Grand Rapids in 1897 by Dutch immigrant Isaac Van Westenbrugge. Eight years later, he joined with a partner, William Erb, to launch a grocery wholesale business, Van Westenbrugge & Erb. In 1917, Van Westenbrugge bought out Erb and opened a store, which he named I. Van Westenbrugge. The company grew during the 1920s, distributing products within a 50-mile radius and reaching annual sales of $300,000.

In 1933, Van Westenbrugge and Ben Gordon—who had started at the company as a 16-year-old in 1916 and married Van Westenbrugge’s daughter five years later—formed the Gordon-Van Cheese Company. When Van Westenbrugge retired in 1942, Ben and his brother Frank Gordon, who had joined the business in 1937, reorganized the company and renamed it Gordon Food Service. A decade later the company expanded its geographic reach to Kalamazoo, Lansing and Traverse City.

Ben Gordon’s oldest son, Paul, joined the business in 1948; Paul’s brother John entered in 1953. The third-generation brothers took the reins of the company in 1965.

Paul had four children and John had two. Paul’s eldest son, Dan Gordon, entered the business in 1973; his brother Jim Gordon followed suit in 1980. John’s son John Gordon Jr., now 55, began working for the company in 1982.

Today, there are a total of 85 members of the family’s fifth generation, five of whom work for the company.

Governance at Gordon Food Service under the third-generation leaders was “a two-man show,” according to Dan Gordon. “Paul and John controlled everything,” Dan explains. “The board meetings were evening affairs that started after normal business hours and ran till midnight, and consisted of the two of them reviewing every detail of the business with our controller.”

Two-tiered structure

Despite their tight control of the business, Paul and John understood that to achieve their vision, they needed a new approach. They sought a structure that would keep the growing family in control of the business, yet prevent unwarranted family meddling in company operations.

After weighing the pros and cons of small and large boards, White and Gray decided on a two-tiered governance structure. In addition to a board of directors, they created a separate, smaller entity, known as the Board of Advisors.

The Board of Advisors has five members. One is the company’s CEO, one is appointed by Paul Gordon’s family and one is appointed by John’s family. The CEO and the two advisors named by Paul and John’s families appoint the remaining two advisors. Members of the Board of Advisors “have ultimate authority over the company and are responsible to the family,” says Jim Gordon. “Their focus is more on issues of policy that relate to the family and also overall governance.” Among other functions, they develop and approve policies on family employment, debt, distributions and charitable giving levels, and help guide next-generation family members.

White explains that the size of the Board of Advisors enables members “to work well together in an extremely cohesive small team.” Moreover, he adds, “We felt it should be small because we would expect a lot of these people, in terms of their commitment to both the family and the company.”

The larger Board of Directors functions as a traditional corporate board, dealing exclusively with business oversight. The two-board structure enables directors to have a “laser focus on the business needs without having to deal with family issues that would otherwise become a major distraction for them,” says Dan.

All five members of the Board of Advisors sit on the Board of Directors, along with up to four additional members (currently, there are three). Its larger size allows for a broader range of experiences, career stages and perspectives. It is also “a place where we could get to know people better and consider them as future candidates for the Board of Advisors,” White says.

After setting up this governance structure around 1990, Paul and John Gordon stepped down from the Board of Advisors, allowing John Jr. and Jim to join Dan and independent members White and Gray. Dan succeeded his father, Paul, as president in 1991. Jim was named operations manager in 1992, and John Jr. became manager of finance in 1993.

Though Paul and John no longer held formal board seats, their opinions were still respected, Jim notes. “We paid attention to those guys a lot,” says Jim. He adds that his father and uncle gave their full support to decisions made by the board, even when those decisions differed from what they would have done.

“The example John Gordon and Paul Gordon gave us in how to transition from one generation to the next is nearly textbook,” observes Jim. “The transition from one generation to the next doesn’t always go smoothly. But they were the perfect example of staying involved, staying connected, staying interested, supporting and encouraging—but then giving the next generation the runway to lead. I just don’t think you could have done it better than those two guys did it.” Paul served in an emeritus role until his death in 2008; John Gordon Sr. remains active as vice chairman emeritus. John Jr. was named treasurer in 1995. Jim and Dan assumed their current titles in 2010.

Key family documents

“For much of our history, our values and principles were passed down primarily by example, seeing [the third-generation brothers] in action every day,” says Jim. Then around 50 years ago, Frank, John and Paul, along with their wives, “began the process of writing down some of the core principles that they and their predecessors, my grandfather and great-grandfather, believed in,” Jim says. The family statement of philosophy, as the document came to be known, was created in the 1960s and ’70s and was updated in the ’80s.

At White and Gray’s urging, Paul, John and their wives created an additional document expressing their views on business and life, known as the “Letter of Wishes” and completed in July 1998. Topics addressed in the Letter of Wishes, according to White, include the purpose of the company, the family’s Christian faith, the third generation’s aspirations for the business to continue through future generations, the role of the family in the business, and the structure and financing of the company.

