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Tuesday, April 24, 2018

Good Business Comes From The Top Down



After reading about Sir Martin Sorrell’s resignation as CEO of WPP, I decided to look at the composition of boards of all the major holding companies.  It was a revelation, but not surprising.

First, let’s understand the function of boards.  They are there to set policy and priorities for a company.  This includes a multitude of items from finance, dealing with the financial community, personnel policy, compensation, moral leadership and many other areas of policy.

Looking at the members of each of the holding company boards reveals what we have known for a long time.  The holding companies, despite recently establishing cross-function agencies to pitch and handle major accounts which report directly to executives of the holding companies (e.g. WPP’s Red Fuse which was established to handle Colgate worldwide is an example).  The holding companies are definitely not advertising companies.  Not even remotely.  They are financial firms. And most have 
no board members who know anything about advertising, communications or people management.

All the major holding companies have similar boards.  They are made up of investment bankers, fund managers, an occasional senior executive from an advertiser.  With the sole exception of Omnicom, there is not one single board member with an advertising agency background.  There are no real human resources professionals (“our assets go down the elevator every evening”).  Although one company has an executive recruiter on the board, but that person was not an advertising recruiter.  All the emphasis appears to be on making and managing money. 

The irony is that before the holding companies came along, there were plenty of agencies which were highly profitable and extremely well managed.  Just look at Grey, Bates, even Deutsch.  They were money machines.  But no longer.  The holding companies have stripped away their essence, leaving almost all the big agencies the same.

No wonder things are as they are. 
 
There is no emphasis on the work.  There is a lack of creativity.    Salaries are out of line with similar industries (entry level salaries are particularly poor so that agencies rarely attract the best and brightest young talent).  There is tremendous employee turnover. Salary freezes are the rule rather than the exception ; raises are delayed, forcing talented executives to look for new jobs in order to make a livable wage. Profits in advertising are actually low compared to other businesses.  Morale at most of the major agencies is, at best, only fair.   

I have no sense that the holding companies are dealing with any of these issues. Rather, what we hear about is dealing with Wall Street.

It is time for the holding companies to encourage creativity among their agencies.  P&G and Publicis demanding that their agencies work together to make a better product is laughable since threats don’t make good ads.  While working well together is admirable, good work comes from a strong self-positioning, employee belief in the work and the willingness to fight for it.  Doing better work comes from not being afraid of clients and fighting for what is right rather than simply giving in because it might affect the profit level to be turned over to their holding companies.  BBDO is a perfect example of this.

It is time for the silos to end.  And that can only happen when digital and above the line are all under the same roof and all working together.  Almost every agency president I have talked to agrees with this, but being able to affect this change is complicated by the holding company ownership.  All it takes is for there to be one appointed leader who controls the entire process and has both the authority and responsibility to make it happen.

Agencies are managed for profit, but they would be more profitable if they were managed to encourage growth and creativity.  This includes fighting back against the procurement departments of prospective clients; agencies must be allowed to make a reasonable pre-tax profit which will fund growth. It means turning down accounts if a reasonable profit is being denied to them.  But the holding companies are looking at additional revenue at any cost – even losing money on new accounts. By procurement insisting on lower costs, they are precluding their agencies from pushing back for better, work – the holding companies demand keeping business at all costs.  I know one story where an agency was losing money on an account and resigned the business, which actually made the agency more profitable.  The president of the agency had his wrists slapped by the holding company CFO and was told it was beyond his scope of responsibilities (despite his contract called for maximizing the agency’s profits).  The company wanted the revenues and actually didn’t care about the profits.

It is time to address the excessive turnover among advertising employees.   If people are the principal assets, they should be treated that way.  Training programs for juniors are a thing of the past.  There is  some training for very senior executives, but these represent an elite few.  Employees cannot obtain timely promotions and rotations.  Once upon a time not so long ago, these were built into agency operating philosophy, but now that clients can dictate who can work on their business and how much they get paid, this is also a thing of the past. Constant wage freezes, in order to generate and maintain profit for the holding companies, forces aggressive and high-functioning employees to leave. 

The list goes on.


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9 comments:

  1. Out of curiosity, what did your research reveal about gender and diversity on the boards?

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    1. I actually didn't look at those attributes. It was not part of what I was looking for for this post.

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  2. Yikes, but no surprise. This is why - after serving in a few holding company roles - I enjoy my job at INDEPENDENT Generator Media + Analytics!

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    1. Thanks. I fully understand why you would like an independent.

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  3. Paul … So glad you posted this, because most people (even many in the business) don’t know the difference between a holding company and an agency. The former existing solely to create PROFITS; the latter to create, well … CREATIVE solutions. The former accountable to shareholders for stock growth and EPS; the latter to client advertisers for sales and market share growth. Very different things, although not mutually exclusive. Indeed, when agencies like Grey, Bates, Y&R, Ogilvy, and JWT were independent and privately held, they did both. Made money for clients and for agency shareholders, most of whom were agency employees. Not to forget employee profit sharing plans; fully-paid company benefits; retirement plans instead of 401Ks; competitive salaries; high employee retention rates; long-term client relationships and tenure. The irony being that even with all this, the agencies still made money, were highly profitable, and did great work. Employees could envision a potentially life-long career at once agency – hence the term, “Lifer”. I don’t know that we can ever unscramble this holding company “egg” we’ve made today, but you’ve certainly given people a lot to think about. So thanks for that. And it now occurs to me that the last “real” ADVERTISING exec to head up a holding company was the very man who invented the concept … Interpublic’s (IPG) Marion Harper. John Dooner had a very brief run as CEO of IPG many years later, but he was gone in a blink. Moral of the whole story is … A bank is a bank; and an agency is an agency - although not mutually exclusive if it’s done right.

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  4. Fantastic analysis and very timely. The only critique I have is that advertising is facing tremendous pressure and change. There was a very good article in the Economist the other week on the disintermediation of advertising because of the increase in platforms like Facebook and Google.

    Also, I think it’s important to note the movements within the non-advertising companies owned by the holding companies. For example the recent consolidations within Omnicom and WPP of their branding offerings.

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    1. Akorps, thanks for your support and agreement. The whole role of the holding companies and how they operate is very complicated.

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