When Hardly Anybody Works at Corporate HQ
One of the most commented-upon business trends of last year -- you remember, back when people sometimes still talked about things other than Donald Trump -- was the migration of corporate headquarters in the U.S. from suburbs and smaller cities to big-city downtowns. With Caterpillar Inc.'s announcement Tuesday that its top executives will be moving from Peoria, Illinois, to Chicago, that trend appears to be continuing (although it's not clear yet whether that HQ will be in downtown Chicago or the suburbs).
But Caterpillar's new headquarters isn't going to be very big: Only about 300 people will work there, compared with 12,000 in and around Peoria. This small-headquarters approach is kind of a thing, especially in Chicago. As Claire Bushey of Crain's Chicago Business wrote in a big report last year on "The Incredible Shrinking HQ":
These headquarters represent the pinnacle of the corporate pyramid, snapped off and relocated, free of jobs tied to operations and often midlevel HQ functions such as payroll, human resources or purchasing. To be sure, migrating headquarters offer benefits to the city: They boost demand for business services, their executives join the philanthropic scene and, of course, they confer bragging rights. But in terms of jobs, the farther a company travels to set up shop in Chicago, the fewer people come with it.
Or as the Manhattan Institute's Aaron Renn, an urban thinker with a tendency to notice things before other people do, observed in 2008:
The “headquarters” is actually splitting into two: an executive headquarters and an operational headquarters.
As Renn elaborated in 2014:
The people in “executive headquarters” are precisely those who most need proximity to the global city service providers that increasingly form a key part of company operations. Also, recruiting executive talent and proximity to airports play a role. And when companies want to think in a totally global manner, they can want to have their main office physically separate from any particular operating location.
This phenomenon is real. It's especially apparent in Chicago, where Boeing Co., Archer-Daniels-Midland Co., Conagra Brands Inc., General Electric Co.'s transportation and health-care divisions, and, now, Caterpillar have all chosen to locate new headquarters that hold significantly fewer people than their old HQs elsewhere. But is this the new normal? Is it really true that, as Harvard Business School professor David Collis put it in Bushey's article:
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.
Actually, when I go down a list of the largest U.S. corporations by market capitalization, they almost all have headquarters with hundreds or thousands of people in a building -- or campus of buildings -- with the company logo. The only exceptions among the top 25 that I'm aware of are Berkshire Hathaway Inc., with its 25-person office in Kiewit Plaza in Omaha, Nebraska, and General Electric, which has a couple hundred people camped out in a Boston office building waiting for its new three-building headquarters complex to be completed nearby.
Berkshire has had a bare-bones headquarters from the beginning, and it's not in Omaha for the "global city service providers" or the airport. The city just happened to be where Warren Buffett is from, and he happened to see his role as an asset allocator rather than as manager of the many businesses that Berkshire owns. GE is another collection of disparate businesses where a bit more managing is done from the HQ but the executive headquarters and the operational ones have been separate for a long time. When the company settles into its new Boston headquarters, employment will reportedly be about the same -- 800 people -- as in the old HQ in Fairfield, Connecticut, albeit with a different mix of jobs.
Meanwhile, the tech companies that currently dominate the top of the market cap list (Apple Inc., Alphabet Inc., Microsoft Corp., Amazon.com Inc. and Facebook Inc. occupy five of the top six spots; Berkshire is the only interloper) are all run out of large office complexes, most in the suburbs, that contain thousands of workers. It's apparently still deemed crucial for top executives to be near the engineers and others who make the companies go. Also, all these companies grew up in or near big cities with pretty good airports -- unlike some older manufacturers that happened to locate a century ago in small cities that never grew big.
So maybe the "executive headquarters" is something for a certain kind of corporation -- a conglomerate, a manufacturer of heavy equipment, a mature company in retrenchment mode. The bare-bones headquarters is a characteristic of companies controlled by private equity firms, which are often looking to cut costs and bring focus. I think it was also relatively common back in the late 1800s and early 1900s, when New York-based financiers controlled vast operations elsewhere. Maybe it really is on the rise now, and more big companies will follow. But it does seem like 1 the most exciting, dynamic companies are the ones where the top executives aren't off in a city apart from everybody else.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
A recent study of corporate headquarters sizes in Japan offers some support for this assertion.
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