The Economist’s Schumpeter column this week was a great feature on the return of jobs to downtown from suburban office parks. I was delighted to be featured in it for my concept of the “executive headquarters” and the notion that these relocated HQs are often both different and smaller than in the past. (And what’s more, the relocation itself often involves downsizing).I don’t want to claim too much credit, but I did help pioneer this concept of executive HQs in downtown, starting with a 2008 piece on the move of HQs into downtown Chicago. The revival of global cities was driven by financial and producer services. Saskia Sassen had pointed out that headquarters, conventionally viewed as the most important, were not the driver. I saw this starting to change as the corporate headquarters reinvented itself, focused on just those functions and executives that needed to move interface with the services of the global city. I continued to develop this idea over time, and I’m very glad it has proven useful and others are writing about the same.
Here’s an excerpt from the Economist:
Yet the new downtown headquarters are very different from the old ones, and not just because they are open-plan and trendy. They are far smaller. Often, firms are moving their senior managers to the city along with a few hundred digital workers. Moving back to Chicago’s centre has usually involved downsizing: Motorola Solutions’ HQ shrank from 2,900 to 1,100, and that of Archer Daniels Midland from 4,400 to 70. Many companies are deconstructing their headquarters and scattering different units and functions across the landscape, leaving most middle managers in the old buildings, or else moving them to cheaper places in the southern states. Aaron Renn of the Manhattan Institute, a think-tank, reckons that head offices are splitting into two types: old-fashioned “mass” headquarters in the sunbelt cities, and new-style “executive headquarters” of senior managers and wired workers in elite cities such as San Francisco, Chicago and Boston.
That suggests there will be no return to the broad-based urban prosperity of America’s golden age. San Francisco could be the template of the future. Its centre is divided between affluent young people who frequent vegan cafés and homeless people who smoke crack and urinate in the streets. Long-standing San Franciscans resent the way that the urban professionals have driven up property prices. And those young workers may fall out of love with the city centre when they have children and start worrying about the quality of schools and the safety of streets.
Click through to read the whole thing.
I developed this idea independently, but won’t claim I’m the only or even first person to come up with it. But it’s nice to see my framing of the issue in use in this Economist piece (and others like this Crain’s Chicago piece). It goes to show that (originally) independent writers can have an influence, even if many years later.
Two bits of RR management history are perhaps instructive. For decades the executive offices of the Union Pacific RR were on Broad Street off Wall (Brown Brothers, Harriman). Somewhat later, when the new CEO was uninterested in NYC, the offices moved to NE PA so he could commute easily from his mansion. All of the real management functions were in Omaha Neb (
I confess I generally assume that corporate relocations are driven primarily by a desire on the part of CEOs to reduce their commuting distances. I seem to remember reading of some past studies that revealed a rather stark connection along those lines, but I can’t find them now. Perhaps they moved behind a pay wall, or I’m just imagining it. I’ve certainly seen the same phenomenon when some government agencies decide to move regional offices, though of course the shorter commute for whoever is running the office is never publicly offered as a reason for the move. Now that downtown living is more fashionable than it has been in decades, I can’t help wondering if that is also part of the reason motivating these moves. Perhaps the trend in smaller core units that are moving into downtown areas may also reflect a few realities – it’s more expensive to be downtown than it used to be, hence an understandable desire to reduce cost of space; being part of a tiny core team coveys exclusivity and status (so often a strong motivator of human behavior); and companies have long been looking for ways to shed employees (for many logical if unfortunate reasons).
Hey Aaron, this seems very true for the New Yorks and Chicago’s of the world, but what about the mid sized cities? Seems to me that most of the Midwest metro’s downtowns are doing well, but it’s more housing and some civic investments, not HQ’s and jobs. I’ve seen some smaller design/tech companies moving downtown, but the big guys are either already there with the big HQ or are sticking to the burbs. Thoughts on how this plays in mid sized cities if at all?
George, recently ConAgra announced that its HQ would leave Omaha. Mead Johnson left Evansville, IN. Lincoln Financial left Fort Wayne. When Hill-Rom bought Welch Allyn, they decamped from Batesville, IN.
Those are just the first few I can think of, all large companies that grew where they started. I cannot think of a HQ relocation to a small city.
This gets to another related theme Aaron has developed over the years: losing these rooted local top execs puts a big hole in civic leadership and local charity.
Omaha might not suffer too much since Berkshire Hathaway is still there. Even though that is just an executive HQ (which Mr. Buffett brags about in every annual report to shareholders), he made lots of investors there very wealthy.
Throw in the reality that the consolidation of the economy into fewer hands also eliminates local headquarters. When I was growing up, the handful of skyscrapers in downtown Fort Wayne were all local banks. Now, nothing but Wells Fraudgo and their ilk.
Hey, ambitious spreadsheet diddlers don’t wanna live in a place like Fort Wayne. (I confess…neither did I, but…)
George, I see that smaller city downtowns are struggling. The vast majority of downtown relocations have been in bigger cities. The Indys and Columbuses do have some startups growing and some relocations, but I haven’t seen stats to indicate an upward trend in truly private sector employment.