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Area Development - Site Selection, Facility Planning and Workforce Development

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.

Winter 2011
In this uncertain economic climate, efforts by corporations to control cost and maximize revenue are becoming more important than ever. One of the distinguishing characteristics of the current economic downturn was how quickly companies shed jobs and how slow they have been to add new positions, even as signs of recovery have emerged.

Along with these downsizing efforts, companies are continuing to look to squeeze costs out of their operations in other ways - notably through their real estate functions. As a result, the role of the chief financial officer (CFO) in corporate site selection and incentives negotiation, and particularly incentives implementation and realization, has increased over the past five years.

Wooing the CFO
Traditional economic development efforts have rarely attempted to woo the CFO during the site selection process. While there was always the recognition that the CFO was part of the process, he/she was rarely a visible member of the negotiating team. The CFO played more of a support role, or was limited to assisting with realizing incentive commitments after the public announcement.

Increasingly, however, the CFO is emerging from the shadows and, in many cases, is the lead on the site selection team. As one of the most senior corporate executives, the CFO is often deferred to by others in the company, and his/her opinions about why or why not to select a certain location carry great weight.

"Finding new sites - whether for manufacturing, distribution, administrative, or marketing operations - is a complex process with multiple variables that require a detailed comparative evaluation," notes Doug Townsend, CFO for Home Meridian International, an international home furnishings company headquartered in High Point, North Carolina. Within the past two years, Townsend has been involved in the relocation of both the company's corporate headquarters and its West Coast distribution center.

"Such projects are usually the major capital investment item for the year for most companies, so they are carefully scrutinized by executive leadership, the board of directors, and outside investors," Townsend adds. "New sites are often used to enhance a company's financial, operational, and strategic and brand image goals, so CFOs are uniquely positioned to lead the site selection process because they work across organizational boundaries and are ultimately responsible for many aspects of the enterprise's success."

Ask Area Development
If you have questions about the role CFO's and company finances play in the site selection process, send them to Ask Area Development and the article author will respond.
Factors Adding to the CFO's Role
But corporate cost-cutting is not the sole factor behind this trend. Instead, there are a variety of factors at play, both financial and relating to public policy, that have reinforced the increasing role of the chief financial officer in real estate decisions. Among them are the following:

Outsourced corporate real estate functions - As the economy began to falter in 2007, and even before that time to some degree, many corporations were starting to outsource their corporate real estate functions to their brokers or wholly eliminating the real estate function internally. Instead, they began relying more heavily on personnel with human resources, production and manufacturing, and financial backgrounds to assist in site selection activities. In such cases where there is no corporate real estate director, the CFO often emerged as the leader of these ad hoc teams and has started to play a larger role in the decision-making process about future corporate locations.

Increasing complexity of incentives - Increasing competition among communities for new jobs and investments has spawned an even wider array of economic development incentives. However, these incentives are increasingly complex; it is often necessary to collect significant corporate financial information merely to determine eligibility for such incentives. Even if a company is eligible for an incentive, it is generally the role of the CFO to determine whether the incentive holds any real value to the company. In fact, many now totally discount corporate income tax credits in favor of cash grants.

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