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Caterpillar and Boeing show headquarters don’t matter

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The head office moves of Caterpillar Inc. and Boeing Co. show how far the company’s letterbox is from the core manufacturing operations of industrial companies.

Caterpillar announced on Tuesday that it will move its global headquarters to an existing office in Irving, Texas – part of the Dallas-Fort Worth area – from its current location in the Chicago suburb of Deerfield, Illinois. . It is the second major manufacturing company to abandon Illinois in as many months, as Boeing announced in May that it would move its headquarters to Arlington, Va., from Chicago. What is particularly striking about both moves is how few jobs will be affected: in Caterpillar’s case, the head office move involves approximately 230 employees. That compares to the more than 17,000 mostly manufacturing workers who will continue to operate in Illinois for the time being and Caterpillar’s total global workforce of more than 107,000. At Boeing, the office shakeup consists mainly to find new offices for general manager Dave Calhoun and chief financial officer Brian West. Asked this week how many jobs would move to Virginia, Calhoun replied, “Almost none — like none.” Boeing does not plan any new buildings; instead, the company will fill unused space at its existing defense campus in Arlington.

Corporate office moves tend to get a lot of attention as corporate offices have historically represented attractive tax buckets for the local community. Amazon.com Inc. infamously held a high-profile contest for the location of its second corporate headquarters in 2018, which led to an embarrassing parade of investment promises and tax breaks as states and cities attempted to unite. Whether paying companies money to move their headquarters to the continental United States is highly debatable is a particularly effective or valid strategy, but a theoretical argument could be made about the benefits of adding thousands or tens thousands of jobs to the local community. For a growing number of American manufacturing companies, however, headquarters simply don’t matter much anymore. Caterpillar has not requested and will not receive any inducements related to the headquarters move, spokeswoman Kate Kenny said in an email. That’s good because any politician offering financial rewards for less than 250 jobs would have a lot of explaining to do. Raytheon Technologies Corp. separately announced this month that it was moving its headquarters to Arlington, Virginia from Waltham, Massachusetts. In a statement, the company made a point of stressing that it also did not seek or accept any financial inducement from any state or municipality related to the move. Raytheon employs about 130 corporate employees in Arlington and does not expect that number to increase significantly, a spokesperson said. There will be no impact on its workforce in Massachusetts.

The diminishing importance and scale of corporate headquarters to some extent reflects the rise of decentralized operating models and lean manufacturing philosophies. Glitzy, massive corporate headquarters buildings make industrial investors nervous, especially in global, diversified companies that tend to be better managed when the people running individual business units have more power than some distant executives. While former General Electric Co. CEO Jeff Immelt negotiated a $145 million incentive package from state and city officials to support the company’s headquarters move in Boston from Fairfield, Connecticut, in 2016, a key part of current CEO Larry Culp’s turnaround efforts was a downsizing of headquarters to push for greater operational-level accountability. Changes to GE’s business model – not to mention its financial difficulties – led the company to drastically reduce its ambitions in Boston and return some of the funds to Massachusetts.

The pandemic has also raised awareness that many office jobs can be done effectively from home, even in the traditional industrial sector. “Seventy percent of my day, wherever I am, is virtual anyway because I run a large distributed enterprise,” Boeing CEO Calhoun said this week in comments reported by Reuters. Raytheon announced in 2020 that it would shed up to 25% of its office space. “The fact that we have 31 million square feet of office space strikes me as a huge number,” CEO Greg Hayes said in October 2020. “As I’ve traveled the country and visited facilities where we literally have a handful of people working there and everyone is efficient working remotely, it became very clear: we don’t need all the space.” Rockwell Automation Inc., which is based in Milwaukee, has also become more flexible about the location of non-manufacturing employees, CEO Blake Moret told me last year.The ability to hire remotely means companies don’t have to persuade accountants, lawyers and sales representatives to move to the generally more rural areas that house the country’s factories, and this is an asset in a tight labor market.

Read more: Former elevator maker needs fewer floors

But if it doesn’t make as much of a difference where these companies locate their headquarters, it begs the question of why some of them bother to relocate.

Caterpillar told Bloomberg News that the headquarters move will help it attract talent and improve access to its employees, customers and dealer network due to the Dallas-Fort area’s two main airports. Worth. I find it hard to believe that Caterpillar, one of the largest companies in the world and a mainstay of the Illinois economy, had such a hard time recruiting some 250 people in the Chicago area to fill their positions. at the head office. Chicago also has two major airports and the Caterpillar office in Deerfield is approximately a 20 minute drive from O’Hare International. Caterpillar also cited access to a mix of downtown and suburban residential areas with a range of housing prices and high-quality school districts as part of the Dallas-Fort Worth area’s appeal. For what it’s worth, Texas’ lack of personal income tax also has advantages for Caterpillar CEO Jim Umpleby, who earned a salary of $1.65 million in 2021 and whose compensation annual total of $24.3 million was 475 times that of the company’s median employee. still manufacturing companies, and remote working or not, there is a risk in placing the CEO’s office too far geographically from the factory. Caterpillar’s electric generators division is now based in Irving, Texas, but it’s a relatively small business for the construction and mining equipment maker, and Illinois remains home to the greater concentration of company employees. Boeing is moving an even longer plane ride away from its commercial aerospace operations in Seattle, and it’s unclear how that helps the company meet its biggest challenge when it comes to manufacturing and delivering jets as promised to customers.

Giant, glitzy office buildings can make industrial investors nervous, but so should distant ivory towers.

More writers at Bloomberg Opinion:

• The “just in time” remains faithful to the manufacturers: Brooke Sutherland

• Consumers are the losers in a booming industrial economy: Conor Sen

• KKR wins by treating workers more like owners: Brooke Sutherland

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering transactions and industrial companies. A former M&A reporter for Bloomberg News, she writes the newsletter Industrial Strength.

More stories like this are available at bloomberg.com/opinion

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Post expires at 8:31pm on Sunday June 26th, 2022

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