GHOST COMPANIES : Maintaining Plants Back East and Living Easy in Orange County Can Be an Executive’s Dream
So AFG Industries, a New York Stock Exchange company with 6,000 employees and nearly $500 million in annual sales, has moved its headquarters from Irvine to Ft. Worth, Tex.?
Does it make a difference to Orange County?
The move certainly won’t cause any employment problems. Only 14 AFG employees worked at the Irvine headquarters. The rest are spread among AFG glass-making factories and distribution centers in places such as New Jersey, West Virginia, Tennessee and Pennsylvania.
Neither the state nor the local economy get much of a boost from AFG’s soaring sales and profits. The company’s California payroll is small. Besides its small headquarters operation, the only other AFG facility in the state is a glass-making factory in Victorville that began production late last year. And because most of its sales are in other states, AFG’s California corporate income tax bill is based on only a fraction of its total revenues.
AFG is one of several Orange County ghost companies: businesses that have their headquarters and key management employees here while their factories, sales offices and other facilities--and the bulk of their employees--are located elsewhere.
Benefit to County
There is a benefit to the county, however, when major companies like AFG set up headquarters here. The Orange County Chamber of Commerce, the Industrial League of Orange County and other agencies use the presence of high-profile firms as bait to entice other companies to set up shop locally.
“You bet we do,” said Industrial League director Todd Nicholson. Having well-known companies with headquarters or large subsidiaries in the county is a clear sign that the county has a good business climate, he said.
But the ghost companies, a group that includes several large, publicly traded corporations and many small, private firms that maintain a spectral presence in Orange County, set up their headquarters here for a variety of reasons.
Some are, indeed, looking for access to sources of financing, or a central location in the Southland business community. Some like the accessibility of the county’s airport or the quality of the local white-collar workforce.
But a secondary reason seems to be that many corporate executives decide at some point that, by gosh, they are successful and can afford to live wherever they would like, so why put up with another snowy winter in Iowa when the sands of Newport Beach are beckoning!
Local chambers of commerce and industrial development organizations make a big thing of the Orange County life style in brochures, advertisements and speeches aimed at luring companies to the county.
The Irvine Co., a major commercial and industrial developer, recently sponsored an ad campaign featuring a breathtaking view of hundreds of sailboats off the Newport Beach coastline, their multi-colored genoas billowing in the breeze. In the background were the high-rise office buildings of Newport Center. The copy referred to the scene as Orange County’s rush hour.
“Life style is the thing,” said Will Elliott, senior vice president and general manager of Merrill Lynch Realty in Tustin and a specialist in residential relocation services for corporate officials.
Freed by Electronic Communication
The era of instant electronic communication has freed many business owners and corporate officials from the need to be physically present at their plants, Elliott said.
And a growing number are heading for the good life in Southern California in general and Orange County in particular.
Elliott said his agents are constantly fielding requests from executives looking for Orange County homes with “resource rooms” that can be wired for computers, facsimile machines and extra telephones. One recent client, Elliott said, “wanted a house that could be linked to a communications satellite.”
And separating body and soul, so to speak, isn’t all that damaging to a well-run company, said Steve Pokress, president of All-American Gourmet in Orange. All-American, a frozen food company, is headquartered in Orange County but has its production facilities in Utah, Pennsylvania and Georgia.
“Management doesn’t have to sit on the factory floor anymore,” Pokress said. “You manage through good, decentralized quality managers on the site.”
“It is really very typical of any national company,” he said. “You only have problems when you have decentralized management without authority and without planning.”
All-American, which was acquired last summer by Kraft Foods Inc. for nearly $300 million, did all right, in any event. The company began in 1983 with just a few million dollars in sales. It reported $195 million in revenues for the 12 months just before being acquired.
When AFG moved its corporate offices to Irvine from Tennessee in 1984, it was just completing a year in which sales reached $282 million and profits hit $18 million. It is leaving the county after a year of $488 million in sales and $82 million in earnings.
R.D. Hubbard, AFG’s founder and chairman, has always said that Orange County was selected as the company’s new headquarters site because he wanted to give the Tennessee-based corporation more exposure to the national financial community.
He also bought a $1.8-million waterfront home in Newport Beach, moved his string of quarter horses to Los Alamitos Race Track and began adding thoroughbreds to his stable, indications that he enjoyed more than just financial access during his stay here.
AFG officials say they decided to move their headquarters to Texas because it is more central to the company’s far-flung facilities. They said they were spending too much time in the air when Irvine was home base.
