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A Key to Rebuilding Client – Agency Relationships

28 Jul

Bias and ObjectivityThe state of client-agency relationships has been on the decline for several years. Whether measured in terms of longevity, the increase in project-based work versus retained relationship commitments or the waning level of advertiser trust in their agency partners, all of these important partnerships are under pressure.

Regardless of the reasons behind the current situation, this is not a healthy dynamic for either advertisers or agencies. The result has been shorter, more volatile relationships, higher levels of agency personnel turnover and some would argue less effective, less efficient advertising outputs. Reason enough for both sets of stakeholders to thoughtfully assess the current situation and seek corrective action.

There is, we believe, a clear starting point for improving client-agency relationships. It involves a return to the tried and true “principal-agent” business model that once formed the basis for relationships between advertisers and agencies. The woes currently besetting these partnerships and driving advertiser concerns over transparency and trust are direct outcomes of the industry’s deviation from this important principle and the resulting practices that are averse to this model.

A basic tenet of principal-agent relationships is that the agent is bound to make decisions and to take actions that are in the best interest of the principal…always. This, in turn, guides interactions between the parties in a manner that achieves the highest possible degree of accountability and ultimately trust.

It wasn’t long ago that all client-agency agreements contained language establishing the principal-agent relationship, the need for agencies to provide unbiased counsel and the resulting fiduciary obligations of both parties.

Sadly, agency compliance with and commitment to this framework began to wane within the agency community. Some may remember the controversial comments by Irwin Gotlieb, once CEO of WPP’s Group M who opined at the 2015 “Agency Financial Management” Conference hosted by the ANA: Those relationships, rightly or wrongly, don’t exist anymore” he said, adding that “You cease to be an agent the moment someone puts a gun to your head and says these are the CPMs you need to deliver.” Blaming advertisers for the bad practices adopted by some agencies was inappropriate at best.

Even with contractual safeguards in place, problems occur when “agents” have hidden agendas or substitute their interests over those of the principal. This is why the topic of “media rebates” secured and retained by media agencies, without client knowledge or approval proved to be such a lightning rod topic when it initially surfaced.

Fast forward to the present and certain revenue-generating practices that are pursued by many agencies such as principal or inventory buys (media arbitrage), acceptance of incentives from third parties (i.e. rebates, value pots, EPI’s, etc.), agencies awarding work to their holding company affiliates without a competitive review or client authorization, and the application of non-disclosed, unauthorized mark-ups.

Whose interests are being served by such practices…certainly not the advertisers. To paraphrase Shep Gordon, Hollywood producer and talent manager:

“I think a problem for most people in a fiduciary capacity is to eliminate self and greed and all those things so that they can actually be in a fiduciary capacity where the client comes first, whoever the client happens to be.”

Advertisers must protect their legal and financial interests by crafting contract language and implementing the appropriate controls, including performing periodic audits. How else can they ensure that they have the transparency they seek in the context of their agency partners’ financial stewardship of their advertising investment and the confidence that their agencies are acting in their best interest?

On the topic of principal-based buying specifically, we have a contrarian perspective and don’t believe that it is ever appropriate for an agency to purchase media inventory in its name, mark it up by some undisclosed amount and re-sell that to its clients. Yet, these non-disclosed buys have proliferated as programmatic digital media buying has exploded. While the 4A’s issued guidelines to address this practice including documentation including client opt-in, explanation of an advertiser’s audit rights (if any) and access to the underlying costs, oftentimes agreement language is silent on these recommendations or are simply not followed in actual practice.

Thus, if both parties want to establish trust and rebuild the client-agency relationship, begin by eliminating the risk of bias in an agency’s recommendations and or actions and reinforce the principal-agent framework in agreement language.

Agency Audits: An Advertiser “Right” Not Yet a Standard Practice

26 Jan

dreamstime_xs_7828625For most organizations, the “Right-to-Audit” is a staple in their advertising agency agreements. Worded properly, this important contract language provides the company an opportunity to periodically check ad agency compliance with contract terms, review financial support that should agree to agency billings and to otherwise evaluate various performance metrics.

Yet despite the inclusion of this vital risk management clause and the rights that it confers, far too few organizations actually follow through to perform the testing which would otherwise provide stakeholders with comfort that agency billings are accurate and true.

So, why don’t advertisers audit their agency partners?

One might logically deduce that all clients would periodically review agency compliance, financial management and performance given:

  • The materiality of spend levels.
  • Limited insight to whether agencies are accurately reconciling estimated invoices to actual costs.
  • The complex, multi-layered supply chains, especially in digital media.
  • The well-publicized news of the ad industry’s ongoing challenges with transparency and fraud.

