Corporate Headquarters Headed Back to Cities, But Shrinking, Report Says

The departure of GE’s corporate headquarters for Boston reflects a growing trend for headquarters of major corporations to relocate back to cities, but a recent study indicates they not only move, but shrink, becoming a “reconstituted, smaller version”of their former corporate selves. Analyst Saskia Sassen, author of The Global City, describes such moves, which often consist of “only the most senior people” in the firm as “executive headquarters.”  A feature this month by Crain’s Business Chicago investigates the trend, as it has been evolving in Chicago.  Their report points out that “these headquarters make for great headlines, but they don’t nroundecessarily result in that many jobs,” according to the website newgeography.

“The notion of the corporate headquarters in the ‘Mad Men’ world when there were hundreds or thousands of people in a building with the company logo . . . those days are gone,” says David Collis, a professor at Harvard Business School who studies corporate headquarters.

The Crain’s article points out that “when Chicago landed ADM in 2013, it got 70 executives and white-collar employees, plus a promise of 100 technology jobs that never arrived. Two years later, Decatur still has 4,200 ADM workers.”

The story points to good news and bad news for Chicago.  The bad news, is that a “headquarters ain’t what it used to be. On the other hand, Chicago is winning the battle for them,” and the ripple effect they provide.  These smaller executive headquarters, particularly for major global businesses, benefit from being in a global city, the article explains. Chicago has lured a number of these from out of town, noting that agro-industrial firms are increasingly choosing Chicago: ADM, Con Agra, Mead Johnson Nutrionals, and Oscar Mayer in recent years.

The same may be said for GE and Boston, and the city’s technology-intensive environment. Some fear that Chicago's technology startups, the article reports, are particularly vulnerable to leaving for Silicon Valley, attracted by venture capital and a deep talent poolHQ_chicago.  Boston may be in the running for similar relocations.

A similar phenomenon is occurring in Pittsburgh.  After 70 years in a suburban location, Kennametal announced plans last fall to relocate its world headquarters to an urban location. “We’re a global business that’s making changes to stay competitive in a new industrial era,” said the company.  “We have more than 13,000 employees in 40 countries serving customers in more than 60 countries every day. An urban location puts us in closer proximity to major universities and the airport and will enable us to recruit more talent.”

The Wall Street Journal reported last year that online travel agency Expedia Inc. announced plans to relocate its headquarters from a Seattle suburb that it called home for nearly 20 years to the city’s downtown.

“In the late 60s and early 70s, CEOs in places like New York City fled the city and moved to the suburbs, leading to the growth of Westchester County, Stamford and Greenwich, Connecticut,” Ed McMahon, a senior resident fellow for the Urban Land Institute, told the newspaper. “In those days, the determining factor was where the CEO of the company wanted to live.”

Now, the Journal reported, “large companies are moving back into the city in an attempt to attract and retain workers—particularly younger workers who are postponing homeownership and favor renting in walkable neighborhoods with easy access to restaurants, shopping and cultural opportunities.”

“Connecticut has really been hammered by the trend away from suburban campuses,” writes Michael Brendan Dougherty in The Week. “Aetna demolished a 1.3 million-square-foot campus in Middletown in 2011. That site is vacant. Pfizer dumped a research campus in Groton after that. The suburbs around Chicago, which once gladly received Sears' corporate headquarters, may be hit next.”  It seems that they are.

Picture6The Crain’s article reports that headquarters began shrinking a decade ago, but the trend has accelerated in the past three years, according to Vinay Couto, a consultant in the Chicago office of Strategy&. In recent years, 16 companies have relocated their main headquarters to the city from the suburbs. Seventeen came from outside the metro area. The phenomenon, he points out, is driven by the outsourcing of shared services such as IT, accounting and human resources, as well as by a mindset borrowed from private equity to cut overhead and make every part of a business count toward profitability.

The website Investopedia defines “corporate headquarters” as “a business' most prestigious location,” adding that it may “bring prestige to the city it is located in and help attract other businesses to the area.”

Moving headquarters can also be a way for companies to break from the past and shed employees and positions, Couto says.  And the loss of a major headquarters doesn't necessarily stifle job gains. When Boeing moved to Chicago, Seattle's economy kept growing, Kevin Hively, founder of Ninigret Partners, a business and economic development strategy consulting firm in Providence, R.I., told Crain’s. In that case, however, the presence of Microsoft and Amazon helped.