Corporate Headquarters are Overrated, Mayor Says

Originally published in The Boston Globe

April 23, 2008
Binyamin Appelbaum (Reporter, The Boston Globe)

As Boston lost the headquarters of Gillette Co., FleetBoston Financial Corp., John Hancock Financial Services Inc. and others through corporate acquisitions, many saw signs of a local economic decline. If the headquarters went elsewhere, then Boston was becoming a branch office.
Yesterday, at a plush gathering of business leaders on the revitalized waterfront, Mayor Thomas M. Menino said it was clear in retrospect that having corporate headquarters is overrated. Boston, he said, is prospering with fewer chief executives.
"I'm doing better today than I was doing before," Menino said. "Gillette is a much better partner for the city today. John Hancock has been a much better partner in recent years."
"There's too much emphasis put on headquarters," he said later.
The mayor's remarks summarize an emerging consensus among local leaders and academics.
"There was a series of fears that thus far have proved groundless," said Paul Grogan, of the Boston Foundation, often a Menino critic. "I know I sound like a member of the administration, but the mayor is right about this."
Menino's remarks came on the same day that the one of the largest companies still headquartered in Boston, Liberty Mutual Group, agreed to pay $6.2 billion for Safeco Corp., among the largest deals by a Boston firm in recent years. Liberty, under the direction of longtime chief executive Edmund F. Kelly, also has been raising its corporate profile. In late 2004 it pledged $10 million over five years to bail out the Boston Pops July Fourth concert and fireworks extravaganza.
Explanations vary as to why Boston is prospering despite a relative dearth of headquarters. Some academics consider headquarters categorically overrated: they are often small operations that employ a handful of people, drops in the economic bucket. The vast majority of a company's employees often work in a different place.
Others say headquarters are good for a city, but Boston is prospering on a different model.
"Places like Boston are very good at helping companies grow, but they're not really good places for mature businesses. We do innovation," said Edward Glaeser, a professor of economics at Harvard University. "If you're a mature industry and it's not critical to come up with a new new thing, why would you pay the high price of being in Boston?"
Instead, companies such as Novartis build research labs in Cambridge and Bank of America Corp., which swallowed FleetBoston, commits millions of dollars a year to fund research on banking at the Media Laboratory at the Massachusetts Institute of Technology. On this model, the most important local headquarters may belong to the eight research universities in and around Boston. And universities rarely relocate.
David Luberoff, the executive director of the Rappaport Institute for Greater Boston, said initial concerns about lost headquarters also had failed to consider the ongoing relationship between the successor companies and the city.
"If you're growing here you have a stake in it being a good region and in being on good terms with government," Luberoff said.
Menino spoke yesterday at a Boston College Citizen Seminar, ironically hosted by the Chief Executives' Club of Boston. He was asked about the importance of headquarters after the speech.
His remarks reflect his confidence as mayor of a prospering city. Private employment in Boston increased by 5 percent between the third quarter of 2005 and the third quarter of 2007, according to the Massachusetts Department of Workforce Development, and average weekly wages rose 10 percent. Procter & Gamble Co. completed its acquisition of Gillette on Oct. 1, 2005.
At the time, Menino was simply resigned. "It's America, how do you stop the deals?" he told The Boston Globe in February 2005. "What we have to do is try to work with them and try to maintain the benefits to the city."
Yesterday he declared victory, saying the city actually had improved its relations with the successor companies.
The head of John Hancock, which was acquired by Manulife Financial Corp. of Toronto in 2004, agreed.
"Our pledge to Boston has been that as our business grows, so does our commitment to the city, as evidenced by our leading support for the mayor's summer jobs program, the expansion in our overall corporate donations and our more visible role in the Boston Marathon," said John D. DesPrez III, Hancock chief executive.
Still, several people said lost headquarters have tangible consequences.
Corporate headquarters are at least symbols of their hometowns, emblems of the local economy, and magnets that draw other businesses.
"A company headquartered in Boston does give the city a certain amount of prestige, so you can't ignore it," said Jay W. Lorsch, a Harvard Business professor. "I think anytime a city begins not to have any of them, people can look at it and say it's a second-class place. That's the danger. So having a few of them around is not a bad thing, at least symbolically."
Senior executives also are important sources of philanthropy, both through their companies and individually.
Many cities, particularly the fast-growing cities of the Sun Belt, continue to woo headquarters vigorously. When The Boeing Co. said its senior executives would leave Seattle in 2001, Denver, Dallas and Chicago all offered millions of dollars in incentives.
Paul Guzzi, the chief executive of the Greater Boston Chamber of Commerce, said Menino simply was putting the best face on reality.
"It's always preferable to have more companies headquartered here than not," Guzzi said. "I think it's an admission or an acknowledgement of reality, that consolidations are occurring and either you choose to work with a new entity or you choose to complain about it, and I think the mayor's choice is the right choice."