Clients Actually Running Their Agencies

When ad agencies earned commissions they were profitable, independent and marketing partners for their clients. Then, in the 1970’s consultants came in and started cutting commissions – first network TV buying and planning, then spot television, then, gradually all other services, even production.

The problem is fees. 

There are several issues with fees, these are the same for the large, worldwide agencies and small independents.  First, there is always an agency somewhere that will cut fees and take the business at a lower cost.  Fees, in this way, have commoditized the business, making one agency, in the minds of many clients, the same as any other since they are only looked at in terms of dollars.

The second issue is that money rarely takes into account the talent working on a client’s business.  Fees do not guarantee that money paid to an agency will guarantee the best people for that particular account.  Client’s demanding a lower and lower blended rate (the aggregate of all salaries, stated on an hourly basis) have made it difficult if not impossible for agencies to provide the best, most talented staffing on their account (that is not to say that paying more money is a guarantee of the best talent, but it does mean that the stars may  not be affordable for the client).

And this brings up the biggest and most important issue.  With fees, clients are actually in charge and running their own agencies.  It used to be said that commissions (usually 15%) were paid to guarantee objectivity. Agencies were able to be honest with their clients about the necessities of the business.  For those too young to remember, commissions were paid by the media, not the client.  The media billed the agency gross, and the client paid the net (less the 15%).  Consequently, agencies tended to be objective and, when they felt it necessary, disagree with their clients.  It also meant that the agency controlled its staffing on any particular account, giving the account the people they deemed best and most appropriate for the business – ad agencies could determine who could best service any particular client.

I have always understood this issue, but one day, about 15 years ago, it came home.  One of the major agencies was about to hire a group director to run a particularly large and visible account.  As a courtesy, they sent the person to meet the client; she already had an agreed upon compensation package and a start date.  Her meetings at the client were pleasant and quick.  After the meetings the agency called me to tell me that they could not hire this person – the client decided that they no longer needed anyone on their business who was this senior.  Period.  End of story.  The client dictated the level and experience of the person who should be running their business, right or wrong.  They agency disagreed but felt that they could do little about it.  A year later, the agency lost the account because the client did not feel it was getting the best work.  True story.

Sadly, at most large agencies, the job of the group director is to keep the dollars in line and insure that the agency is adhering to the client’s financial guidelines and dictates. It is why agencies no longer spend enough time visiting their clients and walking the halls, or making necessary market visits (store checks) or calling on merchandise managers with their senior clients. 

This means that in every aspect, including creative, the client is now in charge of its own business.  Despite the strength of some agencies, it makes it extremely difficult for any company to tell its master that the master is making a mistake.

In essence, fees have made many agencies into in-house agencies.  Pity. The big loser is the client.

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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Clients Wanting Creativity And Allowing It Are Two Different Things

I just read a good LinkedIn article about Grey investing 75% of its resources into creativity and, at the same meeting, P&G’s Chief Brand Officer, Marc Pritchard, spoke about encouraging and connecting its agencies in order to improve the creative product.  Bravo to both.

But there is something wrong with this picture.

If there is a lack of creativity in the business, it has been led by advertisers who, through their purchasing and procurement departments, have squeezed agencies (and holding companies) to the point that they are only able to service their clients by cutting costs in all areas.  This has especially effected creative. The problem, as everyone in advertising and marketing knows, is that clients have demanded that agencies continually have to cut their blended rate (For those not familiar with the term, a blended rate is the aggregate of all salaries paid to those people who work on an account.) This has severely affected the creative product because this rate has continually diminished during the past several decades.  It has reached the point that agencies are no longer able to hire the best, brightest and most creative talent; they just can’t afford it.  As a result, too much talent has gone elsewhere and creativity has suffered. 

So here comes Procter demanding better creativity. Good for them, but it is ironic since they are the cause. P&G is still the leader in the marketing and advertising business. What they do and say, other companies follow, even when those companies don’t have the comprehension or wherewithal to actually execute in the same manner as P&G. 

There are no statistics that I know of about freelance writers, art directors and producers, but I would be willing to guess that their numbers have significantly increased over the past several decades.  Freelancers prefer being in charge of their own work and their own time; they can work when and for whom they want and will forego the lack of benefits for creative freedom.   

So, good for Debbie Reiner, CEO of Grey for committing to spend 75% of its resources on creativity and good for Marc Pritchard for wanting better work. I want to point out that this 75% is considerably less than it would have been just a few short decades ago, simply because Procter and other advertisers have continually reduced the amount of compensation they pay their agencies, which, in turn, has lowered agency resources.  I hope that Grey and parent company, WPP and all of Grey’s clients will find a way to both increase revenues and increase creativity.   

Now what has to be done is for the clients like Procter to allow their agencies to make a greater profit so that it can be reinvested into the creative work that these companies so desperately demand.

Is It Permissible To Send Someone Who Works For You Out To Interview For Another Job?

I recently received a recommendation for a candidate from the candidate’s supervisor.  It made me ask myself these two questions, “When is it okay for a boss to help and employee to get another job?  Is it even permissible?”

There are two possible explanations for this action.  

The first is that the employee is not doing a good job but the company will not terminate or move her/him so the supervisor is helping her/him to leave.  That is not as uncommon as you may think.  The problem for recruiters or other companies is that when this happens, the supervisor often provides false positive references.

