December 19, 2013

Chicago Tribune: ADM’s decision delivers a lesson in corporate strategy

media mention

 

Now we have proof that Chicago doesn’t need gimmicks to win a major corporation
Phil Rosenthal
December 19, 2013
Any out-of-towner can fall in love with Chicago when it’s warm. Commit in December to making it your home and, beyond affection, it’s likely you’ve simply decided this is somewhere you need to be.
Three days ahead of the official arrival of winter, Archer Daniels Midland confirmed Wednesday it will make Chicago home.
The Decatur-based agriculture giant warmed to the city for its global headquarters despite getting the cold shoulder from Springfield legislators. ADM campaigned unsuccessfully for special payroll tax incentives that could have been worth up to $30 million over 20 years, the kind of break given a handful of companies such as Sears Holdings and Motorola Mobility to bolster state employment.
And yet ADM is coming to Chicago anyway, abandoning its threat to leave the state.
A company with a market cap of $27 billion isn’t going to let a few million get in the way of the right decision.
It almost seems silly to think otherwise. But time and again Illinois acted out of fear that it had to pay off these CEOs or they would flee elsewhere. Incentives here became so commonplace that companies viewed them as something expected, not something awarded only under special circumstances.
Now we have proof that Chicago doesn’t need gimmicks to win a major corporation.
ADM has a reputation for squeezing all it can from subsidies, tax breaks and every other available form of federal, state and local aid, much as it is known for getting every last bit of value out of the corn, oilseeds, wheat and cocoa it processes. But in the end, Chicago’s location, logistics, quality workforce and its clubby community of other major corporations and their leaders trumped everything else.
This city just made the most sense from a business standpoint.
“While we considered other global hubs, Chicago emerged as the best location to provide efficient access to global markets while maintaining our close connections with U.S. farmers, customers and operations,” ADM Chairwoman and Chief Executive Patricia Woertz said in a statement. “Chicago also provides an environment where we can attract and retain employees with diverse skills, and where their family members can find ample career opportunities.”
It might be worth $1.5 million a year to Woertz and her company to not have to promise how many jobs ADM will put in Chicago, how many jobs it will keep in Decatur and such.
So the 100 jobs ADM talked about moving with its world headquarters when it was trying to win over state legislators now may be as few as 50, according to the company. And although Woertz said that Decatur, which will become the company’s North American headquarters, will suffer no layoffs because of the Chicago move, there’s no tax incentive locking in staffing levels.
Additionally, the new technology center advertised as catalyst for 100 new jobs, originally part of the ADM pitch for incentives, is no longer linked to the headquarters move. Woertz said it’s still in play. And one imagines the same cities and states that hoped to land ADM’s headquarters will try to snare the tech center, if not more locales, and many if not all will dangle some incentive or another.
Illinois politicians may even come up with a rationale for a deal of their own. Speaking generally about such subsidies Wednesday, Gov. Pat Quinn indicated he didn’t foresee Illinois “offering tax incentives willy-nilly.” He favors infrastructure investments that benefit everyone. But Quinn also didn’t rule out incentives going forward.
It’s important to remember the politicians didn’t shoot down the handout for ADM, so much as wound it. They gummed up the works so that, when the legislature adjourned for the year on Dec. 3, the authorization for incentives for ADM and other companies was stranded between the Senate, which approved, and the House, which hadn’t yet acted on it.
Office Depot, newly merged with Naperville-based OfficeMax, was among the companies awaiting word on its incentives. It announced last week it’s headed to Florida, a move that stands to affect 1,600 Illinois jobs. ADM made its own peace, and now the state and businesses can see what the effect will be.
Companies make decisions all the time without worrying about incentives. They tend not to get publicity. But every time one business is seen getting a handout, it encourages others to ask for theirs. In Illinois, nine companies have gotten the special kind of payroll tax incentive ADM sought; hundreds have gotten state incentives connected to their corporate taxes.
“They read the papers and see that companies are successfully lobbying for these things,” said Matthew Gardner, executive director of the Washington, D.C.-based Institute on Taxation and Economic Policy. “But once you start giving out targeted tax breaks to specific companies, it’s hard (for the state) to know when to stop, and at the end of the day, who’s left holding the bag? It’s middle-income families and smaller businesses, the folks who don’t have the power to get in the door to negotiate for these tax breaks.”
ADM’s decision should empower decision-makers here to resist or at least think harder about the full cost of corporate subsidies.
Governments need to watch their nickels and dimes every bit as closely as the companies they court.
[email protected]
Twitter @phil_rosenthal

Now we have proof that Chicago doesn’t need gimmicks to win a major corporation

Phil Rosenthal

December 19, 2013

Any out-of-towner can fall in love with Chicago when it’s warm. Commit in December to making it your home and, beyond affection, it’s likely you’ve simply decided this is somewhere you need to be.

