CHICAGO — The location of a company’s headquarters has always been an important part of its image and personality.
Madison Avenue meant advertising. Hartford meant insurance. Chicago, with its history of stockyards and gritty factories, represented a good work ethic and solid values.
But those days of companies setting down permanent roots are seemingly gone.
“There’s no such thing as loyalty unless the company is still owned by the founder,” said Brent Pollina, vice president of Pollina Corporate Real Estate Inc. in Park Ridge, Ill., which provides corporate relocation services. “Public stockholders don’t care where you are located.”
The shift has been a long time coming. The decline of manufacturing and the rise of cities in the Sunbelt led companies to move away from industrial centers where they were established to places with lower living and business costs. Technology and globalization have accelerated the corporate relocation trend by making it easier to communicate and move products anywhere in the world.
The movement has weakened the ties that bind a business to a community, to the extent that CME Group Inc., parent of the Chicago Mercantile Exchange and Chicago Board of Trade threatened last year to move operations out of state — and officials took the threat seriously, agreeing to give the company tax benefits.
Some companies no longer identify one city as their home base.
More companies are willing to relocate their headquarters from state to state or even country to country, as Aon Corp. demonstrated earlier this month when it announced it was moving its global headquarters from Chicago to London.
Moving headquarters is a dramatic decision and tends to capture the attention of the business and economic development worlds. In recent years some of the more high-profile relocations include Boeing leaving Seattle for Chicago, and Philip Morris relocating from New York to Richmond, Va. Illinois lost Newell Rubbermaid to Atlanta; Northrop Grumman shifted from California to the Washington, D.C., area. Chiquita left Cincinnati after Charlotte, N.C., offered a hefty incentives package.
Headquarter relocations tend to have more symbolic than economic value. The management, administrative and marketing positions affiliated with corporate headquarters usually amount to hundreds of jobs, not thousands.
Aon is said to be moving about 20 jobs, including the chief executive officer and other senior executives, to London. So the loss is a blow to Chicago’s ego more than an economic one. Yet one concern is that the departure of a company’s headquarters can loosen its commitment to local nonprofit organizations.
“When a city is no longer home base, the level of philanthropic and civic activity can become part of a standardized policy,” said Perry Duis, a Chicago historian who is a professor emeritus of history at the University of Illinois at Chicago.
Often, such companies will try to be even-handed among the cities in which they operate and the programs often “have more to do with seeking maximum PR benefits — they tend to be more advertising oriented than providing specific services,” Duis said. Aon insisted that it remains committed to supporting Chicago.
The relocation game has become increasingly common — and cutthroat.
Cities are engaged in economic warfare to land corporate headquarters, industrial plants and startups. They try to lure investment with an array of features: low-tax rates, financial incentives, improved infrastructure and transportation and a diverse labor supply.
The competition has given companies an upper hand in the relocation game, especially with the slow economic recovery and governments desperate to retain and create jobs. Illinois taxpayers have seen the consequences firsthand.
Motorola Mobility Holdings Inc. and Navistar International Corp. both have received millions of dollars in financial incentives from Gov. Pat Quinn to keep their headquarters in Illinois.
The corporate largesse didn’t stop there.
CME Group Inc., owner of two Chicago-based financial exchanges, and Sears Holding Corp. also threatened to move out of state last year without tax breaks. Quinn last month approved legislation that will provide $216 million in tax relief for them and CBOE Holdings Inc. parent of the Chicago Board Options Exchange.
Aon didn’t have its hand out but said that taxes were one reason behind the move. By reincorporating in England, Aon will benefit from a tax code that, unlike the U.S. system, doesn’t impose further income taxes on profits from a foreign subsidiary. The company said the move will enable it to access $300 million in cash overseas that it hasn’t repatriated because of U.S. taxes.
Several multinational companies before Aon, including Accenture Ltd., Tyco International Ltd. and Ingersoll-Rand Co. have reincorporated to tax-friendly locations like Bermuda, Switzerland and Ireland. The past moves have been controversial and led to a crackdown on tax havens by the Obama administration.
“The IRS will be taking a very close look at this transaction,” William Henson, a specialist in international tax services at accounting firm Plante Moran, wrote in an email. He added that if Aon should successfully restructure, it could lead to a wave of American companies departing for foreign shores.
The relocation momentum suggests companies becoming global nomads, moving every so often to suit their needs. Corporate relocation specialists say the scenario is too far-fetched because moving is expensive and the long-term costs usually outweigh the savings.
Nevertheless, one tax specialist recommends that corporations evaluate their headquarters locale every 10 to 20 years.
“Companies need to ask themselves would they be an effective, more profitable business, elsewhere,” said Joseph Pilewski, a director at Duff & Phelps LLC in Chicago. “That is a question companies ask today more often because they have more options.”