IN HIS FAMILY’S FOOTSTEPS

C.H. “Chuck” James III has an Ivy League business degree, a board seat at a prestigious management learning center and a city of Industry company that bears his name.

But when faced with strategic business decisions, he often asks himself, “What would my great-grandfather do?”

The original C.H. James was a trailblazer who founded a West Virginia produce firm in 1881 by bartering memorial pictures of assassinated President Garfield for the garden-grown vegetables of coal miners. The 19-year-old then sold the vegetables to stores in Charleston.

C.H. James & Co. is still selling produce. But now the company buys it from farms in Salinas, Calif., processes it at its Industry plant and ships it to thousands of McDonald’s restaurants in the United States, Asia and Latin America.

“My great-grandfather moved from Ohio to West Virginia to start a business,” said James, 38. “I moved the company from West Virginia to California for a very different business opportunity. In business, change is risky, but it’s also necessary.”

With an eye for opportunity, a willingness to take risks and a penchant for reinventing itself, C.H. James & Co. has survived a Depression-era bankruptcy and persevered for 116 years, making it one of the oldest black-owned companies in the nation.

It’s also one of the nation’s most successful and enduring family-owned enterprises, nearly doubling its annual revenue to $30 million in its four years in Southern California and jumping from 90 to 73 on Black Enterprise magazine’s ranking of the nation’s 100 largest African American-owned companies of 1997.

The company’s success has been lauded throughout the century by civil rights groups, governors--even presidents--because the James family has seized or created opportunities despite historic forces of discrimination.

Now the company is being extolled as a model for minority- and women-owned firms trying to make the leap from government contractor to private-sector supplier. Such transitions are becoming more important as government affirmative action programs are being scaled back.

James always envisioned those programs as a short bridge to bigger opportunities. He used money from his government sales to purchase North American Produce, the Industry-based operation that supplies McDonald’s.

“I realized that we wouldn’t grow by remaining a local distributor,” James said. “I always considered the government business a means for building enough revenue to expand to the national level.”

James decided to relinquish the minority-supplier status that gave him access to some government contracts in order to concentrate on his new West Coast business. The firm still has some government contracts but obtains that business through normal bidding procedures.

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James has vaulted from federal to corporate contracting at a time when opportunities for women and minorities are expanding in private industry--but are contracting in government. The Supreme Court recently turned down Philadelphia’s plea to preserve a law that reserved a portion of city procurement for businesses owned by blacks or women. Also, a federal appeals court recently upheld California’s Proposition 209, which prohibits the consideration of race, ethnicity or gender in state contract awards.

“In spite of attacks on [government] affirmative action, there is still significant growth in supplier diversity because companies are now anxious to develop a presence in the minority business community,” said Reginald Williams, chief executive of Atlanta-based Procurement Resources, a consultant to major companies with such contracting policies.

Some companies set aside a percentage of their procurement business for minorities and women. Others require their primary vendors to seek diversity among their subcontractors. Some simply make a greater effort to ensure that female and minority suppliers are among those making contract bids.

As a result, diversity in corporate contracting is on the rise, Williams said. Minorities and women obtained about $30 billion in business from the 500 largest U.S. companies in 1996, compared with $22 billion in 1990, he said.

More encouraging, Williams said, is the rise in the percentage of Fortune 500 companies with some sort of supplier-diversity outreach--about 75%, compared with 50% in 1992.

Despite the increase, minority firms get only about 3.9% of corporate procurement dollars, according to some estimates.

Many would argue that James has thrived because of his determination to move beyond affirmative action.

“Businesses establish affirmative action for economic reasons,” James said, “and economic forces create movements that are more sustainable than government programs.”

Companies are making this effort partly because the U.S. minority population--at least 27% of the national total and 46% in California--is growing rapidly.

“Minorities are increasingly important as customers and as shareholders,” said Harriet Michel, executive director of the National Minority Supplier Development Council, a promoter of such corporate programs. “Corporations understand that minority consumers consider a company’s hiring and procurement practices when they make a purchase.”

However, Michel said, such corporate procurement outreach could become more difficult because many companies are under competitive pressure to shift more of their business to larger suppliers, which can offer lower prices.

“Minority suppliers will have to grow to offer those cheaper prices,” she said. “Chuck James is the prototypical minority entrepreneur of the future because his company has that large size and scale. He can give McDonald’s price, product and a connection to the [minority] community.”

McDonald’s sought a business relationship with Chuck James after learning of the company’s long history and its transformation from a regional supplier of restaurants and supermarkets to a firm with nationwide capabilities.

That expansion began in 1985 when James, who had just completed his master’s degree at the University of Pennsylvania’s elite Wharton School of business, persuaded his father to apply for federal contracts under the government program for minorities.

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James obtained additional federal contracts after he bought the business from his father, C.H. James II, in 1988. But he also set his sights on supplying a national chain. That opportunity came when McDonald’s approached him in 1992 and encouraged him to buy North American Produce.

James said he had reached a fork in the road: Should he keep the company on the same path or expand it by acquiring a fast-food venture so demanding that he would have to relinquish much of his government business?

“What would my great-grandfather do?” he wondered.

James could find answers to such questions in a family archive that includes letters as well as newspaper and magazine profiles of his great-grandfather.

The founder’s position on growth was clear: In a 1920 magazine feature, C.H. James--then a leading distributor of chicken and eggs in West Virginia--discussed such choices:

“Our competitors are kicking now because our business extends to the farthest reaches of the district and so long as we keep reaching out, they must necessarily do likewise.”