Aside from mitigating financial risk that could be eroding marketing expense effectiveness, another benefit of agency compliance testing is that it can help allay client-side stakeholder (marketing, finance, internal audit, procurement) concern and further build trust. Trust is crucial, particularly clients are relying on agency partners to fulfill their fiduciary and legal responsibilities in stewarding their advertising funds.

In addition, the level of trust between advertisers and their agency partners has been under siege. Consider ID Comms 2018 Global Media Transparency Survey where only one in ten respondents indicated that their “relationship with their agency or advertising client was trusting.” Further, 40% of respondents believed that trust levels were “average” compared to 52% in ID Comms 2016 survey.

We see first-hand where contract compliance and financial management audits identify and address gaps in understanding, controls and reporting that negatively affect client spend effectiveness and erode agency margins. Whether financial definitions, billing basis, fee calculations, project briefing, the approval process, rework levels, custom reporting requests, and or payment timing issues, audits can provide a prescriptive for positive change to benefit all stakeholders.

In our practice we see three principal reasons why the right-to-audit is not employed often enough – and therefore has become much less effective as a control than necessary:

  1. No clear ownership who is responsible for the Audit function in the context of marketing.
  2. Lack of a formal budget allocation process for assurance and risk mitigation for marketing and advertising spend.
  3. Limited organizational understanding of risks related to the advertising category.

As a result, clients continue to invest billions of dollars annually through their agency partners in spite of never verifying whether there are proper controls and regulations to safeguard those funds and optimize the efficacy of their investment. The need is real. Building effective verification and monitoring tools into client-agency relationships cannot be viewed as an option, but rather a prerequisite.

Fortunately, if the will is there on the part of client organizations, the solution is relatively straight-forward.

  • Responsibility for the checking agency financial compliance cannot rest solely with the marketing team. Finance, internal audit and procurement each have a role to play in the process.
  • Setting up a rotational audit program for each of the organization’s audit partners is paramount. Funding the effort through marketing, finance or internal audit budgets can ensure that the program will be executed as designed.
  • Establishing direct relationships between client-side finance and agency finance personnel greatly enhances an advertiser’s line-of-sight into the disposition of their funds at each phase of the advertising investment cycle.
  • Develop a relationship with a co-source supplier with deep marketing audit expertise.

Enhancing an advertisers control framework to include the regular review of their agency partners’ client accounting practices and controls along with their contract compliance to contract terms will inevitably mitigate risks and lead to better management of this important investment. In the words of Simon Mainwaring, brand futurist and businessman:

“The keys to brand success are self-definition, transparency, authenticity and accountability.”

Outdated Client-Agency Agreements Pose Risks to Advertisers

21 Aug

ExpiredWARNING: If the contract between your organization and its advertising agency(s) has an effective date prior to January 1, 2017, you may be at risk.

Not unlike fresh produce, dairy products, meat, medicine or even beer, contract language is perishable. 

Seems far-fetched you say. Consider that the ad industry is a dynamic, fast-paced business sector. One only need recall the breadth and rapidity of change brought on by technology advances and increasing levels of regulation in just the last four years:

  • April of 2016 – Europe enacts The General Data Protection Regulation (GDPR) governing how companies handle consumer data, forcing advertisers, agencies, publishers and intermediaries to implement business rules and guidelines to safeguard personal data and privacy.
  • June of 2016 – The Association of National Advertisers (ANA) publishes its North American Media Transparency study, leading to wholesale changes in contractual controls. As a result, nearly 2/3 of ANA members indicated that they would update their media agency agreements.
  • December of 2016 – The industry’s four largest agency holding companies involved in a Federal bid-rigging probe following allegations by post-production houses on the misleading use of rates they provided to agencies.
  • September of 2018 – The California Consumer Privacy Act (CCPA) goes into effect giving consumers more control over the personal information that businesses, including advertisers, agencies and publishers collect about them.
  • October of 2018 – The Federal Government informs the ANA and its members that the Federal Bureau of Investigation would be investigating potential misleading conduct and or deception between media holding companies and advertisers.
  • June of 2019 – Cybersecurity company, Cheq reports that advertisers will lose over $23 billion to ad fraud in 2019 alone.
  • July of 2020 – Year-to-date the European Union has issued over 300 fines to advertisers and publishers totaling more than $171 million for violating GDPR guidelines.

Each of these occurrences and numerous others has led to the need for advertisers to rethink their contractual controls in order to safeguard their organizations both legally and financially. In turn, this requires language enhancements and the addition of terms and conditions dealing with a range of topics such as privacy protection, data security, intellectual property ownership, transparency, audit rights and indemnification.

