Craig Ueland, CEO of the company Tacoma can least afford to lose, will decide next year whether Russell will keep its world headquarters in Tacoma or move out of town.

The chance that Tacoma could lose Russell has triggered a civic commotion best described as both scramble and strategy with one goal: Keep Russell in Tacoma.

The far-reaching, mostly private effort – code-named Project Destiny – aims to find Russell a suitable site to construct a new corporate headquarters, craft tax-incentive legislation, launch a streetcar and parking network, raise Tacoma’s height limit on skyscrapers, reposition downtown Tacoma as attractive and affordable to other corporate office users, and patch up old wounds between City Hall and Russell’s top brass.

‘THERE’S NO SECOND PLACE’

“Failure is not an option,” said the leader of Project Destiny – Bruce Kendall, president and CEO of the Economic Development Board of Tacoma-Pierce County.

“Russell is Tacoma’s Boeing,” Kendall said. “This is like when Boeing was deciding where to build the 787. There’s no second place. You do everything you possibly can do or regret it.

“When you have an asset as valuable as Russell is, whether you’re recruiting it in for the first time or working to keep it and help it grow, it’s imperative from an economic development perspective that you offer them a soup-to-nuts opportunity in your market,” Kendall said.

Does Tacoma have enough soup and nuts?

“Let me put it this way,” Kendall said. “One person told me, ‘Do everything you need to do to win it, and you’ll win it.’”

A win means, over the next 25 years, a projected Russell expansion of up to 1.2 million square feet – equivalent to nearly six of the company’s current headquarters at 909 A St.

How, you might wonder, could Russell consider bolting from the city where Frank Russell started it with a part-time assistant in 1936 in a downtown office the size of a large walk-in closet?

This happened before. In the early 1980s, then-CEO George Russell toyed with moving the much smaller company to a corporate campus east of Federal Way near the campus of Weyerhaeuser Co.

“I remember quite a bit of civic pressure” to stay in Tacoma, Russell recalled this month. He eventually built the company’s current headquarters after the City Council agreed to pay half of a $7.5 million parking garage.

But the Russell powerhouse today doesn’t look much like the Russell of 25 years ago. The company in 1982 employed 241. Now it employs more than 2,100 associates worldwide, with more than 1,100 spread over four downtown Tacoma buildings.

‘WE’RE TOO SPREAD OUT’

Over those 25 years, Russell’s foremost measurement of success – assets it manages for others – has grown at an average rate of 24 percent a year, CEO Ueland told a gathering of regional chartered financial analysts during a speech in Kirkland this summer.

“We’re not a one-year wonder,” he said

In real numbers, Russell managed $1.3 billion in 1982. Today? More than $231 billion.

George Russell sold the company in 1998 to Northwestern Mutual, a Milwaukee-based insurance giant, for $1.1 billion. He estimates his former company’s value has grown at least three times since then. Being privately held, the company doesn’t make those numbers public.

“When you grow, you run out of space,” Ueland said in a recent interview. “We need space in London, Chicago. We just had to take a second floor in the TransAmerica Tower in San Francisco. We need more space here, too. … We’re too spread out.”

Russell’s major leases in Tacoma expire in 2013 – a strategic corporate move to consolidate operations.

“To be unequivocally clear, we have not made a decision about whether we’d stay in Tacoma and, if we did, where,” Ueland said.

The company has three options, Ueland said:

 • Add on to the current A Street headquarters.

 • Build a high-rise office tower in Tacoma.

 • Build a high-rise office tower or a low-rise corporate campus elsewhere in the Puget Sound region.

Russell has received at least 10 offers for potential relocation sites in Tacoma and elsewhere, though Ueland declined to elaborate.

‘WHICH CITY DOESN’T BELONG?’

“We realize Russell is an attractive firm, and many would like us in their neighborhood,” Ueland said. “We’re quite cognizant of the fact that any decision we make affects many people.”

No. 1 on that list? Russell’s associates.

“We find talent all over the world. … I have to think about where our associates want to live in the next 25 years,” he said.

Right now, 44 percent of them who work in Tacoma live in Tacoma, according to an analysis by the City of Tacoma of commute trip-reduction records Russell filed with the state.

The company this month had more than 50 vacant positions in Tacoma. And in the increasing world competition for knowledge workers, Russell must decide if Tacoma gives it an edge. Or if working closer to the airport in South King County makes it easier for its travel-dependent associates. Or if a Seattle address gives the company a worldwide prestige advantage.

