April 24, 2006
The Fortune 500 by State
Posted by Fred Tung

Thanks to the 'Glom Masters for inviting me to participate.  As a fan and frequent lurker on the 'Glom, it's a nice thrill to peek behind the curtain and play a Wizard.

So the Fortune 500 list came out last week.  Both the website and the hardcopy edition slice and dice the list a number of ways--byTexas_1 headquarters city, by state, by industry, etc.  The print edition heralds the fact that Texas for the first time is home to more Fortune 500 headquarters than any other state.  (Certain Texa-philes (hi, Christine!) might appreciate that little factoid.).  Others at the top of the list are not surprising--New York, California, Illinois, Ohio.

As a recent transplant from California to Georgia, state law has been on my mind.  Turns out it wasn't simply a move from a blue state to a red one, but at least according to my impressionistic assessment, from a fairly blue state to a really red one.  For example, I've come to learn that Georgia debtor-creditor law is among the most pro-creditor in the nation, while I always knew that California's was among the most debtor-friendly.  Attitudes toward immigration are another study in contrasts.  With the news of the recent rallies over immigration policy, if I had heard just a snippet of morning radio coverage over the hum of my electric toothbrush in California, it would never have occurred to me to wonder which side the ralliers were on.  In Georgia, by contrast, I have to actually listen to the story to figure out which side is doing which rally.

But back to the Fortune 500.  As a sometime-participant in the charter competition wars, one thing that strikes me about the Fortune 500 list is the relative paucity of company headquarters in states with what I thought to be strong industrial traditions.   Massachusetts, for example, has only 9 companies, far fewer than North Carolina with 14.  Maryland has a mere 5 compared with Virginia's 18 companies.  What drives these differences?  Natural factor endowments must matter, although as a company gets bigger its dependence on local endowments must matter less and less.  Corporate law might matter some, if small companies stay at home even after they become big companies.  And they can always reincorporate without moving.  Population may matter, again on the theory that more small companies may start in large markets and then stay there after they've grown up--although Minnesota ranks #9 on the list (19 headquarters) but 21st in population, and Florida ranks 4th in population but #12 on the Fortune 500 list with 14 company headquarters.  While it's not unheard of for big companies to move their headquarters, I don't think it's very common.

Besides state-by-state comparisons, you can find lists of the biggest winners and losers, women CEOS, newcomers to the list, and more here.

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"The 2006 Fortune 500 was released a couple of weeks ago, and Fred Tung at Conglomerate has some inte ..." [more] (Tracked on April 26, 2006 @ 7:56)
Comments (8)

1. Posted by Vic on April 24, 2006 @ 18:58 | Permalink

Hey Fred. Also interesting is how few are headquartered in LA. It doesn't even make the top 20 for cities. With such a large population you would have expected more, right? Did you discover the answer to this while you were at Loyola? Maybe it's just a measurement issue, as there are some more HQs in places like Pasadena, Riverside, and Irvine, which are sort of Los Angeles.

2. Posted by Gordon Smith on April 25, 2006 @ 0:04 | Permalink

Fred, I was interested in your mention of North Carolina, thinking that technology might have something to do with its success. Not really.

Bank of America: Cali corporation merged with NationsBank, an NC corporation

Lowe's: Old company. Born and raised in NC.

Wachovia: Old company. Born and raised in NC.

Duke Energy: Texas corporation merged with Duke Power, an NC corporation

Nucor: Old steel company, moved to NC in 1966.

Progress Energy: Old Florida company merged into NC company

Sonic Automotive: Young automotive dealer group, founded in NC.

Reynolds American: Old tobacco company, long time in NC.

BB&T Corp: Old bank with roots in NC.

VF: Old clothing manufacturer, recently (2002) consolidating operations in NC

Family Dollar: Home-grown in NC

Goodrich: Old rubber company, founded in Ohio, but not sure when it moved to NC

SPX: Traces its history to founding in 1911 in Michigan. Moved to NC through merger.

Jefferson Pilot: Old NC company

The lesson of all of this? Well, I'm not sure, except that big corporations are usually old corporations, and old corporations become big via internal growth or merger. In the end, however, all of them have decided to stay in NC, and I suspect that has something to do with general development in that part of the country.

3. Posted by Fred Tung on April 25, 2006 @ 4:15 | Permalink

Vic, your hypothesis about LA is right, I think. If you scan the list of California companies, you see "Greater LA" addresses--Pasadena, Irvine, Woodland Hills, Thousand Oaks, Beverly Hills, Newport Beach, Burbank. Even 2 in Calabasas! Similarly, San Francisco proper is a small spit of land. Many of the Fortune 500 are up and down the Peninsula and in the East Bay.

Gordon, thanks for your research. It may be that there is no single theory to explain how a state gets Fortune 500 headquarters. Besides the original headquarters staying put, the company has to expand to where, in all likelihood, the lion's share of its revenues come from outside the state. Certainly that must be true for Reynolds and the NC banks. And that out-of-state revenue growth may not generally be susceptible to much in-state influence.

