John M. Rhodes, Senior Principal, Moran, Stahl & Boyer, LLC (Apr/May 10)
At the heart of every community are the companies that call it home. Company leaders and their spouses sit on boards, raise funds, and provide the vision to improve local culture, arts, sports venues and events, education, and the community's economic viability. A company's headquarters operation also provides high-paying jobs. It may be the magnet that attracts suppliers and business partners, and it may stimulate company spinoffs that ultimately form an industry cluster in the community.
Some companies grow up in a city and remain there for generations, while others move around as they evolve. There have been legendary examples of positive company-community relationships, such as Coca-Cola and Atlanta; Wal-Mart and Bentonville, Arkansas; Dow Chemical and Midland, Michigan; Corning Incorporated and Corning, New York; and Bank of America and Charlotte. There have also been companies that needed to leave a community to seek a more strategic fit elsewhere, and companies forced to move after being acquired. A move should not be viewed as a failure by the community, but it is often inevitable. The relationship between a company and a community is not a permanent commitment, but an opportunity for mutual benefits for a period of time.
Types of Headquarters
As a company evolves from a small business to a major corporation, its structure, headquarters operations, and strategic location needs change. Companies evolve from having all operations in one location to being global holding companies resulting in these different types of headquarters:
Small to Midsize Company Headquarters - all company functions and operations are located in one city.
Corporate Headquarters - traditional executive and functional operations in one location that can vary widely in the number of employees.
Holding Company Headquarters - typically small organizations with executive and financial operations that have oversight of multiple companies.
Division or Subsidiary Headquarters - may have a full complement of executive and functional senior staff. Back office and shared services operations may be located at the corporate headquarters location. This depends on the level of centralization of a company and life stage of the business.
Regional Headquarters - scenarios include foreign companies requiring U.S. or Americas presence; domestic companies with regional headquarters; and domestic companies that need access to the Caribbean or Latin America via south Florida, or the Pacific Rim via the West Coast.
Why Headquarters Are Relocated
Although many companies may be established and remain in a given location for years, relocation sometimes has advantages.
Ability to radically effect change - Relocation is often effective if a CEO needs to quickly shake up an organization by shedding certain individuals or modifying corporate culture.
Send a message to stockholders and customers - Getting out the message that a company has made a radical restructuring in its organization, a change in product mix, or a shift in markets can be communicated by a headquarters location move.
Better access to an emerging market or business partner - Companies will relocate as markets shift or they need to establish a strong relationship with a particular business partner.
Lower operating costs - As companies mature and margins are reduced, some companies will relocate from larger, higher cost cities to lower cost areas.
Mergers and acquisitions - A merger or acquisition often results in a consolidation of headquarters operations into one location.
Controlled by investors - Investors in emerging companies typically dictate the location of the company to suit their needs.
Enhance ability to attract talent - Companies will relocate their headquarters if they need to be better positioned to attract top internal and external talent.
Gain access to government policymakers - In some circumstances, gaining access to government policymakers was an important location consideration in selecting a state or national capital as a headquarters destination.
Personal preference of senior executives - Although this consideration has become less likely to pass a board of directors in this time of governance scrutiny, particularly with publicly held firms, occasionally a CEO selects a headquarters destination due to personal quality of life preferences.