You need only review this list of Russell’s office locations and ask yourself, “Which city doesn’t belong?” New York, Toronto, San Francisco, London, Johannesburg, Auckland, Melbourne, Sydney, Paris, Amsterdam, Tokyo, Singapore, Hong Kong, Seoul, Tacoma.

Tacoma, contends local developer Herb Simon, still offers Russell a homegrown talent advantage. As co-chairman of the Executive Council for a Greater Tacoma and a University of Washington regent, Simon believes the educational triumvirate of UWT (now a four-year university), the University of Puget Sound and Pacific Lutheran University can continue providing a growing supply of Russell-ready interns and graduates.

For its talent, Russell needs a much bigger house.

For example, when George Russell built the company’s 12-story headquarters in 1986, his company had three associates assigned as traders.

When investors switch their portfolios from one money manager to another, Russell’s traders act as the strategic go-betweens. They monitor global markets in currencies, stocks, bonds, derivatives, options and other investments 24 hours a day, seven days a week. When the markets align to provide the most profitable moment to transfer a client’s investment, they execute it.

Those three traders in 1986 executed $4.2 billion a year in trades. Russell now has more than 150 trade floor associates who, last month, surpassed $1 trillion in trades for 2007. They celebrated Nov. 30 with pizza and custom-lettered silver Mylar balloons touting “1 trillion.”

Despite the milestone, the traders’ space no longer works well, said Greg Gilbert, who manages the floor. Traders operate best when they can see each other.

“Communication is critical,” Gilbert said.

SOMEWHAT OF AN ENIGMA

When something goes haywire in a market somewhere in the world, the traders monitoring it stand and consult around computer screens. Other traders immediately know to check on it for potential impact on their client portfolios.

“Something’s going on in the derivatives market right now,” Gilbert said, pointing across the floor where four traders huddled.

But Gilbert can’t see all his people at once. The headquarters’ elevators run up the middle of building, and the traders essentially sit in a ring around it.

A new headquarters would fix that. The company, local sources say, could require two open trading floors of approximately 45,000 square feet each. A football field, excluding end zones, measures 48,000 square feet.

But how do you measure Russell’s value – monetarily and psychologically – to Tacoma?

Among Average Joes in its hometown, Russell remains somewhat of an enigma.

The company doesn’t make an airplane you can fly. It doesn’t make software for your computer. Nor brew a drink to start your morning. Nor host a Web site where you buy your books.

The money management going on inside Russell’s high-security granite walls serves mostly large corporate and public pension funds in markets other than Tacoma.

Consequently, the financial world knows Russell best. This year Russell’s top analysts will appear on more than 200 radio and television financial news programs, notably on CNBC and Bloomberg TV.

WAGES, JOBS AND GIVING

“We view them (Russell) as a pioneer and the Cadillac as far as advising pension funds how to invest assets and select money managers,” said Joel Chernoff, executive editor of Pensions & Investments, a premier industry publication.

Undoubtedly, Tacoma needs Russell more than Russell needs Tacoma.

Russell’s presence contributes roughly $77 million a year in direct spending in Tacoma’s economy, according to Economic Development Board estimates.

In Pierce County, Russell’s projected direct impact on wages and income stands at $70 million a year. The company and its employees have a direct annual retail sales impact of $17.2 million countywide.

Russell’s corporate giving program contributed $3.6 million to its communities worldwide in 2006 – about $1 million of that in Pierce County.

Ueland’s personal giving is also substantial. This year, Ueland and his wife, Niki, pledged a $250,000 matching gift to United Way of Pierce County’s early-childhood education campaign.

United Way’s 2006 campaign, which Ueland co-chaired, set a record after the Uelands pledged $250,000 in a fund to match contributions from new donors and increased giving from existing donors. The Uelands’ matching-fund idea caught on – George and Dion Russell added $250,000 and the Bill and Melinda Gates Foundation promised $1 million.

“Losing Russell could be disastrous for Tacoma,” said Rick Allen, president of United Way. “My concern is this community is not in a position to take big hits to its momentum. … You just can’t have those kinds of companies moving out of downtown Tacoma.

Love Russell for more than its money, though.

