An introduction to HQs
This report focuses primarily on the global or regional HQs of multinational corporations (MNCs) – although domestic companies, startups and scaleups also have corporate headquarters, and make important decisions about where to locate them. But what do HQs do?
The nature of a head office can be difficult to define, due to the variety of functions, size and scale in different companies and sectors. As one 2003 study put it: ‘To some extent, the head office remains a “black box”.’ 37 However, there are some commonalities: head offices host the “brain functions”, or the core management functions of a business. Beyond this, the variety and nature of other functions that are co-located in the same physical space can vary tremendously. An HQ is not always the largest office in terms of staff numbers or floor area, but is generally home to executive management and some cross-business administrative functions.
Research for the British Council for Offices observed and defined three main roles played by corporate HQs: governance (taxation, treasury and audit functions); shared services (cross-company administrative, human resources, corporate real estate and information technology functions); and strategy setting (business development, research and development, and the overall direction of the company). 38 This builds on a similar categorisation developed by Jacobsen and Onsager, who defined the three roles as strategy, coordination, and control and policy. 39 Regional headquarters (RHQs) of MNCs can be further subdivided into those playing either an “entrepreneurial” or an “administrative” role – either actively seeking out new talent and opportunities, or performing a command, control and coordination function. 40
These three main central functions can be combined in different ways. In 2007, management consultants Booz and Co highlighted three models for the modern HQ:
- Governance Guardian – providing the basic essentials of overseeing a large, international company, including audit, legal compliance and other related functions.
- Advantage Accelerator – actively assisting with the particular specialism (or “advantage”) of the business, strengthening links between parts of the business, or overseeing strategy across the entire business.
- Scale Economiser – managing shared services for all parts of the business in order to reap the benefits of providing services at scale. 41
All three of these models exist within London – alongside combinations of more than one.
There is a wide ranging literature on the function, scale and evolving nature of international HQs. In fact, the breadth of the academic literature on this topic reflects the breadth and diversity of head offices themselves, both in terms of size and function. 38 Some co-locate with other parts of the business – from investment banks housing their head office staff in the same building as trading floors, to big global tech firms that build large campus-style HQs with little spatial distinction between employees of all levels and roles. Others pursue a “hub and spoke” model, seeking to minimise take-up of expensive city centre space with a slimmed-down HQ – and as many business functions located outside the city, or even the country, as possible.
Some “headquarters” are essentially brass plaques in locations chosen for tax reasons, supported by the smallest possible number of staff – a process described as “corporate inversion”. 43 However, there is a backlash against this practice, with more governments demanding that “substance” (i.e. senior staff and some degree of operations) accompany an HQ in a bid to clamp down on tax avoidance. 44 To provide an example, in August 2016 the European Commission found that the Irish government had “granted undue tax benefits of up to €13 billion to Apple” by allowing it to attribute almost all of its European sales to its head office, which it found to have “existed only on paper”. This amounted to a breach of EU state aid rules, and Ireland was instructed to recover the lost revenue. 45 The European Central Bank has also warned UK based banks and other financial institutions that they will need “substance locally” to operate from within the EU post-Brexit: “In other words, there cannot be empty shells or letter box banks”. 46 The Bank of England has a similar policy in respect of operations in the UK.
The literature reflects that there is no one kind of corporate headquarters, either in London or globally. There is also great diversity in how HQ scale and functions have changed in different sectors, and even within different companies. However, there are some common themes, to which we now turn.
The evolution of the HQ
The corporate HQ of today is certainly different to that of the early 20th century. Notwithstanding variation between sectors and companies, there is a broad trend of transformation – from the “corporate temple” to the flexible, collaborative HQ space of today.
Historic HQ: Corporate temple
The HQs of yesterday were huge, highly visible and housed entire companies’ central management and administrative functions. As one real estate consultant interviewed for this report put it, this traditional HQ was home to a huge range of functions, “from ordering stationery to setting strategy”. 47 HQs built on the “corporate temple” model were designed to project a symbol of corporate power to the outside world, and were often heavily branded. Inside, office space was compartmentalised and hierarchical, with progression towards the upper tiers of management often mirrored by a matching promotion in the office space itself. “Going up in the world” often meant literally moving up the floors of the building, towards the higher floor offices of C-suite executives and the boardroom.
