With Bank One Corp. folding into New York’s J.P. Morgan Chase & Co., the top concern in Chicago is jobs.
The merged company plans to cut 10,000 of them.
But the subtext to the worry is a familiar one–the discomfiting feeling that the Second City gradually may be sinking to second tier. By losing its status as one of the nation’s financial centers, Chicago might be left behind as other parts of the country keep growing.
“The action is on either coast right now,” lamented downtown real estate developer J. Paul Beitler. “Bank One has dealt Chicago a major blow in that respect.”
Many of the city’s business leaders say such concerns are overblown. But the $58 billion megamerger renewed debate about what the loss of so many corporate headquarters means for the vitality of the business community.
In 1995, the Chicago area was home to 35 Fortune 500 companies. With the loss of Bank One, the number has dwindled to 28.
“That’s a fairly well-established trend now,” said Alan Lacy, chairman of Sears, Roebuck and Co. He added: “I don’t think that’s good for the city.”
There is no single cause. The business world’s unending appetite for growth through acquisition is the reason for the loss of companies as diverse as Bank One, Amoco Corp., Ameritech Inc. and Leo Burnett Co.
Others, like Waste Management Inc. and the Andersen accounting firm, have been weakened or doomed by their own misbehavior.
It doesn’t help that so many of the big companies that remain have also been mired in scandal or malaise in recent years.
Abbott Laboratories, the area’s largest company in terms of stock market value, has spent more than $1 billion in fines to settle various fraud charges brought by the Justice Department against its affiliates. Sears has had its growth issues, and United Airlines is in bankruptcy. Motorola Inc. last year lost its CEO and is stuck in a competitive quagmire.
Boeing Co. is a rare example of Chicago snaring a major corporate headquarters to replace those that have left. But the aerospace giant, previously based in Seattle, is suffering through a wrenching management change, the result of a messy Defense Department procurement scandal.
Employment is the real issue
To Kenneth Skopec, the vice chairman of Chicago’s MB Financial Inc., it demonstrates that hosting a corporate headquarters is no panacea–even if the company happens to be in a high-tech industry.
Of Motorola he said, “Every time you open the paper, they’re having a problem and cutting more jobs.”
Skopec points out–as so many have in the past few years–that the real issue for Chicago is employment and growth, not the number of buildings with company names on them. The region’s heavy reliance on manufacturing, economists agree, is the real brake on growth right now.
Even as the profits and stock prices of heavy industrial companies such as Caterpillar Inc. soar anew as orders return and production increases, Illinois’ unemployment rate sits well above the national average more than two years into the so-called “jobless recovery.”
William Testa, vice president of the Federal Reserve Bank of Chicago, said that manufacturing employment has fallen no faster here than in the rest of the country. But because manufacturing makes up a bigger slice of the Midwest’s economy, the region has suffered disproportionately.
Moreover, said Sophia Koropeckyj, director of industry economics at Economy.com, while service jobs in Chicago grew an average 2.3 percent annually during the mid- and late-1990s, that trailed the 3 percent growth in the nation as a whole. And since 2000, the trend has reversed itself: Chicago’s service employment has fallen off faster than the nation’s.
The loss of high-paying manufacturing jobs over the past 20 years has meant a loss of people and income as well.
“There’s been a drift out of the industrial Midwest,” Koropeckyj said. “It has been losing its influence in the U.S. economy.”
In 1970, she said, the Great Lakes states generated 21 percent of the nation’s personal income. By last year, that number had fallen to about 15 percent. The same trend can be seen in the region’s share of population and employment.
Some companies–especially small ones–see those numbers and figure they might be better off based where the population is growing faster.
“We are not providing at that very fundamental level the opportunity for smaller companies to grow bigger,” said Sears’ Lacy.
City has a lot to offer
What Chicago does offer, Lacy and several other prominent local CEOs said, is a world-class transportation network, a top-notch business-service community and a strong set of universities. That’s likely why a 2001 Chicago Fed study showed that the area remains second only to New York as a home for companies with 2,500 or more employees.
It’s also true that for many, Chicago is a wonderful place to live and has the kind of community spirit that coalesced around the recruitment of Boeing.
