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The CFO's Role in the Site Selection Process

In today's tough fiscal environment, those involved in making the location decision often defer to the company's CFO.

Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting (Winter 2011)

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Yet securing a suitable incentive package is only part of the job. It often falls to the CFO to oversee the incentives compliance effort - one that requires the filing of additional tax forms, annual certifications of job and investment totals, or other reports to demonstrate that the company is living up to the commitments made to secure the incentive offer in the first place. Thus, having the CFO involved at the front end of the transaction can help ensure that the company receives all it was promised.

Reducing the cost of the real estate portfolio - Most companies look at corporate real estate and property holdings as costs that do not contribute directly to the bottom line despite their absolutely essential nature in housing vital functions. As part of this effort, the CFO often works closely with outside consultants to help re-characterize property to lower cost classifications, or to assist in securing additional tax abatements or exemptions.

CFOs Leverage Their New Role
These trends taking hold across corporate America present interesting challenges for the economic development profession, which has long been used to interfacing with corporate real estate executives as a pipeline for future deals. That is not to say that networking with these executives is not important, but they are often no longer the sole, key decision-makers in the site selection process. They are now sharing that role with the CFO. That shift is starting to influence how states and localities market themselves. Instead of talking about the availability of land, emphasizing the low, long-term cost of operating in a jurisdiction is becoming more important. Communities are stressing that they are the right choice for financial reasons, not just for logistical or quality-of-life ones.

As this shift occurs, it is important for the CFO to understand how to be best positioned to leverage the heightened focus on the financial side of a site selection transaction in order to accomplish corporate goals. Smart economic development professionals, seeing these trends, are making adjustments to how they market themselves to the CFO. Smart CFOs then must recognize these trends and realize how to use them to their advantage. These changes include:

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Enhancing internal financial expertise - Some economic development departments are starting to bring on board financial experts with backgrounds in tax and corporate accounting who can act as ambassadors to the CFO, speak the CFO's language, and complement other marketing efforts by emphasizing the financial benefits of a community. Those locations that are unable to add personnel are enhancing their marketing materials to emphasize cost-related issues, or forging alliances with accountants, lobbyists, and attorneys to assist with the sales job from a financial perspective.

As a result, the CFO is likely to get not only a more sophisticated negotiator across the table, but one who is going to ask for more information about a company than ever before. When localities make incentive commitments, they are really making an investment of taxpayer funds in a community. Therefore, the CFO should not be surprised when asked to provide detailed financial statements about the company, similar to what any investment banker would require.

Jurisdictions want to be assured that they are dealing with credible and creditworthy entities that will be around for the long haul. The localities also understand that if a major corporate employer fails, it could adversely impact the creditworthiness of that community. Thus, they are increasing their due diligence on the company itself before moving forward. The CFO should not be averse to providing reasonable amounts of information, so long as steps are taken to protect proprietary and confidential data under state Freedom of Information Act requirements.

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About the Author

Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting
Christopher Lloyd leads the McGuireWoods Consulting Infrastructure and Economic Development team where he specializes in site selection and economic development incentives negotiations. Lloyd has also worked closely with clients on numerous public-private partnership projects for transportation and other infrastructure as well as playing a leading role in the development and passage of Virginia's public-private partnership laws. These statutes have since become model legislation for use in other states. As a result of this work, Lloyd has become a frequent speaker on economic development policy issues and public private partnership projects around the country.

More articles by Christopher D. Lloyd

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How did the recession contribute to making the CFO's role in site selection more critical?

The recession has certainly made companies more sensitive about costs and capturing savings wherever possible. More
- Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting

How are economic developers shifting strategies to target CFOs?

Many are starting to market specifically to CFOs. More
- Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting

How do you see this shift affecting company site selection factors such as incentives, transportation, labor, etc.?

Incentives only make a good deal better, so even with the CFO ascending in importance, factors such as work force and location still drive decisions. More
- Christopher D. Lloyd, Senior Vice President and Director, Infrastructure and Economic Development, McGuireWoods Consulting

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