‘MORE THAN A BIG EMPLOYER’

Russell associates serve on at least 22 boards of the Tacoma-area’s largest nonprofits, museums and other cultural organizations.

“Russell is more than a big employer,” said David Fischer, executive director of the Broadway Center for the Performing Arts. “Because they hire the best and the brightest, the education level of their employee base spills over to positively and powerfully affect nonprofit leadership, philanthropy and arts-based consumerism. Russell’s departure would be an enormous blow to the city and the cultural life of Tacoma.”

The simmering civic angst has spilled into City Hall.

“We are currently in a full-court press to find a way to keep Russell as part of the Tacoma experience,” Mayor Bill Baarsma said. “I can’t think of anything more important as far as the continued viability of downtown.”

One big, controversial step came in October. The city’s retirement system board and the City Council voted to invest $25 million of its $1.1 billion pension fund with Russell.

For years, Russell executives pushed the City of Tacoma’s employee pension system to invest part – or all – of its funds in Russell products.

But whenever the retirement system issued requests for proposals from investment companies, no investment packages in Russell’s product line matched the city’s specifications.

‘IT WAS AN IRRITANT’

Pat Pabst, director of the retirement system, has said the board must follow its fiduciary responsibility to objectively invest rather than subjectively steer investments to a local company.

That irked Ueland and other Russell executives. In a 2004 interview, Ueland produced a single piece of paper with two pie charts. One chart showed the actual growth in the city’s pension fund. The other showed the greater growth the fund would have enjoyed had the city invested with Russell.

In addition, Ueland said then, he routinely took ribbings from his industry colleagues because the premier pension investment company in the world couldn’t even get its own local government to invest $1 with it.

“It was an irritant. I know it was,” Baarsma said. “I had conversations with them about it.”

This year, however, the retirement board broke with a longstanding practice – despite objections from one of its community financial advisers. For the first time, the board didn’t open an investment to competition. Russell presented the board with an investment product called “Select Holdings” unlike anything other companies offer. On a 5-3 vote, the board chose Russell.

Frank Underwood, the retired executive director of Grantmaker Consultants, has served for more than 20 years on the advisory committee to the retirement board. He objected to the Russell contract.

In an e-mail obtained by The News Tribune through a public records request, Underwood advised Pabst that investing with Russell would violate the board’s fiduciary responsibility.

“The Mayor and City Manager are playing with fire,” Underwood wrote. “It automatically shows favoritism and lack of objectivity. It can and should come back to haunt them, the Board and City Council.”

In an interview last week from his winter home in Arizona, Underwood said, “When you’re mixing politics and investment decisions, it’s hard to say you’re exercising your fiduciary responsibility for your decisions.”

The city withheld documents and blacked out parts of others – claiming attorney-client privilege – that might have explained the legal justification for investing with Russell.

Now, the question remains, “Will the pension investment influence Russell’s decision?”

Ueland said he appreciates the city’s investment.

“Even $25 million is still a big number to us,” he said, but he added that the company won’t make a location decision based on who invests with it.

‘A LAST-MINUTE EFFORT’

Larry Kopp, a former high-ranking Russell executive and now CEO of his own financial services company, said he doubts the city’s recent investment will sway the decision.

“It’s hard to erase a long period of irritation with a last-minute effort,” Kopp said.

Don’t worry. Project Destiny will have more enticements to dangle.

The EDB has started drafting legislation that could slash Russell’s state tax burden if the company locates its headquarters in a designated state empowerment zone, such as downtown Tacoma. Economically depressed urban areas can qualify as empowerment zones.

Further, building heights downtown, now limited to 400 feet, might have to go higher to accommodate Russell’s growth, Baarsma said.

Last week the City Council voted to hire Angelou Economics, a high-powered Texas consultant experienced in high-tech industries, for a $177,000 fast-track project.

Within nine months, Tacoma wants an economic development strategy for downtown, a “cluster analysis” to target specific office-related users to recruit, and outreach with downtown stakeholder to identify changes in development regulations to make downtown a more attractive option.

‘THAT’S OUR GOAL’

The eight-page scope of work never mentions Russell. But make no mistake: It’s all about Russell.

“I think it’s important that we have other companies around so it isn’t just Russell, so they’re in a business community of like companies,” City Manager Eric Anderson said. “We might not be able to deliver that immediately. But knowing that’s our goal and that we’re going to work toward that, I think, is important.”