Chuck James bought the stake in North American Produce in 1993, moved to Southern California and created the C.H. James holding company that controls the new produce company as well as the old family firm, which together have 130 employees.

Such a deal was in the family’s tradition of change--a tradition that also emphasizes efficiency, innovation and community involvement.

The evolution began in the late 1920s. At that time, the company was generating annual sales equivalent to about $3 million in today’s dollars. The founder retired in 1928, turning over the reins to his son Edward, Chuck James’ grandfather.

The company suffered a double blow the next year. C.H. James died and the stock market crashed, ushering in the Great Depression. The company’s grocery store clients were unable to pay their bills, and C.H. James & Co. was forced into bankruptcy.

Edward James rebuilt the business over the next decade, adding cheese and frozen foods to the poultry and egg stocks. Under his charge, the company also began to supply supermarkets in Ohio and Kentucky.

The company was on solid ground when Chuck James’ father, C.H. James II, took control in 1963. He reinvented the firm by expanding its inventory from five items to more than 2,000. He also began to sell to the region’s hospitals and hotels, generating annual sales of $4 million by the early 1980s.

While C.H. James & Co. continues to distribute food to supermarkets and other businesses in the West Virginia area, James now directs an operation that delivers to about 2,000 McDonald’s restaurants west of the Rocky Mountains. He is also a backup source of produce for restaurants in Asia and Latin America.

At first, it was a daunting responsibility for someone new to the fast-food business. James was expected to deliver tons of sliced or chopped lettuce and onion, and he wondered whether he had the equipment to do the job efficiently.

He considered his great-grandfather’s position on efficiency and found it in the 1920 magazine article, in which the writer recounted a visit to the office of C.H. James:

“There I found a complete, modern outfit--adding machines, multigraph machine, first-class typewriters, Dictaphones, order writing machines . . . .”

C.H. James then is quoted:

“This makes it possible for us to do over $200,000 worth of business per year with a smaller amount of help than would otherwise be the case without this modern equipment.”

Following his great-grandfather’s example, Chuck James decided in 1993 to spend more than $1 million on state-of-the-art packaging equipment. In a plant with 100 workers, the equipment shreds and packs 30 million pounds of lettuce and onion per year--work that used to be done by hand.

“We’ve had a 40% increase in productivity since installing the equipment,” James said. “Some businesses stick with old, proven technology. But we wanted to establish some leadership right away.”

McDonald’s is happy with the results, and with James.

“He has a wealth of knowledge and expertise and consistently delivers quality,” said Paul Sidney, manager of the McDonald’s minority procurement program.

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As with most successful businesses, innovation and efficiency are key to the company’s success. When James talks about innovations, he often refers to those of his great-grandfather, the first West Virginian to sell chicken by the pound instead of individually and the first to inspect eggs by using candlelight to examine their contents.

Freshness is also important to the business, so Chuck hires consultants to help his employees develop time-saving production techniques. He’s formed innovation teams made up of employees, and trouble-shooting teams and a leadership team of managers also include workers.

James serves on an advisory board at a Claremont Graduate School institute headed by business guru Peter F. Drucker. He also makes speaking appearances. He recently addressed a class of executives at USC, explaining his techniques for meeting shifting consumer demand.

The other family hallmark--community involvement--presents a challenge, considering the standards set by the company’s founder, James said. The original C.H. James provided time and money for vocational training, health-care facilities and schools. He also was a nationally recognized promoter of black entrepreneurship.

“I think,” said President Theodore Roosevelt in a 1918 letter to the elder James, “I have spoken of you at least a hundred times, pointing to you as the man who actually is by his actions and not merely by words solving the race problem in this country.”

For his part, Chuck James recently joined the board of a business development agency at the Los Angeles Urban League. He also helped finance a portion of the program saluting entrepreneurship at the recent Los Angeles Black Expo.

Such involvement is encouraged by McDonald’s, which seeks to raise its profile in minority communities.

James has also helped sponsor programs designed to motivate youth, said Reggie Webb, president of the National Black McDonald’s Operators Assn., a franchise group.

“Persistence pays” is James’ message to black youth. As evidence, he cites his great-grandfather, who was initially shunned by groups in Charleston. But, impressed with his success, the Charleston Chamber of Commerce and a produce distributors organization later asked C.H. James to join them.

“I’m not denying that racial barriers exist,” Chuck James said, “but I don’t think we should be obsessed with barriers, because there are people in every generation who find a way to succeed.”

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While each generation of the James family has embraced sound business practices, the approaches to growth have changed. The previous family chiefs expanded the business by acquiring more customers. Chuck James is expanding his customer base by acquiring other businesses.

Such transformation and growth are critical to the survival of privately owned companies, said Leon Danco, director of the Cleveland-based Center for Family Business.

“The James enterprise is a model for any family business,” Danco said. “Most do not survive beyond the second generation because there is no thoughtful plan for growth.”

Now that he has made the transition into the quick-service restaurant business, Chuck James is looking for other opportunities. He already has a 40% stake in an Australian company that supplies restaurants in the Pacific Rim.

James said he eventually wants to relinquish a more prosperous company to one of his three sons. Eleven-year-old C.H. James IV is the eldest of the three.

“Each generation of my family has created a bigger and better company,” James said. “All my forefathers are my heroes--but especially my great-grandfather. When you consider what he did in his time, I really have no excuses.”