Behind Aetna’s Headquarters Relocation Decision: Top Consultants Weigh In
June 30, 2017
On Thursday, June 29th, Aetna, Inc., a Fortune 50 insurance giant, announced a decision that had been months in the making. The company would relocate its corporate headquarters from Hartford, Connecticut, the company’s home base for 146 years, to New York City.
On the day after the announcement, we set-up a conference call with two highly-respected site selection consultants to get their take on Aetna’s decision. You’ll hear from Larry Gigerich, Managing Director of Ginovus and Jay Biggins, Executive Managing Director of Biggins Lacy Shapiro, another highly respected site consulting firm. Both firms are members of the Site Selectors Guild.
Andy Levine (DCI): We’ve known for several months about Aetna’s plans to move its corporate headquarters out of Hartford, Connecticut, a city it has called home for 146 years. Yesterday, it was announced that New York was the winning city and will gain 250 high-paying jobs for this Fortune 50 insurance giant. New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio couldn’t have been happier with this announcement.
So welcome to this special episode of “The Project: Inside Corporate Location Decisions.” I’m Andy Levine of Development Counsellors International, and unfortunately, my co-pilot, Patience Fairbrother, is on the road and actually doing client work, so she can’t join me on this podcast. When yesterday’s announcement was made public, we decided to move quickly and take a close look at Aetna’s rather extraordinary decision. So we set up a conference call with two highly respected site selection consultants to get their take on this announcement.
You’re gonna hear from Jay Biggins, he is the Executive Managing Director of Biggins Lacy Shapiro, a Princeton, New Jersey-baced consultancy that has done dozens of projects in the New York metro area. We’re also gonna speak to Larry Gigerich who is the Managing Director of Ginovus, an Indianapolis-based consultancy that has strong experience in headquarters projects. Now both of their firms are members of the Site Selectors Guild.
Jay and Larry, thank you so much for joining us today for this special unscheduled episode of “The Project: Inside Corporate Location Decisions.”
Jay Biggins (Biggins Lacy Shapiro): Andy, thanks for doing this. This is obviously very topical.
Andy: Great to join both of you for today’s podcast. All right, sounds good. So we’ve known for a couple of months now that Aetna was planning to move its corporate headquarters, and this is after being in Hartford, Connecticut for 146 years. The winning city, New York City, was announced yesterday. The headquarters relocation of this Fortune 50 company is gonna be considered completed by late 2018, and it will involve about 250 high-paying jobs.
So Jay, let me start with you. I just want to get your gut reaction when you first heard that New York had won the Aetna sweepstakes. Over the years, I know you’ve done a lot of work in New York City, so I thought your perspective would be interesting here.
Jay: Well, this is a really highly-stylized, competitive process. And you know, you react on several levels. First, it’s a big psychological and economic development branding blow for Connecticut, but also especially for Hartford. You know, it’s a headquarters…it’s about talent, which has been widely reported. But we all know that talent is the issue, especially for headquarters and for industries that are confronting broad-based tech-oriented disruption.
And headquarters talent itself…so you’ve got both the FinTech sort of pursuit here, but also attracting the best finance and legal and other key employees. New York is really, really emerging, playing to its strengths. And Hartford has a harder time satisfying those requirements. A big win for New York.
Andy: All right. Larry, similarly, what was your perspective? What stuck out to you about this announcement?
Larry Gigerich (Ginovus): Well, I agree. It’s certainly a very big win for New York. You know, they have really focused on headquarters, digital, and technology-related projects for some time. And as a result of that, they’ve had a number of successes in recent times. And I think for Connecticut, clearly, it is a big blow as Jay said. They have struggled, the loss of GE, now this announcement, and just the decline in jobs in the Hartford area, in the insurance industry, has dropped by close to half from its height. So certainly, a lot of work for Connecticut ahead of them to overcome this news. Because it certainly will hurt them, I think, in other economic development efforts.
Andy: Now, I just want to make it clear, neither of your firms were engaged by Aetna or involved in this process at all, correct?
Larry and Jay: That’s correct.
Andy: You both worked on really high-profile headquarters projects before. Can you give us a sense, sort of take us inside the boardroom, and paint a picture of sort of how this conversation goes? And I’m imagining it’s over a series of months? Larry, maybe we can start with you on this one.