Three days ahead of the official arrival of winter, Archer Daniels Midland confirmed Wednesday it will make Chicago home.

The Decatur-based agriculture giant warmed to the city for its global headquarters despite getting the cold shoulder from Springfield legislators. ADM campaigned unsuccessfully for special payroll tax incentives that could have been worth up to $30 million over 20 years, the kind of break given a handful of companies such as Sears Holdings and Motorola Mobility to bolster state employment.

And yet ADM is coming to Chicago anyway, abandoning its threat to leave the state.

A company with a market cap of $27 billion isn’t going to let a few million get in the way of the right decision.

It almost seems silly to think otherwise. But time and again Illinois acted out of fear that it had to pay off these CEOs or they would flee elsewhere. Incentives here became so commonplace that companies viewed them as something expected, not something awarded only under special circumstances.

Now we have proof that Chicago doesn’t need gimmicks to win a major corporation.

ADM has a reputation for squeezing all it can from subsidies, tax breaks and every other available form of federal, state and local aid, much as it is known for getting every last bit of value out of the corn, oilseeds, wheat and cocoa it processes. But in the end, Chicago’s location, logistics, quality workforce and its clubby community of other major corporations and their leaders trumped everything else.

This city just made the most sense from a business standpoint.

“While we considered other global hubs, Chicago emerged as the best location to provide efficient access to global markets while maintaining our close connections with U.S. farmers, customers and operations,” ADM Chairwoman and Chief Executive Patricia Woertz said in a statement. “Chicago also provides an environment where we can attract and retain employees with diverse skills, and where their family members can find ample career opportunities.”

It might be worth $1.5 million a year to Woertz and her company to not have to promise how many jobs ADM will put in Chicago, how many jobs it will keep in Decatur and such.

So the 100 jobs ADM talked about moving with its world headquarters when it was trying to win over state legislators now may be as few as 50, according to the company. And although Woertz said that Decatur, which will become the company’s North American headquarters, will suffer no layoffs because of the Chicago move, there’s no tax incentive locking in staffing levels.

Additionally, the new technology center advertised as catalyst for 100 new jobs, originally part of the ADM pitch for incentives, is no longer linked to the headquarters move. Woertz said it’s still in play. And one imagines the same cities and states that hoped to land ADM’s headquarters will try to snare the tech center, if not more locales, and many if not all will dangle some incentive or another.

Illinois politicians may even come up with a rationale for a deal of their own. Speaking generally about such subsidies Wednesday, Gov. Pat Quinn indicated he didn’t foresee Illinois “offering tax incentives willy-nilly.” He favors infrastructure investments that benefit everyone. But Quinn also didn’t rule out incentives going forward.

It’s important to remember the politicians didn’t shoot down the handout for ADM, so much as wound it. They gummed up the works so that, when the legislature adjourned for the year on Dec. 3, the authorization for incentives for ADM and other companies was stranded between the Senate, which approved, and the House, which hadn’t yet acted on it.

Office Depot, newly merged with Naperville-based OfficeMax, was among the companies awaiting word on its incentives. It announced last week it’s headed to Florida, a move that stands to affect 1,600 Illinois jobs. ADM made its own peace, and now the state and businesses can see what the effect will be.

Companies make decisions all the time without worrying about incentives. They tend not to get publicity. But every time one business is seen getting a handout, it encourages others to ask for theirs. In Illinois, nine companies have gotten the special kind of payroll tax incentive ADM sought; hundreds have gotten state incentives connected to their corporate taxes.

“They read the papers and see that companies are successfully lobbying for these things,” said Matthew Gardner, executive director of the Washington, D.C.-based Institute on Taxation and Economic Policy. “But once you start giving out targeted tax breaks to specific companies, it’s hard (for the state) to know when to stop, and at the end of the day, who’s left holding the bag? It’s middle-income families and smaller businesses, the folks who don’t have the power to get in the door to negotiate for these tax breaks.”

ADM’s decision should empower decision-makers here to resist or at least think harder about the full cost of corporate subsidies.

Governments need to watch their nickels and dimes every bit as closely as the companies they court.

[email protected]

Twitter @phil_rosenthal

 

 


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