The corporate temple model was soon expanded upwards, with the co-location of head office and other functions continuing. The New York skyscraper model was later replicated in London – first with the City’s Natwest Tower and subsequently at Canary Wharf, where entire towers could be occupied by one company (albeit co-located with trading floors and other non-head office functions).
Modern HQ: Collaborator
Today’s head office spaces reflect changing patterns of work. Flexibility and collaboration are much higher priorities, and the distinctions between functions and seniority levels are reducing. A more transient and flexible workforce, who in turn expect more flexible working hours and locations, are accommodated in open plan layouts and shared spaces designed to encourage chance encounters and innovation. Whilst traditional “head office” functions may be slimming down, HQs are more likely to make room for incubator space and experimental “skunkworks” – with large companies providing space for startups and “disruptors” in order to capture new innovations before their rivals. 48
The projection of a corporate brand is still important, although it has changed in nature – being targeted as much at attracting and retaining talent as it is at consumers. Lifestyle offerings – from gyms and cafés to games and even slides 49 – are becoming more prevalent, and are designed to lure workers into the office, further encouraging creativity, socialising and collaboration. 50 Alongside the emphasis on staff experience, the experience of visiting clients is also increasingly important to the modern corporate HQ.
The HQs of tomorrow
What will the HQ of the future look like? Interviews with management consultants, real estate agents and other “brokers” who deal with HQ decisions in London – alongside desk-based research – suggests that there may be three models for the future. Based on existing trends, these can be described as the consolidated, the slimlined and the scattered HQ.
The ‘consolidated’ HQ model is mainly being pursued by large technology companies; whilst relatively few in number, they are likely to have a significant impact on job numbers in London. The ‘slimlined’ HQ model is becoming the ‘corporate norm’ across most sectors in the city, and whilst the numbers directly employed in this model are lower, their continued presence in London also has a major collective influence on high-skilled, high-wage employment. The ‘scattered’ model can see multiple HQs in different cities or nations, focusing on different specific head office functions.
All three models are likely to be open plan. As much as three-quarters of space in future headquarter buildings is expected to be “collaborative”, according to the British Council of Offices. 38 One real estate figure predicted that the HQs of tomorrow will be “smaller, but much more interconnected”, with open meeting spaces “like a hotel lobby” throughout. 52 Modern HQs are looking “more like a film set or a sound stage” than a traditional office set-up, according to another consultant. 44 Whilst there are differences in the degree to which this is manifesting itself across different sectors – with digital and tech companies more enthusiastic than legal or business services, for example – overall, “every business sector has changed in that way, to some extent”. 52 An increasing focus on staff health and wellbeing is also both currently observable and predicted to continue. 38
Model 1: Consolidated HQ
Amongst some sectors – particularly the largest multinational tech and digital companies – there is a tendency toward larger, more multi-function HQs. This trend has been seen in the United States (see Chapter 3 for Amazon’s HQ2 case study), but is also emerging in London. Google’s upcoming King’s Cross “groundscraper” HQ, for example, is designed to house several thousand employees, 56 and Apple’s planned Battersea HQ is intended to consolidate 1,400 London-based staff into one location. 57 These are similar in some senses to the old “corporate temple” HQs. However, whilst the large, attention-grabbing HQs on this model house high numbers of employees, they tend towards co-locating senior executives alongside a broader range of skilled workers in flexible, open plan workspaces throughout, rather than providing a spatial hierarchy to reflect seniority.
These large scale consolidated HQ moves were described by one management consultant as “going out on a limb” in the London context, but enabling the firms to recruit “the best people in Europe”. 47 Capturing a large consolidated HQ clearly has a sizeable direct impact on employment in London, and can make for a powerful negotiating tool on the part of an MNC. However, there are also other, smaller-scale examples of the consolidated HQ – for example, in the games and interactive entertainment industry, where studios and head office functions are often co-located. 59 This is also often true of startups, where it is a product of scale and the number of staff employed rather than active decisions over co-location.
