The Hidden Cost of Poor Governance: The Case of Selecting the Location for a Regional Headquarter

The need for multinational enterprises (MNE) to be closer to their markets may require setting up regional headquarters (RHQ) to support their operations in the different regions of the world. If this is the case, selecting the most appropriate location is a significant strategy and finance decision. This paper does a case study on the selection of the most appropriate location for the Latin America regional headquarters of an MNE operating in the financial services space. It presents a framework on selection criteria based on twelve location factors aligned along Quality of Services and Cost of Delivery in each alternative location. The unit of analysis is the RHQ. It is not a greenfield study as the company has an existing RHQ located in Miami; however, one of the premises of the study is that the cost of moving vs. do nothing is not considered so as not to bias the study towards the current location. The study arrives at that, applying the defined criteria, Miami is the most attractive location followed by Santiago de Chile. It must be considered that the Quality of Services factors are relatively constant in time, but that the Cost of Delivery factors can be significantly volatile due to exchange rate variations and other economic factors. From the study it emerges that if the organisation does not have explicit and clear guidelines on the selection of a location for an RHQ, this is often done to accommodate the convenience of the managing director of the RHQ. This can have serious corporate responsibility consequences as it can negatively affect at least two stakeholder groups: the RHQ staff and the shareholders of the company. This reveals a flaw in governance and the study is intended to lead the reader to reflect on the hidden costs of poor governance. © 15th European Conference on Management, Leadership and Governance, ECMLG 2019. All rights reserved.