What San Diego CEOs Say As They Leave Town – Or Threaten To
Business leaders who’ve left San Diego behind have cited utility issues, housing costs and often, the benefits of a more central location, as they packed up for other states.
Many companies leave or land in San Diego without giving a reason.
But some business leaders have spoken out about why they’ve chosen to pack up for another state – or at least why they mulled a move.
I pulled together what CEOs have said on their way out of town. Some panned California taxes and regulations, but their reasons often focus more on the benefits of expanding operations elsewhere.
A trio of CEOs whose tech companies were bought out by a single equity firm spoke more about the payoffs of moving to Texas than drags associated with San Diego. A couple other executives said expanding elsewhere would make it easier to work with employees and customer bases outside California. Still others, including a couple CEOs who stayed put, offered some details for why they believe California’s business environment is tough.
Let’s start with one of most high-profile business moves out of the San Diego area: Buck Knives, the well-known knife manufacturer which went to Idaho in 2004.
“Two things. Workers Comp rates in Southern California had gotten out of control. There was also a serious resource issue that was scary with rolling blackouts and water rationing that all led to uncontrollable utility bills. We had to make a major change.
We considered becoming a marketing-only company and outsourcing all production, or having assembly done in Mexico. The third option was a combination of adopting lean manufacturing, the Toyota production system, and moving out of California. We chose number three, which was the one most conducive to the brand.”
Three chief executives who announced moves to Texas following acquisitions by Vista Equity Partners were much less specific. Each is set to benefit from millions of dollars in incentives from its new home state. Software company Websense’s relocation to Austin – which came with a $4.5 million payout from the Texas Enterprise Fund – was the first to go public when it announced a planned move in February.
Then the news that online event registration firm Active Network was also mostly bailing on San Diego came in early July.
The CEOs of both companies focused on the benefits of their new hubs rather than describe what persuaded the new ownership to mostly leave San Diego behind.
But earlier this month, the third company, fleet management firm Omnitracs, provided a little more detail when it revealed plans for a move that’ll come with $3.9 million in incentives from Texas. In this case, CEO John Graham noted one plus that San Diego may not have offered:
“As a major transportation hub with a technology-savvy workforce, we believe Dallas offers great advantages that align with our long-term business vision. Our new headquarters location places us closer to many of our fleet customers to ensure we can quickly and efficiently meet their evolving mobile technology needs.”
Nearness to existing workers and customers has apparently factored into other decisions too.
Tech company Fallbrook Technologies’ CEO William Klehm III noted the firm’s long presence in Cedar Park, Texas in May 2012 when it announce it’d be moving its headquarters from San Diego to the Austin suburb.
Here’s what Klehm told U-T San Diego:
“Proximity matters in business. We are seeing an unbelievable amount of growth coming at us. I been through hyper-growth companies before, and one of the most important things to do as you’re going through these changes is you want to have the key decision makers and the staff close by, because the decisions have to be made moment by moment.”
Health services company American Specialty Health also mentioned location – specifically a need to develop a presence in multiple U.S. regions – when it announced plans to move its headquarters to Indiana last year. At the time, the company told U-T San Diego 675 jobs would remain here.
CEO George DeVries, an Indiana native, told the U-T the move was “part of a long-term strategy to make us a stronger national company” but pointed to one factor that also partly drove the choice to expand elsewhere:
“Only 20 to 25 percent of San Diegans can afford to buy a house. Out here in Indiana, virtually all of our employees can afford to buy a home or a condo, and that is meaningful to us.”
Not every CEO who speaks out about a potential move outside of San Diego actually ends up leaving.
Formerly Vista-based Jensen Meat Company threatened to exit the region in 2011 after Gov. Jerry Brown proposed ending the state enterprise zone program that doled out hundreds of millions of dollars in business tax breaks.
Jensen Meat CEO Robert Jensen told San Diego Business Journal he’d be on his way out if the program, was halted:
“If the Enterprise Zone is to be terminated, there are only two alternatives. The first option is not to expand and be out of business since we cannot meet the demands of our growing national customers, (which) is not a viable option. The second option is to leave the state of California in order to stay competitive. Jensen Meat’s biggest competitor is already gearing up to move out of California to the state of Texas. I want to keep my family-owned business in California but only if it makes business sense to do so.”
A year later, Jensen opened a new factory in Otay Mesa after San Diego officials were able to find a way to use the enterprise zone program to help the company after all. As it prepared to open its new headquarters, the company told 10 News it envisioned adding as many as 350 new jobs in the region by 2014. (The state later decided to change the enterprise zone program rather than eliminate it.)
At least one other CEO had a sharper message for the state back in 2012.
Peter Farrell, CEO of medical-device company ResMed, decried the state’s “excessive regulations and excessive tax” in an interview with Fox News and said his company was looking at the possibility of a move to Texas, South Carolina or Singapore.
Here’s what he told the San Diego Business Journal:
“We’re trying to evaluate whether or not it’s the best thing for our shareholders — and for our future — to remain headquartered in California. California just doesn’t have a business-friendly environment, and my gut says it will get worse. Do we want to sit around on the deck of the Titanic?”
Farrell didn’t elaborate further on exactly which policies and taxes were hampering ResMed.
Weeks after the Fox News interview, ResMed told U-T San Diego it wasn’t leaving after all. A group including Brown and then-Mayor Bob Filner’s office had apparently persuaded the firm to stay. Another company executive told U-T San Diego a move out of California could actually be disruptive.
ResMed wasn’t ready to eliminate the possibility of a move though. The company’s general counsel and chief administrative officer said San Diego “scored sixth out of seven cities in purely economic terms.”
This is part of our quest digging into the difficulties – real or perceived – of doing business in San Diego. Check out the previous story in our series, Businesses Bailing on San Diego: Required Reading, and the next installment, San Diego Is Attracting More Businesses Than It’s Losing.