“I hate to lose the status of another major company,” said developer Steven Fifield, chief executive of Fifield Cos. “But the reason Chicago doesn’t collapse is because of its incredible, low-turnover labor force.”
Logic would tell you that Cary Kochman, the head of U.S. mergers and acquisitions for Credit Suisse First Boston, would be based in New York. That’s where Credit Suisse has its U.S. headquarters, and that’s where the action is in his business.
But having grown up in Chicago, Kochman missed the Midwest’s value system and standard of living and chose to make the area his home. He has an office in both cities, but he is officially based here.
“It’s a personal choice,” Kochman said. “I’ve got four young children and I like the fact my kids aren’t surrounded by too many investment bankers.”
Amid the doldrums, it is also easy to forget that many of the companies that remain in the Chicago area are just as aggressive as others elsewhere when it comes to growing and investing. Despite its regulatory scrapes, for instance, Abbott has spent $10 billion on acquisitions over the past five years under Chief Executive Miles White.
“It’s disappointing that the Bank One headquarters is leaving, but I still think that the Chicago area is home to some of the most important brands in the world,” White said. “I suppose if you are going to measure the stature of a city by how many corporate headquarters it has, we still look pretty good.”
Chicago’s distress about the Bank One move was hardly lost on Jamie Dimon, the bank’s ambitious, 47-year-old chief executive. On Thursday, he went out of his way to assert that while many jobs will be lost in the move, some eventually may return as the new, larger J.P. Morgan Chase beefs up its retail business, which will remain headquartered in the Loop.
“We will be a vibrant, healthy company here. With lots of employees, lots of well-paid employees,” Dimon said. “You could envision a few other transactions where there would have been nothing here except our branches.”
Harry Kraemer, chief executive of Baxter International Inc., agreed that if Bank One does keep its retail presence in Chicago, it is bound to grow and add jobs. Stimulating small-business employment, he added, is probably more important than fretting over the loss of corporate headquarters.
But he also acknowledged that headquarters count. For one thing, having more companies based here seeds important forums such as the Business Roundtable with “thought leaders” and decision-makers from Chicago.
“When you are in Washington, the fact that you are from Chicago gives Chicago a higher profile,” Kraemer said. “Profile is something that’s good to have.”
Turning up the heat
The loss of headquarters also turns up the heat on the ones that remain, said Abbott’s White. Although many companies say they will keep contributing to non-profit organizations and cultural institutions when they leave, “that simply has proven not to be the case,” White said.
“There are definitely more requests, and their requests are getting larger because there are fewer institutions to ask,” he added. “There are a lot of companies that are going to have to step up to fill that void.”
– – –
Fewer local names on Fortune 500
The number of Chicago-based firms on the list has dwindled in recent years.
1995 FORTUNE 500 COMPANIES HEADQUARTERED IN CHICAGO AREA
Companies marked with * appear in 2003 Fortune 500 list
U.S. rank by revenues
%% 1995 CONPANY 2003
RANK RANK
15 Sears* 30
23 Amoco —
24 Motorola* 59
31 Allstate* 44
50 Sara Lee* 101
70 UAL* 132
84 Ameritech —
115 WMX Tech. —
118 First Chicago NBD —
123 Walgreen* 45
129 Abbott Labs* 100
132 McDonald’s* 124
133 Baxter Inter* 222
175 Stone Container* 230
189 Unicom —
201 R.R. Donnelley* 348
206 Quaker Oats —
208 Navistar Inter* 274
260 Household Inter. —
275 Inland Steel —
286 FMC —
305 Illinois Tool Works* 189
347 Premark Inter. —
358 Aon* 212
370 Morton Inter. —
381 W.W. Grainger* 355
388 ServiceMaster* 437
401 Brunswick* 430
420 Whitman —
442 Tribune* 312
472 Dean Foods —
496 USG* 452
497 Cotter —
498 Ace Hardware —
499 General Instrument —
%%
Note: 2003 companies do not include Bank One (First Chicago NBD), which is being acquired by J.P. Morgan Chase
Source: Fortune
Chicago Tribune
(Chart published in the Chicago Early Edition, News Section, Page 8.)
