Computer Sciences Corp.’s move of its headquarters from El Segundo appears to be collateral damage from Van Honeycutt’s unexpected resignation last year as the IT giant’s longtime chief executive.
Honeycutt, a Los Angeles resident, was succeeded by Michael Laphen, who hails from Falls Church, Va. Even after his promotion, Laphen remained at Falls Church, which is the company’s operational headquarters. And that’s where the company last week announced it will move its headquarters.
Chief executive preference is a time-honored tradition when it comes to choosing the site where the corporate flag is planted, and it’s not particularly unusual for headquarters to move to the CEO’s home.
With CSC’s move, Los Angeles County will lose the headquarters of its 12th biggest public company by market capitalization. CSC is a little smaller than Mattel Inc. L.A. County is home to only 23 corporate headquarters among Fortune 500 companies a number that will drop with CSC’s departure.
Several pointed out that the move to Virginia makes sense. About 11,000 of the company’s 92,000 employees are based there.
What’s more, several of the company’s L.A.-based top executives also are retiring, and their successors are from Virginia, said Mike Dickerson, company spokesman.
“These executives are in Falls Church because the biggest growth engine of the company is there,” said Kevin Klowden, managing economist at the Milken Institute, a think tank in Santa Monica. “The reason that the corporate headquarters hadn’t moved is because the old executives were L.A.-based. All it took was that generation to leave.”
The information technology company is one of the federal government’s largest prime contractors, providing computer support and consulting for organizations ranging from NASA and the Pentagon to the IRS and the Department of Defense. Last year, more than 30 percent of its $15.5 billion in sales came from government contracts, which are processed through the company’s Falls Church location.
Commercial outsourcing for companies such as BAE Systems, the world’s third largest defense company, is also handled in Virginia.
“CSC kept hiring people in Virginia and not in Los Angeles, which made it possible to do the move,” Klowden. “The move of the headquarters was the final blow, but CSC had stopped being an L.A. company a while back.”
Honeycutt left last May amid an accounting debacle that forced the company to restate 10 years worth of earnings. He got an $11 million retirement package. He could not be reached for comment.
The company had been criticized for past executive stock option practices, but the restatements were blamed on errors relating to taxes and foreign currency fluctuations. About $600 million in charges against earnings were expected for the years from 1997 to 2007.
CSC also was the target of two takeover bids in late 2005 and early 2006. Lockheed Martin and three private equity firms wanted to split the company into two, a technology company and an IT outsourcing company. CSC rejected the proposals, then hired Goldman Sachs & Co. to explore a sale. Nothing resulted.
Small in L.A.
Computer Science’s L.A. headquarters is relatively small, with about 400 people. Half are corporate employees and the rest are consultants and line operators. The move would only impact the corporate staff, although many of them will continue to work in El Segundo, Dickerson said.
Some positions will be eliminated if there are redundancies in the process of consolidating the corporate and operational headquarters.
Klowden compared CSC’s move to Nissan’s decision to depart for Tennessee in 2005 after 45 years of operating its North American headquarters out of California. Thousands of Nissan employees moved out of the 42-acre industrial campus in Gardena.
The cost of living, which is 20 percent lower in Tennessee, was cited as a major reason for the move, but Tennessee also offered an array of tax incentives.
In the case of Computer Sciences’ move, corporate taxes tend to be lower in Virginia, while the cost of living in the Washington, D.C., area is comparable to Los Angeles.
Many companies began leaving the L.A. area in the late 1980s, beginning with the financial services industry, namely First Interstate Bank and Security Pacific Bank, followed by Home Savings and Loan Co.
The perception is that the politics in the city and county of Los Angeles are weighed against businesses, and the city lacks a desire to recruit new businesses, Klowden said.
Computer Sciences began in 1959 in an office above a Palos Verdes bakery. Founders Fletcher Jones and Roy Nutt started as a fledgling tech-support company contracting with the booming aerospace industry.
In the 1990s, Computer Sciences moved away from aerospace and grew its commercial outsourcing business, as corporations began contracting out for their entire IT operations. During this time, it also began working with defense contractors such as General Dynamics, and eventually became a top federal government contractor itself.
