Accountability Doesn’t Obviate the Need for Governance

12 Jun

It has been ten years since Sarbanes-Oxley was enacted by the United States legislature.  The SOX Act, as it is commonly known, covers a number of issues ranging from corporate governance to internal controls and reporting accuracy.  The law came into being as a result of high profile corporate and financial scandals at Enron, WorldCom, Adelphia and Tyco International.  The monetary impact of these events on investors around the globe was both profound and devastating.

As firms began to grapple with SOX compliance requirements, they implemented processes and procedures designed to enhance transparency and improve governance at all levels of the organization.  In the context of a business, Wikipedia offers this definition of governance: “Governance relates to consistent management, cohesive policies, guidance, processes and decision-rights for a given area of responsibility.”

While it took awhile and in some organizations, a longer period of time than in others, marketing’s turn to go under the microscope has come to pass.  In light of the investment level being made by companies, this is certainly no surprise.  Given the complexity of the marketing-advertising supply chain, the use of agents, independent contractors and 3rd party vendors, and the lack of transparency often afforded advertisers, the only surprise is that it has taken this long for organizations to begin to “peel back the skin of the onion.”

For progressive companies that have created a culture of accountability, increased governance and its impact on marketing spend, and all that it entails, represented few challenges.  However, in many organizations the notion of “governance” was interpreted by client-side marketing and advertising agency representatives to be a full-frontal attack on their integrity.  Further compounding the process was the fact that marketing was, and to some extent remains a bit of a “black box” to corporate finance, audit and procurement departments.  In many instances, these departments simply don’t have the subject matter expertise on-staff to help guide their efforts to understand the nuances and complexities of the marketing area.

What do we mean by “complex?”  From the size of an organization’s marketing agency network which could include dozens of firms (earlier this year PepsiCo pared their agency network from 150+ shops to 50) to the hundreds of statements-of-work and purchase orders issued in a given year to the thousands upon thousands of bill-to-client invoices and 3rd party vendor invoices which are processed.  Remember, these include a staggering number of revisions to the ad industry’s typical modus operandi, an “estimated billing” approach in which the advertiser is billed upfront for all or a portion of the creative and or media activity for a given period.   In an estimated billing scenario, it is the advertiser who fronts the money, not the agencies and not the media sellers that bear the risks for their investment.

The good news is that there are a number of competent, highly-regarded, independent agency contract compliance audit firms that can provide capable assistance to an advertiser.  The subject matter expertise which they bring includes insights into most all facets of the marketing supply chain as well as industry “Best Practice” in the area of accountability.  Further, they provide an excellent bridge to enhance communication and further understanding between marketing and their agency network and the governance process championed by finance, audit and procurement.

The time has come that there should be few corporate marketers and fewer marketing agencies that resist an organization’s governance initiatives.  There is no reason, and frankly, no excuse in any quarter for not “stepping up” to enhance transparency and improve the reporting and controls a company has in place to safeguard its marketing investment.  In the words of Stephen Covey:

“Accountability breeds response-ability.” 

Interested in learning more about the role of contract compliance auditing in supporting your company’s governance efforts?  Contact Don Parsons, Partner at Advertising Audit & Risk Management at dparsons@aarmusa.com for a complimentary consultation.

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