In May 2002, Paul and John’s six children and their spouses completed their response to the Letter of Wishes, known as the “Letter of Intentions.” This serves as “a guide and reminder to the fourth generation of their high aspirations for making the most of the blessings they have received,” says Jim. “It also serves as a guide and an inspiration to their children as they gradually become involved in and ultimately responsible for important family duties.”

“We really view these to be living documents,” says Dan of the Letter of Wishes and Letter of Intentions. “These are documents that we refer to regularly, and I think that they significantly inform our decision making, so they’ve really been a powerful way to guide our way as we continue to pass the baton to future generations.”

For example, Dan says, “Over the years, we have had many opportunities to diversify into other businesses and industries. However, one of the principles articulated in the Letter of Wishes encouraged us to stay laser-focused on the business we know and committed to.”

The letters serve as “the ‘campfire stories’ for our families and our business,” Jim explains. “It’s just simply a way for the generations to communicate about where we’ve been, where we’re going, and what’s really important.”

“Having those documents is really a gift,” says Jim’s daughter Kara Gordon Warren, 36, director of marketing, Great Lakes division, who joined the company in 2003. “As valuable as the letters are, however, it’s really the example of both generations—the way that they’ve put into action the ideas that they touch on that are contained in the letters,” Kara says. “That’s really been what’s most impactful for me and for others in my generation.”

The fifth-generation members are working on their own document, which will be called “This We Believe.” While the five members of her generation currently working at the company are still early in their careers, they have begun to prepare to write their letter “by starting a conversation about our most deeply held beliefs,” Kara says.

Enter the fifth generation

Dan says the family hopes more fifth-generation members will be interested in joining the company in the next few years. Gordon Food Service has a written family employment policy that is administered by the two outside family advisors. The policy outlines requirements and expectations for family members who wish to join the business. They are expected to work outside the business and demonstrate success before they enter the family firm.

The family presents Gordon Food Service as “one of many options,” says Jim. “We truly only want them here if they have an interest and a passion. We’ve encouraged our kids, ‘Pursue your passions and don’t just migrate to the family business because it’s there and it’s easy.’ “

“The fact that there was never an assumption or pressure to participate really gave me and my generation the room to explore whether a future at the company is truly a best fit for us as individuals,” says Kara. She recalls accompanying her father on his sales rounds during a “take your child to work” day. “I can still picture some of the kitchens and dining rooms that we sat in as my dad talked to customers that day,” Kara says

Company leaders don’t take “a one-size-fits-all approach” to mentoring new family employees, “but there’s some basics,” says Jim. Everyone starts on the ground floor, which at Gordon Food Service means starting in sales. “Wherever and whenever possible, we feel it’s important for their careers to gain experience in being directly involved with customers and understanding their needs and how to serve them,” Jim explains. “We feel it is important to see them do a good job and build strong relationships by developing the respect of those they work with and [demonstrating] that they can support our culture and live out our values.”

“It’s so important that they earn their way in the business through outstanding performance, and that’s the bottom line,” says Dan.

“I really enjoy those times when I get to connect with family members at work,” says Kara. “I’ve got really fond memories of telling my grandpa [Paul] about projects that I was working on when he was still alive.”

Faith and values

“Servant leadership” is one of Gordon Food Service’s guiding principles, family members say. The term—coined in the mid-20th century by the late Robert K. Greenleaf, an AT&T executive—refers to an emphasis on sharing power, putting the needs of others first and helping people develop, rather than on accumulating and exercising power.

“Servant leadership, simply put, is extending yourself as a leader for the benefit of those you lead—doing things that may be inconvenient and even uncomfortable, but that help your team members be and give their best,” Jim explains. “It’s a simple concept, but it’s not always—it’s really not ever—easy.”

To Dan, servant leadership means “being able to put our egos aside and, as leaders, making the needs of our people our highest priority.”

“I think it really starts with caring about our people, their well-being and their families,” Dan says. “And I think when people see that kind of humility and empathy and the respect that we give those we are charged with, and we lead in that way and honor their contribution, and really care about them, I think it just generates tremendous commitment and loyalty in return.”

Kara remembers spending time at her grandparents’ lakeside cottage with company employees and their families who had been invited to spend the day by her grandparents, parents, aunts and uncles. “As a kid it was fun, just because it gave me a chance to meet and play with new friends,” Kara recalls. “But as an adult, I’ve grown to really appreciate how intentional both of those generations were about celebrating the contributions of their team and really emphasizing this critical role that all employees play. And even today, I run into employees that talk about the memories that they made at those outings, which is always neat to hear about.”

Director Joe White says that profitability is important to company for three reasons: “It allows us to reinvest in the business, it allows us to pay profit sharing to employees, and it helps support the Gordon family’s Christian mission.” Assets in Gordon Food Service’s profit-sharing plan grew to more than $1 billion in 2013.

“As a family, we’ve been given an incredible opportunity to serve and impact thousands of people for good,” says Dan. “But it’s also a tremendous responsibility, and each generation really needs to embrace that and understand the depth of that responsibility we have, given what we’ve been given.”

