The Amazon Effect ... on Tax Breaks

The retailer, which canceled its New York HQ plans, may not be alone in facing growing opposition to tax breaks. How to deal with the new environment.

When a big company announces it wants to build a giant plant or headquarters in town, there’s always at least some opposition. The new neighbor will cause pollution or snarl traffic or even ruin the views. But usually company leaders, and the politicians who wooed them, can argue gains to the local economy are worth it. 

These days, however, “not in my backyard” arguments are carrying considerably more weight as the focus grows on tax breaks that cities and states are offering companies to attract new business. Corporate leaders, who may have been used to facing only minor opposition to their plans, may have to rethink their approach. “We are living in a heightened political climate now,” says Dana Sullivan, a Korn Ferry principal who specializes in government affairs. “People now feel that their voices can be heard and they are not afraid to use them.” 

Amazon’s recent decision to abandon plans to build headquarters in New York—and receive $3 billion in tax incentives—has generated the biggest headlines so far. But the retailer giant isn’t the only one getting blowback.

The state of Wisconsin is having second thoughts about the billions of dollars it has offered Taiwan-based Foxconn to build a plant. Over in Michigan, the city of Detroit’s plan to buy up 200 acres of land and give it to Fiat Chrysler to build an auto assembly plant is getting fresh opposition. And back in New York, press reports are starting to question tax breaks affecting a massive real estate project on the city’s west side. 

There is no consensus on the total amount of tax incentives or other assistance states and towns offer companies to get firms to relocate or expand. One study puts it at $45 billion a year; another at more than $90 billion. The breaks come in different forms, including reducing the taxable income the company generates at their new location to waiving taxes entirely. People who oppose these incentives contend that the resources could go to paying for education, upgrading infrastructure, or other services governments usually provide.

The best firms realize that their media-relations efforts need to change to conform to drastic changes among community-based print and digital media, says Peter McDermott, a principal with Korn Ferry’s Corporate Affairs practice who recruits communications executives. For example, winning over the editorial board at the local newspaper isn’t as meaningful when that paper has lost more than half of its circulation over the past two decades. It may be necessary to reach out to influential community bloggers who often write with a point of view and can help shape the debate. “No company should be a shrinking violet in the face of strong local opposition,” he says.

Corporate leaders can use the same tools that their opponents do to get people enthusiastic about expansion plans. “Opponents use social media and regular media to speak directly to the constituents, but everyone has access to those tools,” says Sullivan. The goal, she says, is for corporations to develop a broad engagement strategy, which involves government affairs to influence political leaders, and a multi-pronged communications strategy to win over the public through ad campaigns and media-relations efforts. 

Importantly, while companies need to work aggressively at influencing opinion, a little discretion and respect for local sensibilities is also in order, says Richard Marshall, global managing director for Korn Ferry’s Corporate Affairs practice.