Larry: Yeah, I think any time, certainly, you look at a situation where you’re talking about relocating a corporate headquarters. That’s a significant project for any company. It’s not something that they take lightly. They want to make sure that they understand all of the options that they have. And it certainly impacts people’s lives, too, because typically, you have a number of people that are going to be relocated.
But it’s a very deliberative process. This one, from all the media accounts, certainly talent was the main driver for them as they looked at opportunities of where best to locate their new corporate headquarters and felt like New York City checked all those boxes from a talent perspective.
Andy: Jay, just on that, was a little bit unusual that they sort of announced early on, “Hey, we’re gonna be leaving Hartford,” but they didn’t say where they were going? Is that a little bit atypical of what you see in a location search?
Jay: It is. But I think they understood that they weren’t gonna be able to keep this process under wraps. And so, instead of dealing from a defensive position and having to have standby statements and addressing leaks, they put everyone on notice that they were going to be in the market. That certainly ton of pressure on Connecticut over a protracted period of time.
And you know, this was…GE did a little bit of it in quite the same way, but were forced to sort of acknowledge that they were in the market earlier than they probably planned to. We all remember Boeing, right? Many years ago, which announced that they were in the market to explore corporate headquarters outside of the Seattle area. As you recall, they filed three flight plans and made quite a show of where they were landing.
But I think they got ahead of the leaks. So it’s a little bit of a high risk approach, but also maybe well risk-managed at the same time.
Andy: Okay. So both of you in your opening comments, you talked about Connecticut, and Larry, I think you mentioned the loss of GE previously. This is obviously a big disappointment to Governor Dan Malloy, as well as the state. Jay, maybe start with you on this one. What does this move say about the state and Hartford’s business climate?
Jay: Well, boy, it’s gotten just so much coverage. I will note that the governor announced that he had recently reached a deal with the public employee unions that would really kind of be of threshold importance in even getting a budget done for the next fiscal year. But there’s a significant structural issue that the state has to address in terms of its overall cost structure and its reliance on the high-value taxpayers, which have feat. It’s very difficult for a state with a high cost structure to retain operations if they don’t have really decisively important assets to keep companies there and to attract new ones.
I will say, though, that Hartford has a very different set of problems and assets. They are still an insurance capital of the country, if not the world. They still have more insurance employees than anywhere else. That industry is under a great deal of disruption, stress, and change. So I think that those numbers that Larry referred to of going from 60,000 to 35,000 or so insurance jobs over the last 15, 16 years is clear. It’s not all companies and jobs relocating, it’s also the industry re-engineering itself to need fewer people to get the same work done.
Hartford has a particular issue, though. While they have great assets, the city itself is struggling to put a budget together because so much of the property is exempt. So this is a particular blow for Hartford.
And I will…just one last comment. I found the comment by the CEO of Aetna to be unusually specific with regard to the deficiencies of the city that they’re leaving.
Andy: That was a surprise to me as well. He sort of almost, like, threw down the gauntlet to say, “We’re moving the headquarters now, but there could be more unless you get your act together. That was sort of the way I interpreted it. Did you interpret it that way, Jay?
Jay: Well, that’s the most positive spin I can put on it, actually.
Andy: Okay, gotcha. Larry, taking a little different direction. So the company did say, “Listen, we are gonna keep 5,000 jobs in Connecticut and it won’t head to mass layoffs.” Is that sort of the silver medal in this whole thing, or do you see this as a pretty bad blow to Hartford as well?
Larry: Well, I think, clearly, the fact that they have made a statement that they’re going to keep jobs in the state certainly, I think, helps cushion the blow to a certain extent knowing that they’re going to keep a large number of jobs there.
Having said that, I think there certainly will be pressure on the state, and as Jay acknowledged, I mean, there’s some efforts underway now related to pension reform and then also looking at their tax structure as well, which both of those things have been a real detriment to their business climate. It has made it more difficult and expensive for companies to do business there.
But as Jay said, and he said this accurately, as we’ve done work for some of our insurance company clients, they are under a lot of pressure. And I think at the end of the day, that industry will continue to see changes. Technology is enabling so much of what they do today that I think while the 5,000 jobs thing in Connecticut is good news for today, it’s certainly, I don’t think, anything the state can take for granted.
But losing a headquarters, that economic impact, even though the job number is smaller than what they’re keeping there that will be moving to New York, it’s still a big impact. When you lose headquarters jobs, you lose a lot of charitable giving. They’re very high-income jobs which have dramatic economic impact.