Upon closer inspection, state population seems roughly to track the number of F500 headquarters (I'm using 2004 population data). 4 of the top five by headquarters are in the top 5 by population. 8 of the top 10 by headquarters are in the top 10 by population. The biggest surprises by this reckoning are: on the plus side, Minnesota--ranked 9th by headquarters but a mere 21st by population; and on the minus side, Florida--ranked 4th by population but only 12th by F500 headquarters.

If population is key, then maybe it's just a matter of numbers. More people means more small companies, and if the likelihood of making it into the Fortune 500 is random, then more little companies in a state may produce more winners in the Fortune 500 lottery. This of course assumes that ordinal rankings along both metrics stay pretty stable over time. OTOH, it may be that population is a proxy for a bunch of other things. Which takes us right back where we started. . . .

4. Posted by Gordon Smith on April 25, 2006 @ 9:01 | Permalink

Or that populations grow around Fortune 500 companies!

5. Posted by Christine on April 25, 2006 @ 9:08 | Permalink

I would hypothesize that headquartering is a function of resources, with population being just one resource. For instance, out of the 56 Texas companies that are in the top 500, 28 (exactly half) are in the energy, oil production, oil production services, pipeline or petrochemical industries. These companies are there because that's where the resources are. Likewise, Oklahoma has six companies in the top 500. All six are in the energy industries.

6. Posted by William Henderson on April 25, 2006 @ 9:29 | Permalink


Your post is very relevant to my work on the economic geography of large law firms. A few quick comments:

1. Fortune does not list companies by Metropolitan Statistical Areas (MSAs), which sweeps in central cities and suburbs. MSAs are useful because they reflect how regional labor markets operate. I am in the process of coding Fortune 1000 companies by MSA.

2. During my research, I was surprised to learn that there is a net outflow of Fortune 1000 HQs from the three largest MSAs: NY, LA, and Chicago. The companies that are bucking this trend tend to fit the profile of Boeing, which relocated from Seattle to Chicago a few years ago: The company's longterm growth is exclusively global in character. Otherwise, the best predictor of Corp HQs are low tax, low wage, high agglomeration cities with good airports (i.e., a major hub). See Strauss-Kahn & Vives, Why and Where do Headquarters Move? (CEPR Working Paper No. 5070, May 2005). These dynamics heavily favor Sun Belt cities.

3. Large law firms are moving in the exact opposite direction. For example, despite high operating costs, which drives out many corporate HQs, NYC is emerging as a global center of "producer services." When a U.S. company wants to expand internationally, the most sophisticated and cost-effective legal, financial, accounting, and marketing advice is found in New York. The external economies of this agglomeration of talent outweigh the higher costs. Hence, between 1993 and 2003, 69 Am Law 200 firms opened offices in NYC. A few other U.S. cities are also global centers of producer services. But NYC, despite the high costs, is clearly leading the pack.

7. Posted by Michael Guttentag on April 25, 2006 @ 12:12 | Permalink

Another factor to consider is where CEO’s and other senior managers want to live. In some cases, the location of the corporate headquarters is dictated by these preferences (do I get points for tying this discussion back to Bebchuck & Fried?). That, for example, explains the presence of Dole Foods corporate headquarters in Westlake Village. Westlake Village is where David Murdocik, the company’s CEO, owns a golf course / country club. That said, it does look like purely managerial driven locations are the exception rather than the rule.

8. Posted by Fred Tung on April 25, 2006 @ 18:41 | Permalink

Thanks for all your interesting thoughts. Christine, on the Texas F500: in addition to local resources, which undoubtedly must matter for headquartering generally, it appears that the Texas F500 contingent got a huge boost this year from rising energy prices. Eight of the Texas 56 are new (did not make the cut last year), and of these eight, five are energy companies.

Bill, thanks for your observations. MSAs would definitely remedy the anomaly Vic points out. On law firms herding to NYC, it makes perfect sense. The per-employee revenues of a national law firm must be much larger than that of your garden-variety corporate headquarters. At the same time, I wonder how many of those new offices are actually profit centers. Back in the day when every big firm just had to be in Asia, Tokyo and Hong Kong--and to a lesser extent Beijing and Shanghai--became popular places to hang a US or UK shingle. Almost none of those offices ever came close to breaking even--at least not based on the amount of legal work done there. Instead, these offices were merely marketing arms of the home operations. Being in Tokyo enabled the firms to capture a lot of inbound work (yen chasing deals in the US or UK) because those firms had name recognition in Japan.

While it's probably not so dismal for new NYC offices of big DC or Chicago firms--they presumably bill out at NYC rates--I wonder whether some of those outposts are merely defensive measures to keep US business within the firm that might otherwise go to a NYC-based firm, and that have nothing to do with international expansion.

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