Anderson also has taken charge of assembling a streetcar, parking and transportation network that could entice Russell to stay – plus attract other companies. Anderson met in Washington, D.C., earlier this month with U.S. Rep. Norm Dicks and the staffs of Rep. Adam Smith and U.S. Sens. Patty Murray and Maria Cantwell, to enlist their political muscle and federal money to help downtown Tacoma keep Russell.

“My gut tells me we’ve got to do everything we possibly can,” Anderson said. “This is very important. No stone goes unturned. We’re going to work at every possible thing we can to make (staying in Tacoma) the best possible decision for (Russell) to make.”

So, where could Russell build?

Ilahie Holdings, the company that bought Russell’s headquarters in December 2006 for $63.7 million, has at least three options to expand the building or add a tower next to it, said Nate Dreon, Ilahie president.

‘THAT’D BE A HOME RUN’

Even so, Dreon acknowledged, “to think that they won’t leave Tacoma is completely nave. … Nobody thought Weyerhaeuser would ever leave Tacoma. Nobody thought Boeing would leave Seattle. And they’re both gone. When you’re a company like the Russell company, your corporate headquarters can be wherever you want it to be.”

Meanwhile, developer Simon of Simon Johnson LLC has offered to partner with City Hall, tear down the city’s North Park Plaza parking garage and build what he calls “Destiny Tower.”

But even Simon says that, of all the options, the most attractive now belongs to German billionaire Erivan Haub. With news last week that the U.S. Postal Service agreed to sell Haub its downtown parking lot, Haub and his sons now control a superblock at Pacific Avenue and South 14th Street.

Haub’s local legal representative, John Barline, already has presented Russell with a portfolio showing up to four interconnected office towers – the tallest 400 feet high – with a combined 1.7 million square feet.

“I told (Russell executives), ‘You can pick the architect. We’ll build and own it. Or you can own it. Either way, it’s turnkey,’” Barline said. “We just have to make a little money as the owner of the property.

“My goal and the Haubs’ goal is to keep Russell in Tacoma. We’d love to build it for them. That’d be a home run. But if someone else does, and we can keep Russell in Tacoma, that’s the ultimate goal,” Barline said.

Outside Tacoma, the sites get murkier. But sources interviewed for this story say serious options include Federal Way’s East Campus, near the Weyerhaeuser Co.; Renton’s Southport development on the shore of Lake Washington; and multiple Seattle sites, including Paul Allen’s South Lake Union development.

Some of the financial industry’s power elite who fly in to meet with Russell executives prefer to stay in Seattle hotels with Seattle’s vibrancy, which makes for a lot of freeway driving to meetings in Tacoma, Barline said.

George Russell, still the company’s chairman emeritus, says his honorary position won’t give him a say in the location decision. But he believes it will most likely pit Tacoma versus Seattle.

“It’s not my company anymore,” Russell said.

What if Russell leaves Tacoma? Beyond losing the community-minded associates, the philanthropic contributions and arguably the greatest private contributor to Tacoma’s economy, the vacant office space would take five to seven years for downtown to absorb, local office brokers estimate.

‘PSYCHOLOGICAL SHOCK’

Furthermore, don’t expect construction of any new class A office space during that span, said Mike Hickey, a partner in Neil Walter Co., a Tacoma brokerage company.

Tacoma historian Michael Sullivan says the loss would be a blow to the city, which has lost other big companies.

The Northern Pacific Railroad moved its headquarters to Seattle in the 1920s. The Weyerhaeusers, drawn to Tacoma by the railroad, moved their namesake timber company near Federal Way in 1971. Then Puget Sound Bank, the original banking entity for the Northern Pacific Railroad, sold in 1992 to Cleveland-based KeyCorp. The Russells, Sullivan said, came to Tacoma largely because of the Weyerhaeusers.

“In a way, they’re all connected. Russell is the modern-day ancestor of that whole line,” Sullivan said. “I can’t think of any other employer that would have the same psychological shock if they left Tacoma.”

Because new construction would take at least four years, Ueland predicts a decision later next year. He wouldn’t disclose details over how the internal evaluation and the board’s decision-making process will occur but, ultimately, his judgment will have considerable sway.

“It’s the honor of being chief executive, I guess, that you drive that,” Ueland said.

Dan Voelpel: 253-597-8785

dan.voelpel@thenewstribune.com