Model 2: Slimlined HQ
Whilst tech and digital HQs are becoming increasingly open and multi-functional, other sectors are seeing a “slimming down” of their head offices. Retailers, business services and other non-tech sector companies are reducing their footprints in city centres to cut costs. Only the governance essentials are remaining in expensive city centre locations, with all possible functions moved to cheaper locations beyond. 44
This is not an entirely new phenomenon – one 2003 study noted an increasing tendency towards decentralisation of authority within large companies, with an associated increase in complexity of governance. 39 However, rising property and associated costs in city centres could see this model accelerate, with companies seeking to strip head office functions down as far as possible, outsourcing to locations with cheaper property and labour costs. This may mean “near-shoring” functions to UK regions, or moving them overseas to cheaper locations. One real estate company told us that their clients were now frequently asking them: “How few roles can we have in London?” 47
The slimlined HQ model also has a strong emphasis on staff and client experience, sharing many qualities with the consolidated HQ model in terms of interior layout and the importance of projecting a modern corporate image. A city centre location remains important for attracting, accessing and impressing clients. Attracting top talent also remains important, even if the numbers are smaller and more focused on “elite” roles. The “slimlined” HQ may only employ a relatively small number of senior staff, but its indirect effect on related jobs means that it remains valuable for a city such as London to capture. Ultimately, the slimlined corporate HQ is moving towards being what one real estate consultant described as “headcount light, brand heavy”. 47
Model 3: Scattered HQ
The increasingly complex, internationalised nature of large companies has also seen a third model of head office emerge: the “scattered” HQ. This model sees traditional head office functions, from human resources to marketing, split into separate locations – each of which could be seen as the “headquarters” of that particular function. Whilst these locations may not feature a “brass plaque” that declares a global or regional HQ, they may concentrate particular functions for an entire region. The scattered HQ can therefore be a great asset to its host city or location, directly providing a significant number of highly paid, high-skilled jobs. The LEGO Group provides an example: officially headquartered in Billund, Denmark, where over 2,000 employees work, LEGO’s main office in London also employs over 200 people, providing the company’s global HR function alongside other UK-focused functions. 64
HQs and city centres
Regardless of the model, it seems clear that most MNCs will continue to retain a presence in, or close to, the centres of large metropolitan areas. In 2017, it was noted that corporate HQs were “disproportionately concentrated in metropolitan areas”, both in developed and emerging economies. 65 And academics have long defined “global cities” on the basis of the presence of “transnational corporate or multinational firm headquarters”. 65
This continuing preference for urban locations appears to relate primarily to the access provided by large cities to wider talent pools. Regardless of whether head office functions are consolidated, or stripped to the bare bones of C-suite executives (reaping the benefits of what one interviewee described as “elite clustering”), 67 city centre locations allow broader and deeper talent pools for recruitment at all levels.
You still have a lot of “legacy HQs”, but in terms of real estate transactions, the functions that are taking high quality real estate in the centre of London now are tending to focus on innovation, client experience, and to a degree, staff experience. They are moving towards high quality real estate, and ever more to cities.
Real estate consultant
Recent years have seen companies such as Amazon, Novartis and Kraft Heinz vacate sites in the Thames Valley, Surrey and Hayes, and move to central London – primarily in the pursuit of talented workers who are increasingly drawn to the cultural and social advantages of urban living. 68 These factors tend towards bringing a company’s entire operation into one location, with numbers (but not necessarily floorspace) increasing. 44 Proximity to relevant centres of excellence and innovation also brings benefits – it is no coincidence that Google’s HQ is located in King’s Cross, at the heart of the Knowledge Quarter innovation district. 70 Proximity to universities, relevant sector hubs and other magnets for skilled workers also makes city centres ever-attractive as HQ locations – so whatever the nature of a company’s future head office, there is good reason to believe that it will be located in a city centre.