The second circumstance is much more complex.  Generally, it involves a boss who is very humane and aware of his subordinate’s needs.  In the recent circumstances, I was actually sent the résumé by her supervisor who believed that the company was holding her back.  I called him and he told me she was a star, but staying where she is would no longer be adding to her career.  When I interviewed the candidate, I agreed.  I am sure that his company would not be happy with his actions because she is a valued employee.  In only five years, she has gone from entry level to senior account director, now making a salary close to $150k.  But he was looking out for her and her needs.

As he told me, she had been working on the same account for five plus years and really needed to broaden her experience and perspective.  And what he could get for her at their current company was not in line with her needs or expectations.  Her description of why he was doing this was identical to his. 

I thought it was a wonderful and selfless act.

Years ago, I did the same thing for a man who worked for me.  I felt he was so grossly underpaid that it pained me to not be able to get him a significant raise.  He was an account executive who, in those days, was making $30k. The agency would only give him an 8% raise and I felt that $2.4k was out of line with his worth and what he could get on the outside.  It told him to leave and agreed to be a reference.  His next job paid him close to $10k more than he was making.

I don’t often hear of this happening anymore.  It used to be far more common.  But today, everyone is too busy fending for themselves to think about the people they are working with.

Sometimes a good push and a pat on the head is just what a person needs to advance their career.  It is a very decent and unselfish thing for a supervisor to do.

What's Wrong With Human Resources?

Once upon a time, the Human Resources Department was known as Personnel.  Now it has changed again and is being called things like Talent, Talent Resources, Human Capital and a dozen other things.  The problem is that it is all the same and there is nothing much new.  All these titles put the emphasis on talent, but unfortunately the function exists to protect management.

Originally, HR or Personnel was tasked with handling things like benefits, health claims, training programs,  administration of retirement plans and even employee investments.  Many companies did have HR handling important things like succession planning, compensation and employee relations. And while these are still partial functions, most of the time today this department spends its time handling conflict resolution, hiring and firing and legal compliance. In fact, at most marketing companies, including ad agencies, HR is primarily defined as interviewing and hiring.

In addition to whatever else they have to do, HR is also charged with many extraneous duties like handling office parties, company picnics, blood drives and filling seats for events that management has purchased tickets for.  Additionally, they often have to manage the company’s sports teams.

No wonder HR gets poor marks – they are charged with everything other than taking care of the one thing they should be doing – advocating for employees.

HR people, even the most junior, must be trained as to what their real job is and how to do it properly. As an example, if, as the saying goes, a company’s most precious resource goes down the elevator at night, then the HR people must be taught how to protect and safeguard those resources at all costs.  In other words, they must maximize any employee’s ability to contribute to the company – even if the company makes it difficult to do so.

A company’s lack of ability to do that shows up in numerous ways.

Turn-over is so high today that salary administration and promotions are rarely the provenance of any one department.  I have written about employees whose supervisors turn over so frequently that loyal employees are unable to obtain overdue raises. (What happens is that their new supervisor, who most often has to sign off on a salary increase, says, “Well, you have only worked for me for a few months so we will have to give it more time so I can properly evaluate you.”)  This should never happen in a well-run company, but I have seen raises put off literally for several years because of promotions or turnover without HR interceding.  But that should be where a well-managed HR department steps in to handle the situation.  If employee evaluations are conducted thoroughly and regularly, HR should administer the overdue raises.

When there is a conflict among employees, I am guessing that in 90% of the cases, the involved people are afraid to go to HR, lest they become the bad guys and get into trouble.  Certainly that is an issue which has come to the fore in the #MeToo movement.  There should be no fear of HR.   I have seen terrible managers who cause excessive turnover be ignored (“the client likes them.”) to the detriment of the company and, eventually the detriment of the client.  Clients liking an abusive supervisor is an unacceptable excuse where counseling, retraining or termination are the real answers.

While everyone knows that HR works for management, there is no trust among employees that things will be handled objectively and fairly; I can think of only a very few stories I have heard over the years where the solution was made in the favor of the employee rather than management.

It even happens in minor incidences.  I once had a candidate asked such a poor question during an interview that I reported it to the Director of Human Resources.  Here is her response, an exact quote: “What do you expect me to do about it?  He is a department head and a member of management.  You don’t think that I can really correct him or control what he says?”  Of course that is exactly what she should have done.

I wrote about a senior vice president at a top five worldwide agency and with almost twenty years tenure who was terminated with no warning.  She was actually fired by a complete stranger who sat in her office waiting until she returned from an internal meeting.  She was with her client and this person actually blocked from her office, told her she was terminated and had to leave the building immediately.  There was no discussion or explanation.  This stranger escorted her out of the building without allowing her to pack her personal possessions, including her phone, all in front of her client.  The HR Director should not have allowed this; nor should the president.

There are far too many stories like this.  No wonder people distrust and don’t like HR.

Wage freezes are an excuse for companies to save money, but even during the most serious wage freeze, a salary increase can be obtained.  Someone from one of the big agencies said to me that the way to get a raise is for an employee to be in the middle of some crucial initiative and then accept a new job. The raise would certainly then be given.  What a terrible way to manage people or to build confidence in an organization.

Human Resources should and must be given the responsibility and authority to override management when necessary.  But that requires enlightened management as well as a very strong and well trained Human Research Director.