San Diego Feeling Like ‘Stepchild’ : Economics: The nation’s sixth-largest city keeps losing corporate head offices. The trend has community fund-raisers worried.

Even in a city that has resigned itself to branch office status, the statistic comes as something of a shock.

Of the 15 largest publicly held companies headquartered in San Diego a year ago, six have either moved away, closed down, been acquired or agreed to be acquired. Among the recent or pending moves: Henley Group, which has moved head offices to New Hampshire; Imperial Savings, which was closed down last month by federal thrift regulators, and Cipher Data Products, which last week agreed to be acquired by Archive of Costa Mesa.

The head offices of two other San Diego companies that placed high in last year’s top 15 could also be on the way out. San Diego Gas & Electric is facing a proposed takeover by SCEcorp, and Great American Bank’s capital levels have fallen so low that the thrift, the nation’s eighth largest, may be acquired or forced to merge with a stronger institution.

Fisher Scientific, formerly one of San Diego’s largest locally based companies with revenue of close to $1 billion, merged with Henley last year before its new parent moved to New Hampshire. The year also saw the departure of smaller publicly held companies such as Pancretec, Gen-Probe, Monitor Technologies and Syntro.

San Diego is also in the process of losing three of its largest regional banks. Torrey Pines Bank of Solana Beach has agreed to a merger with Wells Fargo Bank, and La Jolla Bank & Trust is to be acquired by Security Pacific, the Los Angeles bank holding company that last year acquired Southwest Bank of Vista in north San Diego County.

The loss of so many headquarters companies confirms what many observers see as San Diego’s branch town corporate status, continuing a trend that began in the early 1980s when corporate giants such as Wickes, Pacific Southwest Airlines and Signal Cos. all left town or were acquired by outside firms.

“We keep talking about making it a world-class city,” said Jim Ryan, executive director of the San Diego County Taxpayers Assn., a fiscal watchdog group. “San Francisco and Los Angeles have that image. Part of that is that they have headquarters offices there.”

San Diego’s size isn’t the issue, Ryan said, noting that the city is the nation’s sixth largest. But the decline of headquarters offices is contributing to what he called the community’s “stepchild mentality.”

Several reasons have been advanced for the drain on San Diego’s headquarters offices, including its proximity to metropolitan Los Angeles-Orange County with its larger demographics and better transport and communication logistics, and the consolidation of businesses that has resulted from the last decade’s merger mania.

Citing the wave of junk bond-financed mergers and the resulting corporate consolidation, San Diego Mayor Maureen O’Connor said through a spokesman that San Diego is no different from other U.S. cities and that the loss of headquarters offices “has nothing to do with San Diego per se as much as the overall business climate.”

But Dan Pegg, president of the Economic Development Corp., a quasi-public agency that is charged with bringing jobs to San Diego through corporate relocations, said San Diego works at a geographical disadvantage in its efforts to lure head offices.

“We’re in the southwest corner of the U.S., and it’s just not a corporate headquarters location,” Pegg said, adding that over the last few years, the EDC has refocused its strategy away from luring headquarters offices here in favor of relocation of subsidiary operations.

Some local business leaders, such as Pulse Engineering Chairman David Flowers, say the city should not be so resigned to its branch office town fate. Flowers, who is president of the local chapter of the National Assn. of Corporate Directors, said San Diego’s lack of adequate customs facilities, airport space and harbor capacity is keeping it from becoming an “international city.”

“You have to do something besides promote festivals,” Flowers said, refering to Mayor O’Connor’s backing of a Russian arts festival last October. “We haven’t done the things to make us more attractive to large companies. That’s hard to do when we’re the last stop on the airlines. That’s a big factor with many firms.”

The paradox is that the flight of so many headquarters firms from San Diego seems to have had remarkably little effect on the economy. San Diego County unemployment in January was 3.8%, which some observers say is close to full employment. The county’s gross regional product, a barometer of economic well-being, is growing faster than the state’s and the nation’s.

Even the local accounting, legal and advertising firms that traditionally support corporate headquarters offices insist that the rising tide of the San Diego economy has more than compensated for the head office drain. The proliferation of new high-technology and biotechnology companies, in particular, is keeping them busy, the firms say.

“San Diego continues to be a destination of choice for start-up companies and therefore the vacuum is filled as quickly as it’s created,” said attorney Kenneth Polin, whose law firm of Page, Polin, Busch & Boatwright specializes in corporate work.

Tim Larrick, a spokesman for Phillips-Ramsey, one of San Diego’s largest ad agencies, said the reduction in San Diego’s corporate headquarters has been “an ongoing trend for several years” but that the San Diego advertising market continues to grow nonetheless. “San Diego is just developing a different kind of economic structure,” Larrick said.

One measureable effect of San Diego’s loss of headquarters offices, however, is the negative impact on local arts and community groups whose budgets depend in large measure on donations from large, locally based companies.

