The Los Angeles business world, never really a Fortune 500 sort of scene, is less than ever dominated by giant enterprises. Indeed, the companies most likely to be hiring and growing are characterized by another phrase: middle market.
Of the 10 most profitable public companies in Los Angeles County, only one Woodland Hills-based Foundation Health Systems is a Fortune 500 company, based upon average return on equity in the most recently reported five-year period.
Look at the 20 most profitable public companies locally, and only one Fortune 500 company joins the list: El Segundo-based Mattel Inc.
Instead, companies that are hardly household names dominate the list, from Cerritos-based Impco Technologies Inc., a fuel system maker, to Staar Surgical Co., eye surgery product manufacturer.
Among the Fortune 500 list of largest U.S. corporations, only 19 are headquartered in Los Angeles County despite the fact that L.A. is the nation’s second-largest aggregation of businesses after New York-New Jersey-Connecticut.
And one of those 19, H.F. Ahmanson & Co., is in the process of being gobbled up by Seattle-based Washington Mutual Inc.
It’s generally felt that the lack of Fortune 500 companies is not a cause for alarm that it’s more important for the region to provide a good climate for growth companies.
“We aren’t the Fortune 500 town, or the Global 1000 that New York, or Houston, or Dallas, or Chicago is,” said Dick Poladian, managing partner at Arthur Andersen LLP in downtown Los Angeles and a native of the region. “Our business is much different here from those cities. But more important (for regional economic health) is that we provide a quality of life, not only for business owners, but for their employees.”
In some regards, the lack of representation of Fortune 500 companies on the list is to be expected. Simply due to their sheer size, large companies generally cannot post the spectacular profit surges of growing enterprises.
Plus, profits of Fortune 500 companies generally slowed down. Total combined profits in 1997 grew by 7.8 percent, compared with 23.3 percent in 1996.
Middle-market companies, which can adroitly exploit high technologies, often grow more quickly than Fortune 500 behemoths, said Fred Roberts, founder of F.M. Roberts & Co. Inc., a Westside investment banker who services the middle market.
“What we have in Los Angeles is a very strong layer of high-growth businesses, middle-market high-growth companies, sprinkled throughout the medical area, and in the computer technology area, and in communications technology,” said Roberts.
The largest company in Los Angeles, based on 1997 revenues, was Burbank-based Walt Disney Co., but it ranked only No. 51 on the Fortune 500 and No. 33 on the Business Journal list.
The fifth-largest company Northrop-Grumman Corp. in Century City had the 169 spot on the Fortune 500 and No. 54 on the Business Journal list.
Even before the merger mania of the 1990s, Los Angeles was not dominated by blue-chip enterprises.
The Fortune 500 has been led by older East Coast or Midwestern companies. Los Angeles spurted in growth after World War II, spawning a few blue-chip companies in finance, oil and aerospace. But it but never was a headquarters town like New York or Chicago.
“People who came here tended to want to work for themselves,” said Poladian. “I have relatives who are still somewhat set back that it doesn’t say ‘Poladian CPA’ on the door, instead of ‘Arthur Andersen.’ ”
Even among L.A.’s small roll-call of Fortune 500 companies, the ranks have been depleted due to mergers, a tough recession and corporate defections.
Gone are First Interstate Bancorp (acquired by Wells Fargo & Co.), National Medical Enterprises (moved to Santa Barbara and changed name to Tenet Healthcare) and Lockheed Corp. (moved out of state following merger).
Gone also are Beverly Enterprises Inc. (moved to Arkansas), Columbia Savings & Loan (taken over by federal regulators), Security Pacific (acquired by BankAmerica Corp.), and Great Western Financial Corp. (taken over by Washington Mutual).
The decrease in Fortune 500 headquarters here has changed the character of business leadership, said Ray Remy, executive director for the state Economic Development Department.
“What you do not have anymore is the wide range of major corporations you once had, and the leaders they brought to the city, in retailing, in banking. You are not getting the Ed Carsons (former head of First Interstate),” said Remy. “The people running medium-sized businesses are too busy growing their companies.”
Of the three old-line industries that made up Los Angeles’ blue-chip crowd before the 1990s oil, finance, and aerospace only oil has remained relatively unscathed. There is Unocal Corp. (if in El Segundo and not downtown Los Angeles), Occidental Petroleum Inc. and Atlantic Richfield Co.
“If a headquarters is here, they tend to hire other local services, such as printing, or pubic relations and law,” said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County. “We now have more high-growth companies. The world is changing, but we are changing with it.”