“Considering the success of the company, the Gordon family lives modestly,” White observes. “They don’t make significant personal demands on the profits of the company.”

“I believe Paul and John—and even before them, Ben and Frank Gordon—really lived out their beliefs in the context of the business,” Dan says. “And I believe that’s their greatest legacy and it’s their greatest gift to us. And my hope and desire is that Jim and John Jr. and myself have done the same thing in terms of passing that on to the next generation. But it’s really all about setting an example by the way you live your life.”

Success factors

Several factors have contributed to Gordon Food Service’s robust growth, Jim and Dan note. The maturing of the industry has led to a “wave of consolidation” that has enabled the company to expand through acquisition as well as organic growth, Dan says.

“We’ve got strong leaders in key roles all across the company,” Jim says. “We’ve got a great board. We have talented and passionate team leaders that are [dedicated] to serving our customers. We have an organizational structure that allows us to continue to add new operating divisions. And more than anything, I think, we have a story that resonates right now in our industry with restaurateurs and food service operators as well as talented professionals within the food service distribution industry.”

The employees, Jim says, are “absolutely [committed] to the idea of doing everything they can to meet and exceed customer expectations, and I think that sets us apart.” In addition, he says, the executive team is committed to growth and reinvestment in the business.

“And then lastly,” Jim adds, “we would claim that a big part of the reason for our success has been God’s unmerited hand of blessing. We absolutely can’t take the credit, and we never want to forget that aspect.”

Success has not led to complacency at the company, Jim says. “We like to celebrate successes for about a minute and a half, and then move on to the next challenge,” he says. Although the goal is to continue to grow, he states, “We always want to grow in a way that’s consistent with our culture, and allows us to stay true to our values.”

Dan says he is excited to have “a front-row seat to watch the next generation of leaders grow and develop and really begin to take the company in new directions and what we believe to be even greater success in the future. Our role now is to mentor and guide and provide encouragement and support any way we can.” 
 

Sally M. Snell is a writer based in Lawrence, Kan. 
 

Expansion into Canada

In the early 1990s, Gordon Food Service projected that growth would slow, owing to the company’s already large size as well as sluggish growth within the industry.

To close the gap between projected growth and aspirational growth, executives realized the company needed to incorporate acquisitions into its strategy.

“We considered many different possibilities, including getting into food manufacturing [and] some far-flung international ventures,” recalls independent director B. Joseph White. The company ultimately acquired a small food-service business in Toronto and Montreal.

Unlike the American market, which had been undergoing a wave of consolidation, the Canadian market was fragmented at the time, says Dan Gordon, the company chairman. “We saw an opportunity to get in on the ground floor of what we thought would be a future rollup of the industry in consolidation.”

Those early years were “rocky,” White remembers. “We ran into many different kinds of problems early on.” One of the problems was that the Canadian business was losing money, he says, adding, “We were not used to losing money.” The board and management set to work on problem solving, which included finding the right people to run the Canadian operation.

Those issues were resolved, and over a ten-year period, “one acquisition led to another relationship that led to another acquisition, so it was really an interesting process,” says CEO Jim Gordon. “As we got established in the eastern part of Canada, that led to other conversations that helped us grow to the west.”

Although the U.S. and Canadian markets share many traits, there are differences in customer demand and in the Canadian legal requirements for dual French/English product labeling. In addition, Dan Gordon says, the “dead drive time” between major cities in Canada has “forced us to really focus on developing great transportation systems and managing that part of the business.”

Today, Gordon Food Service’s Canadian business reaches from coast to coast. “We compete head-to-head for the No. 1 food service position in Canada with Sysco,” says White. “It’s really been a great business story.”—S.M.S. 
 

Rebranding the business

In 2014 Gordon Food Service underwent a rebranding, changing the logo it had used for more than 20 years. The company dropped the acronym GFS, instead emphasizing the Gordon name. It also changed the name of its stores from GFS Marketplace to the Gordon Food Service Store and added the tag line “Always at your table.”

“We felt it would be important to put a greater emphasis on our family name as a way to better tell our story, and a better way to differentiate ourselves,” says chairman Dan Gordon. “So much of what makes us different is the fact that we are a family business in an industry that is now dominated by public companies and private equity-backed companies. We really wanted to focus on the fact that we are an independent, family-owned business, and the values that we think we bring to the business are quite different in many cases.”

The rebranding helps to “set us apart as a clear alternative in the market, both to potential customers as well as industry talent,” says Jim Gordon, the CEO.—S.M.S. 
 

For further reading

B. Joseph White, a director of Gordon Food Service, describes the company’s governance structure and recalls the story of its creation in his book Boards That Excel: Candid Insights & Practical Advice for Directors (Berrett-Koehler Publishers Inc., 2014). In his book White, the James F. Towey Professor of Business and Leadership and president emeritus of the University of Illinois, also recounts his role in the creation of a board at Equity Residential Inc., a public company started by investor Sam Zell, and offers thoughts on governance from noted board chairs, CEOs and directors.

Copyright 2015 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permission from the publisher. For reprint information, contact bwenger@familybusinessmagazine.com.

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