Chapter Five: Business Changes Worldwide

The prodigious success relished by many of Cleveland’s Fortune 500s during the last decade of the 20th century notwithstanding, a number of that city’s more memorable ventures had all but vanished from the local scene by then. Crucial acquisitions, mergers and bankruptcies had thrown Cleveland’s even-tempered local economic and financial scene into utter economic chaos. That transformation process began when the Hupp Corporation declared bankruptcy in 1991. Begun by Robert Hupp (1877-1931) and Charles D. Hastings (1858-1940), this esteemed manufacturer had produced middle-priced automobiles for nearly three decades.

Ending auto production at the outbreak of the Second World War to concentrate on the manufacturing of special parts for other contemporary auto producers, the Hupp Company moved its corporate headquarters from Detroit, MI to Cleveland, OH in 1946. Now known for its dependable household appliances and energy efficient heating systems, Hupp officials soon broadened their product lines to include a number of new items. They included such things as air conditioning units, food freezers and soft drink dispensers. Starting in the 1970s, a new, penetrating rivalry waged by similarly inspired competitors saw Hupp sales suddenly plummet. By the late 1980s, its sales had fallen by greater than 50% from its high levels in the early 1970s. Powerless when it came to overcoming the unnerving economic and financial challenges posed by both aggressive domestic and foreign concerns led its Board of Directors to close its Cleveland operations.^[1]

Another renowned local lending institution the Cleveland Trust Bank also disappeared from the Fortune 500 list by the early 1990s. Founded in 1894 as the Security Safe Deposit & Trust Company, it became the nation’s 6th largest bank by 1925. In 1979, this well-respected regional banking interest, now called Ameritrust, dropped its regional status in order to become a statewide institution. Burdened with insoluble debt, based on precarious loans many of which were issued to third world nations along with equally unreliable real estate transactions and a decided enfeebled U.S. banking industry due to the savings and loan scandal and subsequent collapse, obliged the Ameritrust Board of Directors to seek out a qualified buyer as rapidly as possible. Both the National City Bank of Cleveland and the Society Corporation met that bank’s rigid requirements with the latter institution finally getting federal authorization to acquire it.

A press release in March 1992 announced that Ameritrust and the Society Corporation of Cleveland had agreed to a $1,200,000,000 stock swap. The increasing concerns expressed by the U.S. Department of Justice (DOJ) that a buyout of that magnitude might constitute a monopoly led Society officials to transfer over 30 Ameritrust branches to one of its chief competitors, the Star Banc of Cincinnati, OH. Deposits at those multiple sites surpassed $7,000,000,000. Federal officials also required the Society Corporation to redirect approximately $46,000,000 towards a targeted Ameritrust reserve account. That action prevented the possibility of problem loans suddenly materializing after this colossal merger. Once those requirements had been met then the merger of those two institutions proceeded ahead as scheduled. Now the largest bank in Cleveland and 29th nationwide, this lending institution boasted of having assets that exceeded the $26,000,000,000 mark. In 2009, the New York Community Bank of Westbury, NY assumed any of the remaining Ameritrust deposits.^[2]

The departure of the Warner & Swasey Company by the early 1990s further reflected the changing nature of the Fortune 500 scene from the unique Cleveland viewpoint. Founded in Chicago, IL by Worcester R. Warner (1846-1929) and Ambrose Swasey (1846-1937) this trailblazing manufacturer relocated its corporate headquarters to Cleveland in 1881. A leader in the assembly of turret lathes, grinding wheels, optical equipment and telescopes, Warner & Swasey remained a profitable enterprise well into the 1970s.

However, all of that soon changed. Counting on a combined cash and stock transfer option valued at more than $290,000,000, the Chicago based Bendix Corporation successfully outbid AMCA International Corporation and purchased Warner & Swasey in 1980.^[3] Now a component of the Allied Corporation of New Jersey, a wholly-owned Bendix subsidiary, the Warner & Swasey Company was sold to Cross & Trecker three years later. Founded in 1978, that Detroit, MI firm produced a wide assortment of worthwhile apparatuses led by machine tools and peripheral products. A $70,000,000 merger between the Cross & Trecker Company and another well-known tool maker from Fond du Lac, WI called the Giddings & Lewis Company took place in June 1991. On one of its subsequent austerity moves, the Gidding & Lewis Corporation closed its remaining Warner & Swasey division. The growing popularity of imported items, in combination with other negative developments such as increasing labor costs and aging plants hastened that decision.^[4]