People who can afford it like to live where they can enjoy their outside interests, said Ernest Doud, who heads the management-consulting unit for the accounting firm of Laventhol & Horwath in Los Angeles.
Take the case of All-American Gourmet, which makes a line of frozen entrees and side dishes.
60 of 1,100 Employees in Orange
All-American was established in 1983 as a unit of General Host Corp. of Stamford, Conn. Its production and packaging plants are in Utah, Pennsylvania and Georgia. But its headquarters--and 60 of its 1,100 employees--are in Orange.
Ernest W. Townsend, the General Host executive who oversaw creation of the company and served as its first president, was allowed to pick the headquarters site.
According to Gayle Satterblom, All-American’s office manager in Orange, Townsend had lived in Orange County before and was an avid sailor who wanted to be near the boating facilities in Newport Beach. So he picked Orange.
(Shortly after Kraft acquired All-American Gourmet, Townsend was named president of Kraft’s entire frozen foods group. To take the promotion, he had to move to corporate headquarters in Chicago, where the weather in recent days has been cold and wet. Satterblom said with a chuckle that “we don’t dare” discuss the weather in Orange County when talking to Townsend on the phone.)
For Edward Carpenter, a representative of the smaller, entrepreneurial “ghosts” in the county, the decision to move his office from downtown Los Angeles to Costa Mesa in 1981 came as a direct result of too many hours spent amid the exhaust fumes on the San Diego Freeway.
“I got tired of the commute,” said Carpenter, head of the financial consulting firm of Edward Carpenter & Associates.
So he and a secretary left the corporate headquarters and set up administrative offices in a suite in Costa Mesa. Today that office has five employees, while 76 members of the organization continue to labor in Los Angeles.
Five Minutes From Airport
Carpenter said he has found it easier to fly out of the county’s John Wayne Airport than flying out of Los Angeles International. “And when clients fly in to see me, I’m five minutes from the airport now, instead of the 45-minute drive from LAX to the downtown office.”
In addition, he said, “I’ve found there are as many successful executives in Orange County as there are anywhere, and if I’m going to do business with them and socialize with them, I might as well have my office down here.”
The geographic separation is not a problem, he said, “as long as you realize that you have to have strong people and be willing to delegate to them.” There is a higher cost attached to that, he said, “because you have to pay more to get those kind of people, but you need them anyhow, if you ever hope to grow.”
Management consultant Doud said that managers who maintain a substantial geographic distance from their production facilities also must be willing to travel. In AFG’s case, executives traveled constantly and finally decided that distances from Orange County to most of the company’s facilities were simply too great. Moving to Texas makes it possible to travel to and from most AFG operations in a single day, the company said.
More important, Doud said, managers who want to savor the sun while their production workers are trudging through the sleet in Chicago or battling blizzards in Buffalo must be willing and able to delegate, and must have the discipline to plan well ahead.
Then they can enjoy.
THE NATIONAL LOOK Community Psychiatric Centers
1987 earnings: $60 million.
1987 revenue: $295.6 million.
-- 5,400 employees
-- 40 acute psychiatric hospitals
-- 67 dialysis centers
-- 14 home health care offices.
Headquarters: Laguna Hills (40 employees).
Other Orange County facilities: 52-bed hospital in Santa Ana, 100 employees. Hospital under construction in Laguna Hills.
Other California facilities: 9 psychiatric hospitals, 13 dialysis centers, 14 home health care administrative offices.
Other states with operations: Washington, Oregon, Illinois, Florida, Texas, Louisiana, Pennsylvania, Alabama, Arkansas, Georgia, Missouri, Tennessee, South Carolina, Arizona, Colorado, Michigan, Virginia.
Foreign locations: London, Southampton, Wales.
AFG Industries Inc.
1987 earnings: $81.7 million.
1987 revenue: $488.4 million.
-- 6,000 employees
-- 5 glass manufacturing plants
-- 3 glass product fabrication plants
-- 2 distribution centers
Headquarters: Irvine (moving to Ft. Worth on Monday), 14 employees.
Other Orange County facilities: none.
Other California facilities: Glass-making plant in Victorville.
Other states with operations: Texas, Tennessee, West Virginia, Georgia.
All-American Gourmet
Fiscal 1987 earnings, nine months: $3.8 million**.
Revenue: (12 months) $195 million.
-- 1,100 employees
-- 3 production plants
Headquarters: Orange (45 employees).
Other Orange County facilities: none.
Other states with operations: Georgia, Pennsylvania, Utah.
** earnings reported only for first nine months of the fiscal year because of acquisition by Kraft in June, 1987, and shift to calendar-year reporting.
Source: Individual companies
