Category Archives: Headquarters

Chicago companies…..a changing town?

Lately, the Chicago business press has lamented the region’s loss of large company headquarters—for example, those of Amoco, Arthur Andersen, Borg-Warner, Quaker, Searle, and Zenith. The chart below numerically depicts the source of this local concern: The Chicago area is down 19 headquarters over the period from 1975 to 2005 as measured by Fortune magazine’s list of the largest nonfinancial companies. Has Chicago lost its vitality for building large companies and hosting their headquarters?

Taking a broader perspective, it appears that Chicago has held its own as a domicile for corporate headquarters. It consistently ranks second place among large metropolitan areas that host headquarters; only New York exceeds it. Looking farther afield, one can see that headquarters offices of the largest companies have spread out to other metropolises that have come into their own as business centers. A recent conference examined shifts in headquarters site decisions and motivation. Cities such as Houston, Atlanta, and San Francisco have developed a large scope of business support services, such as legal, accounting, and management consulting, that attract headquarters. All have large hub airports which are desirable in sending out and bringing in headquarters execs and their business associates.

In some ways, then, Chicago’s relative loss of headquarters reflects the filling in and development of the remainder of the U.S. rather than Chicago’s decline. To put it another way, why would we expect Chicago and New York to maintain the lion’s share of headquarters while the remainder of the U.S. economy grew more rapidly?

A different look reveals that Chicago’s headquarters companies have grown at a healthy rate—one that reflects a mature but healthy business service center. The following tables list the Chicago region’s top 50 companies from 1979 to 2005, again measured by Fortune magazine’s accounting of total company revenues. The companies’ revenues are quoted in comparable dollars, equivalent to spending power for gross domestic product (GDP) in 2005.

In examining individual companies among these rankings, we can see that, on average, the annual revenues of the top 50 companies in 2005 exceed those of the equivalently ranked companies in1979. In fact, the sum of the top 25 companies’ revenues in 2005 exceeded that of their counterparts’ in 1979 by 89 percent. For the top 50 companies, the revenue total of 2005 companies exceeded that of 1979 companies by 78 percent. Over this time period, the overall U.S. economy grew by 115 percent. Accordingly, in the context of the faster regional growth taking place in the Sun Belt and the West since 1979, Chicago has enjoyed healthy, though modestly lagging, success as the domicile of many of America’s largest and fast-growing companies.

In explaining Chicago’s continued role as a headquarters city, we can see that many large companies have survived and prospered from the 1979 list. These companies include Brunswick, Caterpillar, Deere, Kraft, Sears, United Airlines (UAL), and USG (United States Gypsum). Still others—such as Walgreen’s, Abbott, McDonalds, Archer Daniels Midland, and Illinois Tool Works—have survived and even experienced outsized growth. Walgreen’s revenues are up over 13 times since 1979. Illinois Tool Works Inc. ranked 17th in 2005, with $11.7 billion in revenue, although the company had not made the top 50 list of 1979.

Other companies have chosen Chicago as their headquarters’ domicile from outright relocations, during mergers, or through spinoffs. Boeing is the most notable relocation, choosing Chicago in 2000 over competitors Dallas and Denver. OfficeMax Inc. is another relocation to Chicago (from Boise, Idaho). Smurfit-Stone chose Chicago during its merger, and medical equipment maker Hospira Inc. was a recent spinoff of Abbott.

Other promising companies with headquarters in the Chicago region, such as Hewitt Inc., a human resource management company, have grown up here and have since emerged as public companies. Equity Office Properties Trust is another home-grown company with headquarters in the area, as is CDW, a computing equipment leasing company.

A comparison of the top 50 lists also reflects the shifting industry orientation of the Midwest away from manufacturing to services. In 1979, 33 of the top 50 companies could be classified as manufacturing versus 26 in 2005.

The Chicago region correctly stands up and takes notice at the loss of a large company headquarters. Hosting companies’ headquarters is an important specialization of Chicago’s economy. Over the long term, Chicago’s headquarters’ performance is a cause for interested concern though perhaps not for alarm.

Small Towns, Big Headquarters

Two corporate headquarters location developments made Midwest headlines on May 10. One was the news story that UAL, the holding company for Chicago-based United Airlines, was considering moving its corporate offices from Chicago’s suburbs to the city’s central business district or possibly to another city. On the same day, Whirlpool announced a restructuring that will close the headquarters offices of recently acquired Maytag in Newton, Iowa, and consolidate them in Whirlpool’s headquarters location in Benton Harbor, Michigan. Of the two announcements, the Maytag closure illustrates an important trend for small towns and less populous metropolitan areas; large company headquarters are shifting toward more populous metropolitan areas.

Many small towns and smaller metropolitan areas in the Midwest have historically been home to large company headquarters, especially of industrial companies. In fact, some highly successful companies were founded in these places, and they subsequently maintained their headquarters operations there even as their production operations and sales expanded to be national and even global scope. To illustrate, below is a partial listing of Fortune magazine’s top 1,000 companies that can be found in smaller cities and metropolitan areas in the Seventh District states of Illinois, Indiana, Iowa, Michigan, and Wisconsin.

Places that host large company headquarters often fare well in several respects. Headquarters are renowned for funding local charitable and civic programs. In addition, headquarters employees tend to be highly educated and committed to social and public service. Accordingly, the loss of such a headquarters by a small town or metropolitan area can be a difficult blow.

Even after a loss, headquarters towns can be more fortunate in the aftermath than towns that experience large production plant closures. Headquarters sometimes leave behind a substantial legacy, such as philanthropic foundations or founding families, or important institutions, such as hospitals or colleges and universities. In the recent wake of Upjohn/Pharmacia’s headquarters pullout of Kalamazoo, Michigan, an anonymous donor(s) has funded The Kalamazoo Promise program which has promised to pay for college tuition (in-state) for local students who complete high school in good standing. This scholarship program is not necessarily funded by anyone associated with Upjohn, since the town also hosts headquarters of other large companies such as Stryker and other wealthy individuals. However, the original Upjohn Company has left other more apparent legacy assets. For example, the Kalamazoo area hosts the Upjohn Institute, an important labor research organization that was begun by the company’s founder. And the new owner of the former Upjohn-Pharmacia facilities, Pfizer, is assisting the town in several ways including in the creation of local spin-off technology start-ups.

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How Much Are Headquarters Worth?

Earlier this month, Mittal Steel USA announced it will locate its headquarters in downtown Chicago rather than in Northwest Indiana. Mittal USA employs 21,000 workers in 14 states. The parent company, Mittal, headquartered in London, is the largest steel maker in the world.

Mittal’s U.S. headquarters will employ only about 200 people. Even so, the company will reportedly receive $7.5 million in tax credits from the State of Illinois for job training and infrastructure, and the City of Chicago will contribute $2 million toward equipment, furniture, and fixtures. At a cost (undiscounted) of $40,000-$50,000 per job in tax incentives, why are public officials so pleased to have the Mittal headquarters?

For one reason, the Chicago area economy, along with the rest of the Midwest, is lagging the nation in this first decade of the millenium. Moreover, an intense matter of pride and branding of Chicago’s economy is at stake. The Chicago area ranks second only to the New York metro area as a headquarters city (figure 1). And, as reported by Lyssa Jenkens, chief economist of the Greater Dallas Chamber, even Sun Belt cities that are gaining headquarters admire Chicago and New York(Chicago Fed Letter). Yet, although Chicago snagged a big prize with Boeing’s move from Seattle in 2000, the city has lost other headquarters in recent years, such as Ameritech, BankOne, Quaker Oats, and Amoco.

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