When Elon musk obtained 1.3 billion dollars from Nevada in 2014 to open a giant battery plant, Jeff Bezos realized.
At meetings, the head of Amazon.com he expressed envy for the way Musk had faced five western states with each other in a war of offers of thousands of manufacturing jobs; He wondered why Amazon was fine with accepting relatively insignificant incentives. It was a subject to which Bezos returned frequently, according to four nearby people.
Then, in 2017, an Amazon executive sent a congratulatory email praising his team for $ 40 million in government incentives to build an air center of 1.5 billion dollars near Cincinnati. The insignificant sum bothered Bezos, people commented, and made him even more determined to try something new.
So, when Amazon announced a meeting for a second headquarters (HQ2) In September 2017, the company made it clear that it was looking for government support in exchange for a promise to invest 5 billion dollars and hire 50 thousand people. The striking contest in the style of a television reality show generated media coverage without rest, attracted favorable offers from 238 cities from North America and ended with Amazon deciding to divide the so-called HQ2 project between New York and Virginia. Then, progressive politicians attacked the 3 billion dollars offered by New York, and Bezos withdrew.
Amazon was widely ridiculed for its failure to woo New York politicians.
To understand why this happened, Bloomberg interviewed 12 people familiar with the company’s effort. His story, described here for the first time, shows a team that became the victim of their own arrogance. Bezos’ frustration with what he considered as poor government generosity led executives to dismiss lessons learned over the years in favor of an unapologetic appeal for tax exemptions and other incentives.
Employees with experience in negotiating agreements across the country anticipated problems, but the red flags were ignored by those who were eager to please Bezos with a good play and a great victory. In secret and separated from the rest of the company, according to people close to the situation, the members of the HQ2 team marinated the uproar and were convinced that Amazon would be welcome anywhere.
That assumption continues to resonate today, no less importantly, among city officials across the continent who felt manipulated by Amazon, according to people close to Bezos. Meanwhile, a bipartisan group of state legislators is considering a non-aggression pact to stop the kind of bidding war of incentives unleashed during the HQ2 process.
“All this was an ego exercise that exploded in the face of Jeff Bezos,” said one of the people.
In a statement, Amazon said the company He has invested 270 billion dollars in 40 states and created more than 500 thousand jobs with competitive salaries, benefits and employee training. “We partner with hundreds of communities across the country to provide them with new jobs and investments. Like many other companies, we are eligible to access incentive programs created and regulated by cities and states to attract new investors, as they know that these investments pay a long-term dividend in the form of jobs, new economic opportunities and tax revenues that increase. ”
For years, Amazon’s economic development team followed a well-cared for process, internally dubbed as the “welcome car “, which developed as the company began building warehouses in towns and cities in the United States. To avoid concerns about traffic, working conditions and competition with local businesses, executives organized informational meetings, inviting residents and interested parties to ask questions.
Sometimes, Amazon arranged for officials to travel to other cities to see their stores first hand and talk to local employees and leaders. All the while, the public relations team cultivated relationships with people willing to tell the media why they were in favor of the project.
Windsor, Connecticut Mayor Don Trinks recalls how Amazon eased anxiety in his city, near Hartford, before opening an on-site warehouse in 2016. When the news was released, residents worried about the traffic caused by trucks. Amazon organized a meeting in the city and answered all the questions.
“The public’s perception was that a big company like Amazon would come and raze our little city, but nothing could be further from the truth,” said Trinks, who has been mayor for almost 20 years and owns a small restaurant. “The scope of the information was very impressive. They answered the difficult questions and jumped right in front of everything.”
Bezos decided that the HQ2 process would be handled differently. It wasn’t just Musk’s experience in Nevada that obsessed him with having more government subsidies. He had also seen Boeing get 8.7 billion dollars from the state of Washington in 2013, only to reduce his workforce in the coming years.
Meanwhile, Amazon was not receiving money from the state despite hiring hundreds of people and was entangled with the city of Seattle, which blamed the company for the city becoming too expensive. In addition to seeking the government’s generosity for the HQ2 project, Bezos also told his team that he would seek one billion dollars in support for other Amazon projects, according to someone familiar with the situation.
The economic development team failed to meet its financial goals in previous years, the person said. (The Wall Street Journal was the first to report the one billion dollar target). An Amazon spokeswoman questioned that the company has objectives for government incentives.
The notion of a second headquarters came from the finding that, over the years, Amazon had opened satellite offices throughout the country with little reason, according to one of the people. The top executives of Bezos decided that it would be better to choose a place that could absorb staffing needs for the next decade. According to people, in silence, Amazon had been looking for cities and had already identified 25 where it could place some 20,000 employees, according to sources.
The company could have reduced that list and negotiated with the selected finalists. Instead, Bezos pressed. Musk had attracted five states to a bidding war; Bezos opened a contest throughout North America, even if setting up a second headquarters in Canada or Columbus, Ohio, was unlikely.
A team that included the head of real estate John Schoettler prepared a request for proposals, highlighting essential elements such as an airport with direct flights to Seattle and good universities. The word “incentive” was used 21 times. Some team members cringed in fear, worried that Amazon would become deaf given Bezos’s wealth, not to mention unleashing a national debate about income inequality. They knew that officials would offer tax exemptions anyway, but demanding them left Amazon exposed to accusations of corporate greed.
But detractors were quickly silenced and sent to work on other projects. The remaining members of the team believed that the consequences would be short-lived and overshadowed by the large size of Amazon’s investment.