All too often, the contracts governing client/ agency relationships are slow to evolve, posing serious risks to advertisers. This in spite of trends such as the growth in the number of intermediaries, agency use of affiliates, expanding agency rosters, murky supply chains, brand safety concerns and the prevalence of ad fraud that pose risks to advertisers.

The thinking on items that were once considered “standard” within the industry, and therefore thought to be sufficiently covered in the context of agreement language can no longer be assumed. Advertiser expectations on topics such as; establishing principal-agent relationships, client-centric audit rights, requirement for full-disclosure in all dealings by the agency with affiliates and third-party vendors and limiting agency revenue to the remuneration described in the agreement and or appropriate SOWs must be reviewed and explicitly defined.

In our contract compliance practice, we have identified 3 key “triggers,” which if present, should incent advertisers to review and revise their agency agreements:

  1. The “effective date” of the current Client/ Agency agreement is more than 2 years old.
  2. If the parties utilized the Agency’s contract template as the basis for the agreement. These documents contain language that reflect the agency’s interest, not necessarily those of the advertiser.
  3. If an advertiser has “evergreen” agreements in place, but updates Statements of Work annually. Too often, while clients update the SOW, reviewing the contract for necessary updates is forgone.

The good news is that both the ANA and the ISBA have issued solid guidance in the form of framework agreements for use as a starting place to construct media and creative agency contracts. It’s important to note that while these broad-based agreements are an excellent resource, every relationship has nuances with new evolving risks that should be weaved into new advertising agreements.

Current, comprehensive supplier agreements leads to solid controls, improved transparency and stronger agency relationships. Integrate periodic contract compliance and financial management auditing and advertisers can rest easier knowing that they have successfully extended their governance and risk management framework to this important area.

“The essence of risk management lies in maximizing the areas where we have some control of the outcome, while minimizing the areas where we have absolutely no control of the outcome.” ~ Peter Bernstein

Time for a Financial Review?

26 Jul

knowledge and ignorance puzzle pieces signdreamstime_xs_53502419

Really?

No triple bid.

No staffing plan.

No reconciliation.

Fixed fee

100% advanced billings.

Slow job cost reconciliation.

Poor Agreement language.

Old Agreement.

No examples / templates.

No breakout of retainer vs. out-of-scope fees.

No agency reporting of costs / hours.

Programmatic supply chain not understood.

Use of in-house agency services, no rate sheet.

Use of in-house agency services, not reconciled.

Freelance billed at full retainer rate.

Interns billed at full retainer rate.

Credits held.

Low Full Time Equivalent basis.

High Rate per hour.  No fee detail.  Non arms-length use of affiliate.

Mark-up applied.

Float.  Kick-back.  Favored expensive suppliers.

Duplicate charges.

Time reported doesn’t match time system.

Overpayments.

Luxurious Travel.

Gifts.

That’s the short list.

Don’t let this happen to your critical marketing dollars.

Update and lock down financial terms in Agreement.

Tighten up definitions.

Enhance Agency reporting required.

Perform routine spot checks.

Follow the money to the ultimate end user.

Vet Agreement with ANA template.

Ask the Experts.

Maintain consistence of control and visibility across the Marketing supplier network.

Maintain trust but validate Agency financial activity.

Strengthen the Agency relationship through understanding and alignment.

Really.

 

Two Simple Steps for Advertisers to Safeguard Their Ad Dollars

2 Apr

simpleisgoodThe current advertising ecosystem is fraught with risks as the number of intermediaries grows, media continues to fragment and new specialist agencies come into being. The recent Chapter 11 bankruptcy filing of adtech provider Sizmek serves as a subtle reminder of these risks. At the time of its bankruptcy filing, Sizmek owed 48 different creditors in excess of $40 million for digital media inventory.

To protect their investment from the impacts of this type of event, U.S. advertisers should consider implementing the following two contractual safeguards:

  1. Establish a “Principal-Agent” relationship with your agency partners.
  2. Incorporate a “Sequential Liability” clause into your agency agreements.

Incorporating Principal-Agent language into agreements reinforces the advertiser’s expectation that its agency is beholden to “always act in the best interest of the Client” when entering into agreements with its affiliates, subcontractors and or third-party vendors.

Further, establishing sequential liability as it relates to third-party vendor payments protects advertisers from the failure of any intermediary to its vendors, for which that intermediary has already been paid by the advertiser. Advertisers must also require their agencies to provide notification of any third-party vendor that will not recognize the sequential liability relationship that exists between the advertiser and the agency. By way of caution, media sellers (for instance) often incorporate “No Sequential Liability” or “Joint and Several Liability” clauses into their agreements or purchase orders with agencies which contradicts or disallows this important advertiser protection.