A 1998 press release announced that the newly-reorganized Reliance Electric Corporation was about to close its Cleveland facilities. The reasons for its closing had nothing to do with everyday business problems such as a shrinking market base; disgruntle labor force or mounting overhead costs. In fact, it was just the opposite. This popular manufacturer epitomized a business success story as reflected through its many, top-selling items. Established in 1905 by a locally recognized inventor John C. Lincoln (1866-1959) and his wealthy cousin, a Cleveland patron named Peter M. Hitchcock (1837-1907), the Reliance Electric Corporation began as a manufacturer of arc lights. Within a few short years, this enterprising operation had shifted its primary business concentration away from producing arc lights towards the manufacturing of mechanical couplers, drivers and electric motors. In the early 1970s, this company considerably broadened its profitable economic base by entering the promising field of telecommunications. That decision re-defined Reliance Electric’s chief business focus at a most crucial moment in its corporate history. The 1970s represented a watershed for that company as it built upon its earlier, business reputation for manufacturing precise products and providing excellent customer service.

Shortly before its much heralded sale to the Exxon Corporation in 1979, Reliance Electric had posted a new, all-time sales record of $64,600,000.^[5] As stated earlier, Reliance Electric had the sole responsibility of developing and manufacturing a wide array of energy saving devices and electric motors. Sadly, that merger failed to yield the kind of high profits first envisaged by Exxon’s Board of Directors a short time ago. With a deficit of $32,000,000 by 1982, the parent company decided to sell this recently purchased subsidiary. In December 1986, a business group made up of former Reliance Electric managers along with Citicorp Capital Investment and Prudential-Bache Securities purchased this subsidiary for $1,350,000,000. Exxon Corporation spokespersons claimed that the deal would generate an after-tax gain valued at $275,000,000. Eight year later, the General Signal Corporation, a publicly-traded firm out of Stamford, CT that specialized in the manufacturing of control equipment and systems offered a major stock merger worth $1,400,000,000. Regrettably, that auspicious merger never materialized due to a $1,600,000,000 hostile takeover launched by Rockwell International later that same year. Shortly after completing the much publicized merger, Rockwell International sold Reliance Electric’s least productive divisions while moving the residual units from Cleveland, OH to Greenville, S.C. In 2006, the Baldor Electric Company grew in status when it procured the remaining units for $1,800,000,000.^[6]

OfficeMax Incorporated epitomized one of the innovative, new specialty stores to appear on the Cleveland market scene at the end of the 20th century. Founded in 1988 by Bob Hurwitz (b. 1942) and Michael Feuer (b. 1945), those two resourceful entrepreneurs soon marketed a wide array of top quality office supplies, high grade paper products and unique gadgetry. They also provided their many loyal customers with other useful essentials including printed document services and office furniture. Part of its phenomenal success, from the very beginning, rested on its extraordinary ability to either acquire or merge with other, similarly minded companies at crucial intervals in its corporate history.

For example, its purchase in 1990 of the Great Neck, NY-based Office World followed by the acquisition of five stores formerly owned-and-operated by K-Mart’s Office Square division enabled that company to continue to enlarge its retail operations even during disquieting economic times. But, it went far beyond just the ability of OfficeMax to expand its operations whenever its board members deemed it suitable. In the case of the Office Square deal, K-Mart officials suddenly found themselves controlling 22% of OfficeMax’s outstanding stock. From the standpoint of that new office supply company, the determined action taken by K-Mart on behalf of OfficeMax afforded that smaller retailer the kind of long-lasting financial security it had been seeking from the day its officials opened its first store.

Like so many other profitable smaller retail chains of that same period, the Board of Directors at OfficeMax firmly believed that rapid store expansion, motivated by the hurried purchasing of as many of its competitors as possible, not only amplified its chances of long-term profitability; but also, enabled it to keep its overhead costs to a minimum. This latter point proved outstandingly important during transitional periods. During the ensuing years, this retailer purchased five Highland Superstores as well as more than one hundred Biz Mart outlets.^[7] It also obtained a 19% stake in Corporate Express. By the mid-1990s, this Cleveland-based company controlled over 10% of the domestic office supply business. With sales now exceeding $1,800,000,000, K-Mart announced in November 1994 that the privately-owned OfficeMax would soon become a publicly-traded venture.^[8]

Over the next five years, its amalgamation efforts resulted in OfficeMax closing most of its remaining, underperforming outlets. Prudent cost effective moves, like that, rapidly gained the special attention of its chief competitors. Aspiring to gain a solid foothold within the very lucrative office supply business led Boise Cascade Office Products to acquire OfficeMax in 2003. Under the capable leadership of its Chief Executive Officer George Harad (b. 1944), Boise Cascade negotiated a special cash stock deal worth approximately $1,500,000,000. Hoping to retain its commanding lead over its many rivals, the new OfficeMax owners announced in August 2005 that they planned to relocate their headquarters from Cleveland, OH to Naperville, IL. A desire to be in the middle of the country along with a host of other desirable incentives prompted that move. The new ownership also announced plans to upgrade its entire OfficeMax’s product line and improve its customer service. Corporate strategists at OfficeMax fully believed that the key to their future success lay in offering a wide range of affordable, dependable merchandise displayed within an improved retail environment.

