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Reputation Matters

Didi Caldwell
2:49 read

Editor’s note: A portion of this content was originally featured in a story published on Feb. 8 by Washington, D.C.’s WUSA-TV.

Amazon’s decision to pull out of New York and scandals among Virginia’s highest-ranking elected officials have left some people wondering how these situations might impact opportunities for future business investment in those states.

In New York’s case, there was a fair amount of public outcry when Amazon announced its decision to locate half of its so-called HQ2 in Long Island City. The project was expected to produce 25,000 jobs with an average annual salary of $125,000. Many people feared that local infrastructure such as roads, sewer, schools, and the public safety network would not be able to handle such a massive influx of new residents. Some state and local officials shared that belief. Although the Governor, mayor and most public officials involved in the deal assured constituents that the added tax revenue from Amazon would provide for infrastructure upgrades and expansion, there were still enough vocal skeptics – citizens and politicians alike – to cause Amazon to believe it wasn’t worth the effort.

Further south in Virginia – the other state chosen by Amazon for investment associated with HQ2 – both the Governor and Attorney General recently admitted to participating in racist activities when they were in college. The Lieutenant Governor has been accused of sexual assault. With many demands for their resignation, the situation has left the entire nation wondering if we have finally reached a point where it is impossible to elect someone to public office who is not guilty of some past lapse in judgment, crime or misdemeanor. Adding salt to Virginia’s wound is the not-so-distant memory of the violent Charlottesville race riots of 2017 that tarnished that community’s image for many long months.

New York and Virginia are called out only because both states are currently embroiled in high profile crises and they were both the envied winners of the race to woo HQ2. The reality is there is hardly a state that doesn’t go through some type of exigency that has an impact on location decisions, whether it be political crises, civil unrest, natural disasters, energy outages, or controversial legislative measures.

In my twenty-one years’ experience, crises can have a short-term impact on corporate location decisions. Company executives are sensitive to how their employees, customers and investors will react to where they decide to put the new corporate office or manufacturing facility. They are not prone to inviting controversy.

But memories tend to be short, and there is always a new controversy waiting to distract us. As long as the ship is eventually righted, the long-term impact is hardly noticeable. However, if the crisis drags on or is compounded by more trauma, the greater the chance for bringing irreparable harm to a community or state’s reputation. We see this often with cities that have high crime rates that persist over many years.

In Virginia, there is currently a crisis of leadership. Until that is resolved, there is no one in the executive position that has the time or even perhaps the authority to make significant decisions about economic development projects that may be on the verge of selecting a site. Fortunately, Virginia has strong leadership at the Virginia Economic Development Partnership, but their authority extends only so far.

Executives of very large corporations are also taking note of the political actions that caused a behemoth like Amazon to change its mind about locating in New York. Does locating in that metro region now increase the likelihood of having a PR crisis on their hands? Executives will go where they are able to spend their time focused on their core business instead of dealing with local politics.

This doesn’t mean that other communities aren’t immune to public backlash. Cities all across the United States are experiencing rapid population growth that is giving rise to widespread problems, such as gentrification, skyrocketing housing costs, and other matters that are changing the political dynamic. For this reason, stakeholder alignment is more important than ever before to successful commercial and economic development. Local and state agencies, government officials, utility service providers, and corporate business leaders should be engaged in, and supportive of, the plan for business attraction. At the appropriate time, they must also be made aware of major capital investment projects being pursued and the potential benefits to the community. There are effective strategies that can help accomplish this, even in so-called “rogue” situations.      

Businesses make location decisions based on cost factors, the overall quality of the location, and the location-dependent risks to the success of their business. The cost factors in Virginia haven’t changed; the strong labor force in Virginia hasn’t changed; the utility and transportation infrastructure hasn’t changed; the quality of life hasn’t changed. I don’t expect Virginia’s calculus to change because of this temporary hiccup.

Reputation does matter when it comes to business investment, so when crisis hits – and it will – community leaders are advised to place all their energies into establishing calm and regaining trust as swiftly as possible.