Michael Bever, assistant vice chancellor for development at UC San Diego, said, “a corporation, even a multinational corporation, tends to give in its own back yard first. Companies are interested in being perceived as good neighbors where they have installations, and typically the headquarters location is the largest installation they have and where their primary interest may lie.”

To illustrate, Pegg said that although San Diego has the second-highest concentration of Eli Lilly employees by being home to the company’s IVAC and Hybritech subsidiaries, he would estimate that San Diego gets “less than 5% of (Indianapolis-based Lilly’s) corporate largess.”

The departure of Henley Group, which donated more than $535,000 to local arts and civic groups in the 12-month period ended last May, left a significant void. Henley and its chairman, Michael Dingman, backed a number of civic causes including the America’s Cup defense, a La Jolla prep school and the establishment of a San Diego automotive museum.

The financial problems of Great American Bank and the possibility that it could disappear as a corporate benefactor have sent tremors throughout the local arts community. Great American and its chairman, Gordon Luce, have long been among the city’s most generous sponsors or arts and civic activity, donating slightly less than $1 million a year to arts and civic groups.

Luce’s status as one of the city’s most effective fund-raisers would almost certainly be reduced by a buyout of Great American by an outside financial institution. And that worries Old Globe Theater Managing Director Thomas Hall, who describes Luce as a “great supporter of ours” and a key player in the fund-raising campaign to rebuild the Old Globe after it was destroyed in a 1978 fire.

“It would be sad to see that kind of loss,” Hall said. “Gordon is not the kind of CEO who sits and deals with things at arm’s length. He rolls up his sleeves and gets involved.”

San Diego Symphony Director of Development Jim Bastis said corporate donations are running 50% below the $600,000 sum targeted by the symphony this year and that San Diego’s loss of several headquarters offices is a reason.

“Symphonies are having a difficult time across the country anyway, and I think the problems are compounded here,” Bastis said. “Finding other corporations to take up the cause in place of those no longer supporting us is rather difficult when there aren’t that many headquartered in this area.”

Replacing older corporate donors with new ones is particularly difficult in San Diego because of the city’s emerging profile as a “science-based” high-technology and biotechnology economy, said Ray Dittamor, a partner at the San Diego office of the Ernst & Young accounting firm.

The resources of young high-technology companies, both in terms of money and time that executives can give to civic causes, is too limited to allow for much philanthropy, Dittamor said.

SAN DIEGO COMPANIES THAT HAVE GONE . . .

The following is a partial list of San Diego-based companies whose headquarters offices have been been acquired, relocated or shut down in the past year or so:

COMPANY: Imperial Savings BUSINESS: 80-branch savings and loan REASON FOR DEPARTURE: Regulatory takeover

COMPANY: Henley Group BUSINESS: Manufacturing conglomerate REASON FOR DEPARTURE: Relocation to New Hampshire

COMPANY: Fisher Scientific Group BUSINESS: Medical products manufacturer REASON FOR DEPARTURE: Merged with Henley

COMPANY: Oak Industries BUSINESS: Electronics components REASON FOR DEPARTURE: Relocation to Boston

COMPANY: Cipher Data Products BUSINESS: Computer peripherals manufacturer REASON FOR DEPARTURE: To be acquired by Archive of Costa Mesa for $121 million

COMPANY: Triton Group BUSINESS: Multi-industry holding company REASON FOR DEPARTURE: To merge with Intermark of La Jolla

COMPANY: La Jolla Bank & Trust BUSINESS: 12-branch regional bank REASON FOR DEPARTURE: To be acquired by Security Pacific for $112 million

COMPANY: Torrey Pines Bank BUSINESS: 7-branch regional bank based in Solana Beach REASON FOR DEPARTURE: To be acquired by Wells Fargo for $74.5 million

COMPANY: Southwest Bank BUSINESS: 14-branch regional bank based in Vista REASON FOR DEPARTURE: Acquired by Security Pacific for $32 million

COMPANY: Education Systems BUSINESS: Educational software publisher REASON FOR DEPARTURE: Acquired by Jostens of Minneapolis for $64.4 million

COMPANY: Gen-Probe BUSINESS: Biotechnology manufacturer REASON FOR DEPARTURE: Acquired by Chugai Pharmaceutical of Japan for $110 million

COMPANY: Pancretec BUSINESS: Medical equipment manufacturer REASON FOR DEPARTURE: Acquired by Abbott Laboratories for $54 million.

. . . AND THOSE THAT MAY BE GOING

COMPANY: San Diego Gas & Electric BUSINESS: San Diego’s power and heating utility REASON FOR DEPARTURE: Proposed merger with Southern California Edison

COMPANY: Great American Bank BUSINESS: 214-branch savings and loan REASON FOR DEPARTURE: May soon be acquired or forced to merge with a stronger institution

Source: IDD Information Services