Regrettably, that new, in-house marketing strategy contradicted national models that predicted a noticeable decline in U.S. retail sales over the next several years. In fact, the subsequent decline in sales in its nearly 1,000 outlets over the next four year period, a result of the Recession of 2008, demonstrated beyond a shadow of doubt that something was very wrong with OfficeMax’s marketing strategy. An overly saturated national market along with the phenomenal success of several on-line shopping services led to a significant decline in sales for most domestic retailers including those involved in selling office supplies to the eager buying public. In the case of OfficeMax, its annual sales from 2008 to 2012 had dropped from $8,300,000,000 to $6,900,000,000. One of its major competitors Boston based Staples saw its profits decrease from $6,390,000,000 to $ 5,660,000,000 over that same time frame while Office Depot (ODP) experienced similar sales losses.^[9]

Economic experts strongly recommended that OfficeMax and Office Depot, in particular, must take swift action if they had any intention of rebounding from those recent phenomenal sales losses. In fact, many thought that merging OfficeMax and Office Depot represented the simplest solution to this growing predicament. According to their calculations, combining those two giant retailers into one super chain might well result in corporate sales surpassing the $18,000,000,000 mark perhaps as early as 2014. A ruling by the U.S. Department of Justice saying that such a merger would not constitute a monopoly permitted ODP to acquire its chief rival OfficeMax in 2013. The subsequent $976,000,000,000 stock deal resulted in OfficeMax transferring its main offices from Naperville, IL to Office Depot’s headquarters in Boca Raton, FL. OfficeMax continues on to the present day as a name brand for some Office Depot products as well as selected outlets.^[10]

In the mid-1990s, the editors at Fortune Magazine changed the ground rules regarding which businesses would qualify for inclusion into their newest list of top companies and which ones would not. Beginning on May 25, 1995, its newly enlarged industries categories would include the refurbished service sector. Growing pressure by domestic business leaders from across the board to increase the number of Fortune 500 categories motivated that decision. That effort also led to the establishment of a second tier of top 500 businesses. This new tier not only welcomed a number of new enterprises; but also, a host of traditional firms previously found on the main listing. This creation of a second tier led to nearly 30 Ohio organizations being removed from the original list and 16 others added.

The top local corporations listed under this newest tier included TRW (# 126) at $10,200,000,000, the Eaton Corporation (#191) at $6,800,000,000 and Key Corporation (#216) at $ 6,100,000,000. The LTV Steel Corporation (#312) followed at $4,300,000,000 as did the National City Bank of Cleveland (#382) at $3,400,000,000. The next group on that same listing featured the Sherwin-Williams Company (#386) with $3,300,000,000 followed by the Parker Hannifin Corporation (#437) at $3,200,000,000 and Fairchild Industries (#500) at $2,900,000,000. Other Cleveland concerns such as the American Financial Group (#344) and OfficeMax Incorporated (#483) made that year’s cut with each reporting sales of more than $3,600,000,000. The American Greetings, the M.A. Hanna Mining, the Lincoln Electric Company, the Lubrizol Corporation and Steris International also made the newest tier.

The Progressive Corporation embodied one Cleveland Fortune 500 to gain even greater business distinction as the Millennium began to unfold. Founded in 1937 by Joseph Lewis (1907-1955) and Jack H. Green (1907-1982) and originally known as the Progressive Mutual Insurance Company, this very enterprising, customer-oriented service provider offered top quality, reasonably-priced automobile insurance.^[11] Peter Lewis (1933-2013) gained control of the company after successfully staging one of this nation’s first leverage buyouts in 1965. An array of customer improvements from the start differentiated that entity from its many formidable challengers. Additional amenities such as drive-in claim service and a Safe Driver Plan for accident-free drivers in Ohio typified the kind of new, special services available to qualified drivers. Also, the enthusiasm of corporate officials to assume the many added responsibilities equated with insuring such things as motor bikes, motorcycles and motor scooters afforded this insurance provider a decided economic advantage over its other, less resourceful rivals.

