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Dealing with the loss of a corporate HQ

The loss of any business can be difficult for a community, but when the loss is that of a corporate headquarters the effects can be especially onerous.

As I see it, there are seven negative effects that can occur when a corporate headquarters becomes a branch office or disappears altogether.

These seven negative effects are:

• a loss of pride;

• less charitable giving;

• less community involvement;

• less leadership available for community organizations;

• less local spending;

• less money on deposit in local banks; and

• fewer employees.

In today’s unmerciful, competitive business environment it is not unusual to see mergers and acquisitions or business failures that result in the closing or restructuring of a corporate headquarters. Sure, local plants or branch offices are also closed, but when the headquarters goes away certain things change in the community because of the very nature of a headquarters location.

Feeling the pain

First, there can be a loss of pride, especially if the company is well-known and associated with its location. Clinton and the rest of metro Jackson were once proud to call WorldCom home, but you know the rest of that loss of corporate headquarters story. By the way, as of this writing, there are no Fortune 500 companies headquartered in Mississippi.

My guess is that you can easily name the cities where each of the following companies are headquartered: Kellogg’s, Ford Motor Company, Wal-Mart, Boeing, FedEx and Coca-Cola. And what city in Pennsylvania makes chocolate? Some companies even have the community name in their names. Ever heard of Mutual of Omaha, Chicago Title or Boston Scientific? Some companies keep the community and change the name. PPG Industries began as Pittsburgh Plate Glass, for example.

Other companies have kept the name and changed the community. Where is the headquarters of Chicago Title Insurance Company?

A second negative affect is the reduction in local charitable giving. Corporations usually contribute more money to charity in their hometowns.

Take a cruise through the Fortune 500 corporate Web sites and you will discover that local hospitals, local chapters of organizations that raise money for disease prevention and treatment, schools and civic groups are major beneficiaries of the headquarters corporation.

Similarly, loss of a corporate headquarters often results in less sponsorship of local civic, cultural and community events. Local organizations that relied on major sponsors for their fund-raising events may find that the headquarters office, now located in another city, is not as interested in being the title sponsor of their celebrations, contests, walks or happenings. If you are involved in a local nonprofit organization, take a look at who is on the board of directors. My guess is that you will see representatives of the largest employers in the area. And the largest employers in the area often those that are headquartered in the area.

Corporate headquarters are well known for providing leadership for local organizations. As importantly, they also provide leadership development for the community.
Next, when a corporate headquarters leaves town there is usually less spending in the community. Corporate brochures are printed by printers in the new corporate headquarters town, maintenance contracts are done for the new corporate office, insurance policies are blended into accounts in the new town and so on.

Another consideration is that there is less money on deposit in local banks, meaning less money that will be loaned out in the local community. The ripple effect will mean that local banks no longer need a corporate account representative and that the bank will probably have fewer customers.

Finally, there will probably be fewer employees of the corporation left in the town. Those employees may have to settle for lower-paying jobs or make a decision to retire or move to the company’s new headquarters town. The good news for other local companies is that they will often find that these employees are the cream of the crop and thus the remaining local businesses will improve.

Seeking greater efficiency

The business world constantly changes and in doing so seeks greater efficiency. For this reason it can make more sense for an industry to be comprised of a few large companies instead of many smaller companies spread out across several states. As such industries resize, smaller companies are acquired and their headquarters offices become branch offices. This phenomenon can negatively affect a community.

On the other hand, let us not forget that it is the consumer who ultimately determines how businesses will organize, determine their locations and deliver goods and services. Some businesses have consolidated so much that they have lost the so-called personal touch, creating new opportunities for local entrepreneurs to provide goods and services thereby creating their own new corporate headquarters in the local community.

Phil Hardwick’s column on Mississippi Business appears regularly in the Mississippi Business Journal. His e-mail address is phil@philhardwick.com.

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