High spirits Featured

5:25am EDT June 30, 2004
With a simple handshake, two families joined forces to create one of the top wine, spirits and beer distributors in the country.

Chris Carlos founded the Dixie Wine Co. in 1935, and in 1942, Al Davis joined him as an equal partner in the company that later became National Distributing Co. And for more than 60 years, it's needed little more than a strong family member at the helm as it has grown into one of the nation's largest wine and spirits distributors, raking in more than $1.6 billion in annual revenue with operations in eight states and Washington, D.C.

But illness, then the death of co-CEO Michael Carlos in 2002, left the company in turmoil and Carlos' partner, Jay Davis, concerned about the company's future leadership.

Davis, son of one of the founders and the company's chairman and CEO, recognized that for National Distributing to continue to thrive, the old ways needed to change.

A company adviser put it this way: "Maybe you need to look at this business model in a different way than you've been looking at it," says Davis. "The two senior family members have been running the business, and that didn't seem to be working too well. Suppliers weren't sure who to go to, even though we were decisive. Their thought process was, well, we're not sure, and we don't know who to go to."

Some of that, Davis believes, was perception rather than reality. But whether real or imagined, the situation required a solution. The principals of National Distributing decided to enlist the help of an independent board of advisers, a rare move for a privately held enterprise.

"We'd been going through somewhat of a crisis within the organization in terms of succession," says Davis. "We are in an interesting business because we are sort of the franchisees for our suppliers. If we don't have their products to sell, we don't have anything to sell. They are more important to us, almost, than our customers are.

"So, with all that going on, we decided we needed to look at what is going to happen to the company for the future. How do we decide (what to do with) this company when there are these hiccups, and if there is not a Davis or Carlos leading the business?"

The process began two years ago with the hiring of an industry insider -- and family outsider -- Charles Andrews, as company president and COO.

"Being family owned and operated has clearly been a successful model for us, but we recognize that, as the company moves forward, having someone of Charlie's talent at the helm will make NDC one of the strongest players in the industry," Davis said in 2002, following Andrews' hire.

Adding an independent board was the next logical step, but for a family operation in an industry filled with privately held enterprises, it was an enormous leap.

"The thought process was, we're dealing with these big companies as suppliers," Davis says. "Most of them, 90 percent, are public. If they're not public, they're thinking about being public. And they're certainly operating in a public vein. This industry for our tier is, basically, family run businesses. Yet, they expect us to be operating on the same level they're operating on in terms of the public persona and outlook.

"What better way to do that than to put a real public face on the company, yet we're still private and we can still make decisions quickly without going through the bureaucracies some public companies have to go through. That was the model, and it's worked very well."

 

A fine bouquet

"We are the talk of the industry now," Davis says. "They're all saying, 'You guys get it. You know what we're looking for. This is the model for the future, and you're there.' They clearly see our business model as the future of our tier."

Davis says no other company has followed, even though NDC is more than a year into the new model.

"Some of these guys just have not woken up," he says. "As I like to say, they just haven't crossed the bridge. Some of these businesses have gotten pretty big, and they're still operating the business as if it was a small business -- family run."

The rest of the industry may not have jumped on the bandwagon, but convincing competitors it was the right thing to do wasn't Davis' concern; the people he needed to win over were in his own company.

"The family members bought in right away," Davis says. "Before, ... it was not a consensus type of partnership. Today, that's the way we operate. Yes, I'm the CEO, and I'm charged with day-to-day running of the business, but we are operating as a team and building consensus. We are listening to each other. I think everybody thought it was a good thing, and they now think it is better than what we thought it would be."

But that doesn't mean the transition was easy.

"There were some issues because a couple of the family members had been really active day-to-day in certain roles, and their roles have changed," Davis says. "That was a little bit difficult, but now we're all finding the niche that we're supposed to fit into. It's working really well, and we're supporting each other really well. I don't think there are any misgivings about it."

Davis, who sits on boards including that of Atlanta-based Acuity Brands, knew that forming a board -- made up of four NDC principals and four outsiders -- was the right answer for NDC. But he wasn't sure what to expect.

"I really wanted to join another board to get an idea of what that was like, to help us here with our board," Davis said. "It's been a great experience, very interesting. I've gotten a lot out of it."

 

With a strong bold taste

From the outset, Davis made sure that the board's role would be anything but perfunctory.

"The outside directors are really advisory directors; they don't have a real vote," Davis says. "However, we made up our minds early on that if we didn't listen to them, what was the sense of having them there? The other thing is, if you don't listen to them and they're advising you one way, we'll take a straw vote, and if we don't go along with them enough, they're probably going to get discouraged and say, 'The hell with you,' and leave. I would if I were in their shoes.

"Our attitude is they're there and we're going to listen to their advice. And unless it's something that we just feel in our gut we've got to do or we don't want to do, we're going to take that advice."

Having the board has helped the principals focus more on where the company is going.

"It's stepped us up a little bit," Davis says. "We never had these formal meetings where we had to present numbers and really had people fire questions at us about what we're doing. It's made things a little more difficult, but I think that's good.

He says in one instance, the company was considering a couple of acquisitions, and the board was pushing back, "not telling us not to do it, but questioning the motives, the reasons and what the ramifications are," he says.

"The long and short of it is, we came to an agreement about what we were going to do. It was really good to have that sort of someone sitting there saying, 'Now wait a minute. Think about what you're doing here. Does this really make sense? What are you going to accomplish by doing it?' It just makes you stop and think through the process."

This is a fundamental shift from how Davis and his partner operated NDC in the past.

"The difference is there was not really a consensus-building effort," says Davis. "There was just me and my former partner, who passed away, and he just did not operate that way. He did whatever he wanted to do, certainly with my input. It was not collaborative.

"When my dad was running the business, it was the same thing. It was his business. It's not like other entrepreneurs that have been successful. They run with a very autocratic style."

 

Leading to a strong finish

The new operating model forces the company's leaders to account for every decision they make.

"It's sort of made us more aware of our business," Davis says. "I really don't think that there is anything negative that I can tell at this point. We've got some great people that we've put on the board. ... We've been talking about our financial structure and how that relates to the future.

"And we've got one guy that's really taken a strong interest in helping us with that. It's just great to have someone with his expertise. He's got a financial background, to sort of sit there and be an outsider and say, 'Maybe you shouldn't look at it this way; you ought to look at it that way. And maybe you shouldn't pick these guys, you should pick those. It's good to have that outside look at what's going on."

The board has also injected NDC with a new energy.

"There was a time when we were plodding along and not really going anywhere because there was a difference of opinion about where and how to take the company," Davis says. "That probably caused us to stagnate a little bit, probably hurt us over the long run. I think we've gotten way past that. I don't foresee that happening again." How to reach: National Distributing Co., (404) 696-9440 or www.ndcweb.com