So it’s better than losing everything, obviously. But certainly, if I’m Connecticut, I don’t take those jobs for granted.
Andy: So let’s switch gears from Connecticut and go to New York here. The CEO of Aetna, Mark Bertilon (Bertolini), he said that the decision was really about talent. And to quote him here, New York “has the ecosystem of having people in the knowledge economy working in a town that they want to be living in. We want to attract those folks, we want to have them on our team. It’s hard to do that in Hartford.”
So Larry, let’s start with you here. Talk about talent and what you’re seeing not just for Aetna, but among your clients and how it is driving today’s location decisions.
Larry: Well, I don’t think there’s any doubt at all…projects that Jay and his firm work on, our firm, the talent is almost inevitably for every project, the number one decision driver. You know, in the world we live in today, and especially the changing economy that we see, human capital is really, really important to these companies. Whether it ties to innovation or just having people who can help businesses execute against a business plan.
So I think the move to New York certainly, as we talked about a little bit earlier, was definitely a talent play for the company and their headquarters operation.
And to the credit of the state of New York, in particular, I think Governor Cuomo and his team have done a great job of saying, “Hey, here’s what we’re really focused on, here’s what we’re trying to do, and we’re trying to create a state in leveraging…” obviously off of New York City in this case for this project, “the diversity of talent we have, the highly educated people we have,” and that is a very good fit for FinTech and for corporate headquarters projects.
So again, talent is the driver in almost every single project today. And if you’re a place that has talent, you’re going to leverage that and I think have a number of economic development successes.
Andy: Jay, you’ve done a tremendous amount of work in New York City, and sometimes, that’s been sort of the opposite of this in terms of companies departing New York. Talk about your perspective on New York and the talented workforce there, and sort of your perspective on this decision?
Jay: Well, I mean, the New York workforce is just in the extreme. Dense and high-level and attracting the best and the brightest from all over the world. I will say, though, that there’s a lot of coming and going, a lot of puts and takes in a market that diverse. New York has a hard time holding on to operations that are cost-sensitive. So 250 people, if the costs in New York had been…were lower or more competitive, it could have been 500 people.
So I think that’s the constant push and pull here. Talent is pre-eminent as a variable, especially for industries that are under technological disruption, as the insurance industry is, which is going through immense changes from underwriting to the whole…to the customer experience. And they just don’t…they know that they’re not going to succeed with the business model that they have today, which is a densely-populated business model.
But New York, I think, the incentives play a fundamentally important role in a situation like this because while talent is pre-eminent, New York is not the only place you can find high-value talent. And they need incentives in order to mitigate the cost gap of locating there.
Andy: That’s a good jump-in, perhaps, to looking at the incentives package here. It was reported that New York state kicked in $24 million in tax credits over the next decade. The city kicked in about $9.6 million in tax benefits. By my math, that works out to about $135,000 per job, that is, over ten years.
You’ve both worked with a number of different locations like this, or decisions like this. How do those numbers strike you? Did New York give away the store, or was this a good deal for the city? I don’t know; which one of you wants to start first on the incentives question here?
Larry: Well, maybe I’ll start with a comment and where I’ll start is I’ll build on something that Jay alluded to in his previous comments, which is he’s exactly right; New York City is a very expensive place to do business, and especially for things that are more cost-sensitive, which is why you’ve seen some headquarters operations in New York City move their shared services or back office operations out of New York City to take advantage of lower-cost talent, in particular, and real estate costs in other locations.
But I think in a situation like this for a project…again, extremely high-paying jobs, jobs that are really impactul. With a headquarters, I mentioned earlier, you have charitable giving and a lot of other things that typically occur with businesses that I think this package is reasonable for the type of project. And obviously, it is one where New York had to compete very aggressively to try to win the project.
And it helps, as Jay alluded to, it helps mitigate some of those costs that are very expensive in a place like New York City to make this project viable economically, and for the board of Aetna to say, “Yes, we’re comfortable with this decision.”
Andy: Jay, your thoughts? Same question.
Jay: Yeah. No, I think it’s a very good deal for New York. To capture an insurance headquarters, they have very ambitious, high-value job creation goals. New York state has one of the most well-governed economic development operations in the country. They have a rigorous return on investment analysis that governs what they propose to all companies in the form of an incentives package.
