Noted author and management theorist Peter Drucker once wrote, “Whenever you see a successful business, someone once made a courageous decision.” For Florida Gov. Rick Scott, the decision to formally reach out to Terrence Duffy, executive chairman of Chicago’s CME Group, after Duffy publically announced that he and his staff are evaluating a move to other states, was a relatively simple business decision. The way Scott sees it, CME Group, Inc., which owns the Chicago Mercantile Exchange, the Chicago Board of Trade, and the New York Mercantile Exchange, is currently facing a very real problem which he believes he can solve.
According to Duffy, the problem stems from Illinois’ current corporate tax increase from 7.3 percent to 9.5 percent which could cost CME an additional $50 million per year.
In a June 8 article by David Roeder of the Chicago Sun Times, Duffy was quoted as saying, “I’m going to do what’s in the best interests of shareholders… if that means opportunities are greater elsewhere, then we’re going to look at those opportunities.” The article also stated that in an interview during the company’s annual shareholder meeting, Duffy was angered by the state’s failure to close corporate tax loopholes which favor some companies but leave others, including CME, to pay the full rate.
According to Scott, the solution to the problem is moving CME, or a portion thereof, to Florida. This is where Governor Scott’s business background kicks in. In a letter to Duffy dated June 16, the Florida governor wrote, “As a businessman myself, I know the frustration of spending significant revenue just to pay your company’s state taxes. Imagine the growth your company could achieve if you could reinvest those additional state taxes to hire more employees and expand operations.”
It is precisely Governor Scott’s pro-business platform, and his business-like approach to revitalizing Florida’s economy, that just might entice CME to seriously consider the offer.
Since becoming governor in January, Scott’s focus has been on tax relief as the catalyst for stimulating job growth, the very thing CME covets. Scott’s current tax reduction plan has already phased out the corporate tax for almost half of Florida’s businesses. In his letter to Duffy, he wrote, “I will not rest until the business tax is completely phased out in our state so that both Florida and companies like CME Group can thrive.” Sounds more like a salesman than a governor but we’re all in sales, right? The numbers seem to support the claims.
Florida’s unemployment rate has dropped for the fifth straight month and in May, Florida added more jobs -- 28,000 -- than all the other 49 states combined.
In a recent telephone interview, I asked Gov. Scott to expand on the benefits to both CME Group and Florida if they did in fact decide to take him up on his offer. “Every business is different, and different areas offer something unique, but the common factor that every business looks for is return on investment dollars. Cost of taxes, the level of difficulty in doing business in a certain place, and risk of litigation are three of the most important factors to be considered when running a business. Lower taxes equals more reinvestment into the business. Not only are we working to phase out the corporate tax, but Florida is also a right-to-work and no-income-tax state. I am open to discussing regulation, and working on law-suit reform.”
But there’s something else.
The governor doesn’t expect CME to move its entire operation to Florida. Currently CME accounts for approximately 2,000 direct jobs yet trading floor operations would likely remain in Chicago. According to Roeder, the move would likely involve “staff and equipment that deal with electronic trading, which constitutes 80 percent of its business.” With the impending final space shuttle launch, Gov. Scott recognizes that Florida’s Space Coast will have a veritable army of software engineers looking for work.
When I asked him if he had received a response to his letter, he acknowledged that CME’s executive chairman did call him back and that he was receptive to having a conversation in July.
The exact date for this follow up is still undetermined.
The world of business is filled with courageous decisions and depending on what side of the deal you’re on, some require far more courage than others.
Manny García-Tuñón, executive vice president of Lemartec, an international design-build firm headquartered in Miami, can be reached at email@example.com.