While properly screening agencies and third-party vendors can dramatically decrease an advertiser’s risks, the aforementioned contract clauses will offer an additional layer of protection.

 

 

 

 

Advertisers: What Does the Department of Justice Know That You Don’t?

19 Oct

FBI LogoIt has been two years since the Association of National Advertisers (ANA) published its blockbuster study on media transparency in the U.S. marketplace. Among the study’s findings were that the use of media rebates paid by publishers to agencies was “pervasive” and that there was a “fundamental disconnect” regarding client-agency relationships and the agencies assumed fiduciary obligation to act in an advertiser’s best interest.

Later that same year, December of 2016, the Department of Justice (DoJ) announced that it was conducting an investigation into the practice of “bid rigging” by agencies for TV and video production jobs. The bid rigging was allegedly being done to favor the agencies in-house production groups over independent production companies. This was done by urging outside production vendors to artificially inflate their bids, creating a reason and a paper trail for supporting the agency’s decision to award the production job to their in-house studio, which coincidentally bid a lower price for the work. At least four of the major ad agency holding companies were subpoenaed as part of this ongoing investigation.

One year after the release of the ANA media transparency study the ANA conducted research among its members that found:

  • 60% had taken “some” steps to address the study’s findings
  • 40% had not taken steps or weren’t sure if their companies had taken action
  • 50%+ of those that had taken steps indicated that had revised agency contract language
  • 20% of those that had taken steps had conducted audits of their agency partners

Given the $200 billion plus in estimated U.S. media spending (source: MAGNA, 2018) and the $5 billion U.S. commercial production market the aforementioned numbers are stunning in that more advertisers have not taken action to safeguard their advertising investment by implementing controls and oversight actions that mitigate risks and improve transparency.

It would appear as though the Department of Justice is taking these matters more seriously than many advertisers. The reason that the DoJ and FBI have undertaken probes of U.S. media buying and creative production bidding practices is quite simple… fraud, price fixing and bid rigging are prohibited under federal law.

The question is; “Why haven’t more advertisers, whose media and production dollars are at risk, been more proactive in constructively addressing these issues with their agency partners?”

The fact that the federal government has determined that it was necessary to launch two separate investigations into U.S. advertising industry practices is a clear signal that marketers should reinvigorate their oversight and compliance efforts. The stakes are high and the risks have not abated since the aforementioned practices first came to light.

If federal investigations into ad agency practices in these areas isn’t enough to spur advertisers to action, perhaps the words of Jon Mandel, former CEO of Mediacom in an interview with Mumbrella following his whistleblowing presentation regarding media agency “kickbacks” at an ANA conference in 2015 will provide the necessary incentive;

Clients need to stop suspending disbelief. The agency is supposed to be a professional providing you with proper advice not tarnished by their own profit. Marketers need to know the limits of that.

 

 

Life in a Post-GDPR World

28 May

GDPR LogoWhat can advertisers posit from the early market indicators in the wake of the May 25, 2018 enforcement of the European Union’s General Data Protection Regulation (GDPR)?

There are three takeaways that would seem to portend the near-term challenges for the ad industry:

  1. Consumers aren’t that interested in allowing companies to use their personally identifiable information to target them, contact them, monitor their online behavior or to profit from the sale of that information.
  2. The advertising industry as a whole was not prepared for the onset of the GDPR.
  3. Limitations on access to consumer data could greatly impair the efficacy of programmatic media.

The results of poll recently announced by TopLineComms found that 41% of those surveyed were “planning to opt out of current email subscriptions” with 82% indicating that they were “concerned about how companies use their data.” Many believe that the news surrounding the recent Cambridge Analytica scandal has helped to fuel consumer concerns about data privacy protection. Either way, consumers increasingly want their privacy protected and both marketers and publishers are going to have to find ways to deal with that concern and the growth in global regulatory actions in this area.

Adopted in April of 2016, the advertising industry had a two-year transition period too ready for the May 25, 2018 date, when the GDPR regulations would become enforceable. Unfortunately, too many companies proved to be lax in their preparations. According to a global study conducted by SAP Hybris, “49% of companies either have no plan for compliance or have not yet implemented one.” Readiness was made more complex because of different regulatory compliance burdens for data controllers and data processors and the role of third-party data processors. Gaining clarity among stakeholders as to who was responsible for what and how they were progressing on their compliance readiness proved challenging at best.