Led by public policy chief Brian Huseman and economic development director Holly Sullivan, the HQ2 team seized a small office in Washington and retired behind a wall of secrets. The windows were closed, and Huseman warned those who did not belong to the team that whoever entered the room would be punished, according to one of the people. The information was strictly controlled to avoid leaks.
One afternoon in January 2018, team members received an email ordering them to report to the office early the next morning. It was time to cut the list of more than 200 contestants for the project. Huseman reminded the team that anyone who leaked information to the media would be identified and fired. Each received a lot of cities to call and instructions to decline bids from officials gently telling them they had an attractive offer.
Like job seekers, unfortunate officials thanked Amazon for being considered and looked for clues as to why they were not selected, according to one of the people who made the calls.
The 20 finalists largely overlapped with the existing list of 25 potential locations, according to people. Going to smaller cities like Indianapolis and Columbus, although few team members took them seriously, helped Amazon send a message that all cities had a chance, one of the people said.
Keeping the frenzy competitive took precedence over narrowing the list further, which would have allowed Amazon to focus on relationships. The prevailing feeling within the HQ2 team after scrapping communities was: this was hard, but necessary. For the most part, they were relieved to be one step closer to completing the search and celebrated with beer and wine in the kitchen of the Washington office.
Despite Amazon’s efforts to contain the operation internally, the consequences extended to other departments. Municipal and state officials complained privately to their Amazon contacts that the exercise was a tremendous waste of public resources, according to a person who received the complaints. Mayors and governors said they had other businesses genuinely interested in their cities and states and lamented that Amazon was tying the entire continent, the person said.
The frustration spread beyond North America after Amazon’s commitment to large tax exemptions became international news. An Amazon executive warned that officials in EuropeWhere the company was trying to expand, they asked how long it would be before Bezos asked them for tax exemptions as well. These concerns rose to the head of Amazon Web Services, Andy Jassy, according to one of the sources close to the matter.
In September 2018, executives decided to divide the new headquarters among New York and Virginia. Before going public, Amazon silently tied real estate and government agreements in both places, aware that local real estate prices could increase if the media found out.
The Prioritization of the secret on building alliances It was fatal in New York. When the news finally leaked, the councilman’s phone Jimmy Van Bramer It lighted up. Van Bramer supported efforts to attract Amazon, but quickly became an opponent once he realized that Amazon, Governor Andrew Cuomo and Mayor Bill de Blasio had excluded him and other local officials from the process. Van Bramer sought clarity from the governor and the mayor, but says he was deceived. His anger increased as he learned that there were no plans to seek the approval of the municipal council.
“He was angry because something so enormously important had been decided and no one had bothered to tell local elected officials or anyone who had a strong interest in this,” Van Bramer explained. “They had excluded us from the process.”
He was even more enraged when he learned of the subsidies Amazon would receive, including a $ 500 million grant to help pay for the new headquarters. That week, Van Bramer traveled to Puerto Rico, where he ran into New York State Senator Michael Gianaris in the lobby of Hotel El San Juan. With a beer, they agreed to fight the project. Both received help from Retail, Wholesale and Department Store Union, which for a long time considered Amazon’s online shopping business as a threat to its members. Feeding the tension was a new Amazon warehouse on Staten Island where some workers wanted to organize.
Amazon representatives sought meetings with city and state officials, but Gianaris refused and Van Bramer met with them only once, according to an Amazon executive familiar with the process. This person said that Amazon did not involve the city council because obtaining approval would have taken years and because other important projects, such as the remodeling of Hudson Yards, had passed through the state. In addition, this person added that Amazon representatives received a warm welcome during a visit to the site.
The extent of hostility was not revealed until Huseman appeared before the city council in December 2018, where he was booed and interrupted. Back in Seattle, Amazon members watched the live broadcast in disbelief, texting each other about how Huseman was robotic, not authentic and out of touch.
Huseman fell back on employment figures and dollar signs, but there was not enough to humanize the project. The final breaking point came when he said the company would not remain neutral if employees tried to organize unions. He seemed oblivious to the political climate in New York, where the children of union workers and janitors are elected to run the city. Amazon’s trading strategy, internally summarized as “J *** te. We are Amazon,” had found its rival.
The beginning of the end came when Gianaris was recommended for a position on the State Public Authorities Control Board, which had the power to influence the agreement. Gianaris was never confirmed for the seat, but his nomination was a game changer. Gianaris said he requested the appointment because “the Amazon project was in my district, and I saw this as the only tool available to have a real contribution on what was about to fall.”
There were some last-minute meetings to try to close the gap and even some rumors that Amazon had capitulated and agreed to remain neutral in employee union campaigns. Amazon saved the breaking news for the Valentine’s Day, saying that “several state and local politicians have made it clear that they oppose our presence and will not work with us to build the kind of relationships that are required to move forward with the project.” “
In retrospect, some Amazon employees commented that they should not have blindly assumed that Amazon would be welcome everywhere, but they still see signs of success in the 25,000 jobs to come in Virginia and 5,000 in Nashville, Tennessee. Others involved in the process considered that executives tied their hands when prioritizing The secret about building relationships. “Negotiating incentives is easy,” one said. “What is difficult is to win hearts and minds, and Amazon did nothing to win hearts and minds.”
Still, Bezos can console himself with an aspect of chapter HQ2. Thanks to the $ 762 million in Virginia incentives, according to the Good Jobs First watchdog group, Amazon is only $ 100 million from the 2.4 billion that Tesla has accumulated.