I think this, in some ways, this package is kind of proof of concept. This company had choices and made one as part of a genuine, full-blooded, competitive process out in plain sight over a number of months. New York did need these incentives to mitigate…not to close the gap, the cost gap, but just to mitigate the cost gap, which allowed the talent advantage to kind of float to the top and ultimately be the decisive variable.
New York wins some of these, which are the ones that get the attention, but they also lose some on costs. So I think this is a case where the system worked. Where competition which, you know, is a principle that we revere in every aspect of our economy and our economic life, in this case, was in full play and worked for the competitor that brought the right combination of price and other assets to the table.
Andy: Do you think that Connecticut was really ever in the game in this, or was a decision made “We have to get out of Hartford” early on in the process? None of us, obviously, were in the boardroom or in Mark Bertiloni’s head. But any sense of that from what you read about this deal?
Larry: Well, I think when you have a situation where you have a company that comes out very early in a public way and says, “Hey, we’re considering all of our options for the relocation of our headquarters or potential relocation of our headquarters.” There was a lot of thought given, certainly, to the thought process to get them to that point.
So I think any time we work with a client, with a headquarters relocation project, they feel like that there are a number of issues that have to be addressed where they are. And because of that…I don’t want to say they have one foot out the door, but there is a leaning to “Hey, we’re probably going to move.”
Having said that, with corporate headquarters, inevitably, companies give opportunities to the community and the state that they are located in to stay there, and there are some reasons why that makes sense. Just the disruption to their business, if they move their headquarters, is certainly always a strong consideration.
Just put, I guess, a fine point on it, I do think that they seriously consider remaining in Connecticut. But they also realize going into it that it was going to be difficult for the city of Hartford and the state of Connecticut to do everything that they needed to have done for them to make a decision to stay there.
Andy: Okay. Final thoughts. Jay, maybe start with you. Were there any other surprises or things we haven’t talked about that struck you about this particular announcement?
Jay: No, I think it’s…I won’t say it’s part of the pattern in the sense that another, you know, issue is going to drop in the foreseeable future. But I think it is a challenge that Connecticut is facing. I think Dannel Malloy is just so acutely focused on this topic, has been, but he’s got some structural issues that are weighing down his ability to be competitive and to respond.
He’s a very strong competitor himself and really focuses on these deals with a great deal of sophistication and focus.
But I think the insurance industry is going to continue to be under a lot of stress. I did note that The Hartford came out with a very unalloyed, ringing endorsement for Hartford and their presence there, and their intent to grow there without hedging in any way, which is a good thing. Although I think they’re gonna continue to face the same pressures that the industry is facing. There’s really nowhere to hide from those pressures. Andy: Larry, any final thoughts?
Larry: I think the only other comment I would add to that is…and we touched on it earlier in the discussion, the comments of the CEO of Aetna being very direct about the issues in Hartford and Connecticut, I think, was unusual in how blunt they were. And Andy, as you said, sort of throwing down the gauntlet, they were very direct.
I mean, typically, in our experience, I think, just observations when you read stories like this in the media, typically, the CEO, if the decision has been made to leave one community or another, are a little more deferential in their comments, and try to help the losing location, so to speak, salvage something out of the process. And this was a very direct statement about Hartford and Connecticut, there’s no two ways about it.
Jay: Yeah, that was a nervous moment for the corporate public affairs guys.
Andy: Jay and Larry, I can’t thank you enough for both coming on the phone with me with such short notice. I think I asked you about 4:00 yesterday, and here it is, 2:00 p.m., we’re on the phone today. Thank you very much, guys. Have a great holiday weekend. And we appreciate you both being a guest on “The Project.”
Jay: Thank you. You as well.
Larry: Thanks, Andy.
Andy: So that is a wrap on this special and unscheduled episode of “The Project: Inside Corporate Location Decisions.” We’d like to thank both Jay Biggins of Biggins Lacey Shapiro, as well as Larry Gigerich of Ginovus for joining us on the phone today. They’re both really busy people. We appreciate them making the time for this, especially as the holiday weekend was coming right upon us.
“The Project” is sponsored by DCI. We are the leader in marketing places and have served over 450 different cities, states, regions, and countries. You can learn more about us at our website aboutdci.com. Patience and I are hard at work at new episodes of “The Project.” We hope you’ll keep listening. There are many more projects to come.