By Yannis Gatsiounis
Moving corporate headquarters is a risky business. How many executives will part ways on receiving the news? Is the new home all it’s been cracked up to be in terms of talent availability, operating costs, efficiencies, and supply chain synergies? How will the company fit in locally, with officials and the larger community?
Answers to these and other key questions won’t be fully clear until a move is made.
So why go through with it?
“It’s not a case of traditional business attraction where you simply talk about labor training, availability and costs,” said Angelos Angelou, principal executive officer of AngelouEconomics, an Austin-based corporate site selection and economic development consultancy.
If it were the only consideration, New York would not clock in with a nation-leading 239 corporate headquarters.
Usually an incentive or collection of them outweighs any perceived risk.
Toyota’s recent decision to relocate its North American headquarters from Torrance, California to Plano, Texas came with $40 million in savings from the Texas Enterprise Fund, but that – for a carmaker projected to earn $18 billion in net income this year – was not a major deciding factor. "We needed a site that was closer to our manufacturing operations, in a neutral location, one without an existing Toyota presence," Steven Curtis of Toyota Corporate Communications was quoted as saying.
Airport accessibility is a main factor for many corporations. Economists Vanessa Strauss-Kahn and Xavier Vives found that relocating to a metro "increases 40 percent if the city offers a small [airport] hub and increases by 90 percent if it offers a large hub, compared to a location with no hub.” Not just size but location of the airport can be just as critical.
When AngelouEconomics was retained as site selector consultant to help plan ConocoPhillips’ relocation to Denver in 2008, the Mile High City’s international airport with access to both Asia and Europe was a deciding factor. Boeing, which does business with 145 countries, moved its corporate headquarters from Seattle to Chicago in 2001 to better balance its access to global markets as well as both U.S. coasts.
Some companies simply outgrow their headquarters. AT&T moved in-state from San Antonio to Dallas “to operate more efficiently, better serve customers, and expand the business in the future,” the telco giant’s chairman, Randall Stephenson, said at the time. (Boeing leaders, also concerned with available space, flew over Chicago by helicopter to quite literally get a bird’s eye view of available land in city they were scouting.)
In today’s hi-tech economy, relocations are increasingly being informed by local workforce skills. Tech firm MindMixer changed its headquarters from Omaha to downtown Kansas City, which one of its co-founders described as a place with “an abundance of experienced workers, and the talent pool only seems to be getting bigger.”
A location’s ability to attract and retain talent is influenced by its quality of life, so companies looking to predict future talent availability must consider a place’s quality of life and who it appeals to. If it does not resonate with a demographic the company is courting – say, young creative types – then other considerations like pay and taxes, even if attractive, will have less sway in attracting the appropriate talent.
The clustering of similar-type businesses or those that fit within its supply chain may factor in to a company’s move, as may proximity to its main market, or desire to establish a new one. Citco, another AngelouEconomics client, moved its corporate headquarters from Tulsa to Houston to be closer to its refineries in Corpus Christi and Lake Charles, Louisiana.
A souring relationship with local leaders or labor unions may elicit a move to a more business-friendly environment. And occasionally a company’s relocation is determined by the whims of its owner.
PulteGroup CEO Richard Dugas was accused of relocating the company from Detroit to Atlanta because Atlanta is where he wanted to live personally.
Either way, corporate relocations tend to significantly benefit the host cities.
“From an economic perspective, nothing is better than attracting a corporate headquarter location,” said Angelou of AngelouEconomics. Corporate headquarters, he noted, usually involves high wages, and high-skill jobs in good numbers. Relocation can also stimulate local arts and charities through sponsorship by the relocating company, as well as boost the host city’s national and international profile. Relocations, accompanied by a high number of jobs, can contribute to the local real estate market.
They can also attract supply chain-related businesses that visit the host city to sell their services or relocate themselves to the host city.
“The benefits of attracting a Fortune 500 corporate headquarters to a city is like hosting the Super Bowl each year,” stated Angelou.
As public mistrust of corporations has grown, corporations have found themselves under growing pressure to improve their community ties.
Positive community involvement begins when a company offers its workforce livable wage; this expands the tax base and gives employees greater means to contribute to the local economy.
But more than that, it may involve an embrace of clean technology, collaborating with non-profits, or sponsoring charity events for people in need.
While some major companies such as Google have strong corporate social responsibility (CSR) reputations, only five of 100 top companies evaluated by the Reputation Institute, a business management consultancy, have strong CSR records.
One reason for the deficiency is that few companies see a return on their investments in the community; companies tend to act on what makes financial sense. Fast food chains started offering healthier menu options when customers became more health conscious. Similarly, automakers responded to drivers’ demand for fuel-efficient vehicles.
Still, perceptions of companies are shaped by their CSR. The Reputation Institute found that it influences 41 percent of the public’s overall opinion of a company. Well aware of the connection, many top 100 companies invest in CSR in one form or another.
But being that the company’s underlying motive here is to preserve its reputation (with an eye toward helping the bottom line), the corresponding community involvement is often good enough to make a headline but in effect poorly conceived with little regard for execution.
This is where a shift from philanthropic efforts to more substantive community engagement can help. Microsoft topped the Reputation Institute’s list through targeted programs like YouthSpark, which connects youths with continued education, employment and entrepreneurship.
Jeremy Moon, professor of Corporate Responsibility at Nottingham University Business School, has said that businesses can have a more positive impact when they adopt a strategic attitude involving more long-term relationships than one-off efforts.
One way of doing this is by infusing corporate responsibility directly into the business model. If, for instance, skilled labor in the city of a corporate headquarters is in short supply, the company can invest in the training and education of prospective workers – producing both corporate responsibility and competitive advantage.
A company is more likely to remain engaged with a community project if it can gauge, one, whether a project is making a difference with the social problem it seeks to address and, two, whether it makes business sense. A few years ago the Boston College Center for Corporate Citizenship (BCCCC) launched a framework that helps companies measure their impact in the community and their return on investment.
To measure ROI, companies can look at such things as employee satisfaction, brand perception and customer loyalty. Sears found that a 5 percent increase in employee satisfaction led to a 1.3 percent increase in customer satisfaction, which increased revenue growth by
It also helps if a company tailors its community involvement to its strengths. A company like Microsoft is more suited to impact computer literacy than is Ikea, whereas Ikea is a better candidate to adopt and promote a holistic approach to the environment.
Nearly all companies can strengthen their community ties by looking to fit local partners into their supply chain top to bottom, and by approaching CSR strategically to deliver competitive advantage.