Hoping to broaden its appeal even further led this innovative insurer to become a public-traded company in 1971. That same year, Cleveland’s Progressive Corporation began offering its-own commercial insurance.^[12] Unremitting business growth heightened even further by fitting policy refinements and improved customer services set the stage for a whole new generation of insurance options. The decade of the 1990s represented a watershed for this very popular carrier with it becoming this nation’s 5th largest auto insurer by 1999. Corporate officials started offering a wide variety of new customer services including a first in the industry, a website evaluating its options with those of its chief rivals. Also, its busy customers could now purchase insurance coverage over the phone or secure coverage on line in real time.^[13]

Valuable business advances, like the ones mentioned above, continued into the new Millennium when that savvy firm ushered in a number of additional services. They included one-stop, concierge-level claim service and its-own Android app. That era also saw the introduction of a brand new advertising ploy that focused on the adventures of a fictional, highly dedicated Progressive Insurance spokesperson named Flo. Developed by copywriter John Park and art director Steve Reepmeyer of the Boston based advertising and marketing agency known as Arnold Worldwide and first introduced in 2008, this iconic character along with her colleagues, family and friends regularly publicized the numerous special policies and unique services available through this well-known company. Those efforts paid off well. This carrier increased its profits from $13,600,000,000 in 2008 to $30,000,000,000 by 2018.^[14] Progressive Insurance became the 3rd largest auto insurance carrier two years later. Repeatedly adding new customer services to existing offerings not only augmented its leading reputation within that most competitive endeavor; but also, enable this insurance giant to maintain its premier status as a leading Fortune 500 company.

At the time of the Millennium, Cleveland remained a leading Fortune 500 community with 11 firms located there. TRW, the Eaton Corporation and OfficeMax topped that impressive list. Unfortunately, all of that was subject to change as previously unimagined acquisitions and mergers altered the local picture forever. But as was pointed out earlier in this writing, those principal changes did not in any way diminish Cleveland’s drawing power as a major corporate center. In reality, that local restructuring effort symbolized only a small portion of what was transpiring on both the domestic and international scenes. Initiated in the 1990s by a group of determined, internationally focused business leaders who wanted to further strengthen their power within their respected endeavors, their carefully calculated reorganization efforts continued well into the 21st century.

Most importantly, those monumental business changes influenced nearly every aspect of U.S. business irrespective of function, location or size. If in their ardent attempt to increase their-own self-interests certain other corporations might have found it essential to either close or relocate their headquarters leaving older hubs like Cleveland behind so be it. Many of its most enthusiastic supporters argued that such actions would be indeed a small price to pay in order to guarantee improved operational efficiency in the future. They further contended that well-run Fortune 500s waylaid temporarily by that unexpected business upheaval should not agonize over it. In all probability, they will not only survive the present economic ordeal but ultimately prosper even more once the initial economic commotion subsides. Supporters firmly believed that it would only be a matter of time before normal economic conditions would return to leading Fortune 500s in older cities such as Cleveland. Its many devotees concluded that the extraordinary technological advances, achieved in the recent past, had encouraged them to embrace that kind of no holds barred thinking while everyday pragmatism enabled them to convert their exciting ideas into profitable ventures.

The difficulties in fathoming such massive changes hit close to home when the Cleveland business community learned that one of its most-respected establishments was compelled to close its doors permanently. In July 2002, the Northrup Grumman Corporation obtained TRW through an incredibly lucrative stock buyout with an estimated value of more than $7,800,000,000. Founded in 1901 by David J. Kurtz and originally known as the Cleveland Cap and Screw Company, this enterprise first directed its attention towards the manufacturing of automobile fittings and other machine parts. Through a number of carefully orchestrated mergers that covered nearly a 40-year span, Cleveland Cap and Screw evolved first into Thompson Products and then Thompson Ramo Wooldridge (TRW).

An envied corporation with considerable ties to the flourishing automotive, electrical and national aerospace industries, TRW repeatedly posted solid gains throughout the second half of the 20th century with sales bettering the $16,000,000,000 mark by 2001. Regrettably, that Fortune 500 leader also reported an emergent debt that by 2001 had exceeded $4,000,000,000. An unpredictable market and some poor investments decreased its future prospects rapidly. Northrup Grumman’s Board of Directors carefully watched those unfavorable developments unfold. Founded in 1939 by John Knudsen Northrup (1885-1981), this industrial force had worked very closely with federal officials on a number of crucial defense matters. Northrup Grumman executives fully recognized that in acquiring TRW they would not only be enriching their bottom line significantly; but also, augmenting their business reputation within the profitable aerospace industry and other security fields.

Cleveland’s local media expressed grave concerns when it discovered that city business leaders had done virtually nothing to stop this merger. In reflection, there was probably little that august group could have been done to prevent that merger from occurring. Unfortunately, TRW’s unremitting debt far outweighed any other economic or financial alternatives that might have been brought forward at the last minute. Knowing that merger was the only possible way in which to avoid bankruptcy, TRW accepted the generous offer made by Northrup Grumman.^[15]