While early in the process, since GDPR went into effect, ad exchanges have seen dramatic drops in ad demand, with exchange volumes dropping up to 40%. According to digiday.com, “some U.S. publishers have halted all programmatic ads on their European sites.” In turn, this has led to a drop in publisher inventory in Europe. Of note, many within the industry are blaming Google for its lack of preparation and the company’s inability to vouch for whether or not its third-party exchange partners were compliant or not heading into May 25th. Unfortunately, Google did not notify advertisers of this issue until May 24th leaving them little “time to change media-buying tactics or inform clients.”

In addition, Google, Facebook and a couple of other internet portals have been hit with complaints and potential legal action by independent consumer advocacy groups over “forced consent,” claiming those entities threatened service cutoffs or restricted access if consumers did not consent to Google and Facebook’s privacy and data usage terms.

Near-term, organizations will have to focus on complying with GDPR. Looking ahead marketers, publishers and ad tech providers will need too ready for the likely expansion of privacy protection regulations to other countries and municipalities (e.g. California Consumer Privacy Act). After all, these new regulations are coming at a time when the importance of data and the value that it plays in an organization’s corporate strategy and marketing efforts has never been more critical. 

Perhaps most importantly, organizations will have to focus on developing sensible solutions to placate consumers that have legitimate concerns about how their personally identifiable information will be used. This is a necessary step if using first-party data to inform audience segmentation decisions, personalize consumer communications and monitor behavior is deemed a critical element in their marketing and content strategies.

Achieving these goals will require ongoing remediation efforts and will involve personnel from many disciplines within an organization. It is for this reason that many firms may turn to appointing a Data Protection “Tsar” to lead their efforts to embellish their consumer privacy protection policies, processes and compliance efforts. Not a bad move for companies that have the means to formalize this function.

In spite of the inauspicious start by many to comply with the GDPR regulations it is never too late to heed the old adage; “Proper preparation prevents poor performance.

 

 

 

 

AARM’s New Privacy Policy

28 May

Contract SigningYour Privacy is Important to Us

Marketers the world over are aware that on May 25th of this year the European Union implemented its new General Data Protection Regulation (GDPR) to enhance consumer privacy protection. As a result of these new regulations, Advertising Audit & Risk Management (AARM) has updated its Privacy Policy

AARM has and will remain committed to protecting your personal information. We believe that our updated policy further reinforces this pledge.

Our new Privacy Policy clearly articulates what information we collect from you, how that information is used and the steps that we take to safeguard your personal information. Please visit our website to review our new Privacy Policy and to gain an understanding of our practices in this important area. By visiting our website after May 25, 2018 you are indicating that you are in agreement with the terms of our updated Privacy Policy.

Best regards,

AARM | Advertising Audit & Risk Management

Lawsuits Expose the Seemly Underbelly of Programmatic Digital

25 Sep

fraudsterAt the rate things are progressing in digital media and programmatic trading, the tenuous relationships between advertisers, agencies, ad tech providers, exchanges and publishers are about to come unglued.

While many in the ad industry have had their doubts about programmatic digital, this sector has grown unabated for the last several years. According to eMarketer in 2014 advertisers invested 28.3% of their ad budget in digital media. Their projection is that this will grow to 44.9% in 2020, likely topping $100 billion in total spend. eMarketer estimates that 80% of U.S. digital display activity in 2017 will be transacted programmatically. 

Interestingly, since 2014 the industry has become much more attuned to the risks encountered by advertisers when it comes to optimizing (or should we say safeguarding) their digital media investment. Yet in spite of the findings regarding unsavory practices emanating from the ANA’s seminal 2016 study on “Media Transparency” advertisers continue to pour an increasing share of their advertising spend into this media channel.

However, not all advertisers are continuing to embrace digital media quite as readily as they once did. A handful of progressives, namely Procter & Gamble, have begun to rethink the share of wallet being allocated to digital media and programmatic trading. Marc Pritchard, P&G’s Chief Marketing Officer, has been very outspoken in summing up his company’s position quite succinctly; “The reality is that in 2017 the bloom came off the rose for digital media. We had substantial waste in a fraudulent media supply chain. As little as 25% of the money spent in digital media actually made it to consumers.”

Given Mr. Pritchard’s comments it has been quite intriguing to monitor the legal developments in two high profile lawsuits that have recently been filed.

In the first case, Uber is suing Fetch Media, its digital agency suggesting that it had “squandered” tens of millions of dollars to “purchase non-existent, non-viewable and/ or fraudulent advertising” on its behalf. Uber has further alleged that the agency “nurtured an environment of obfuscation and fraud for its own personal benefit” and that of its parent company, Dentsu Aegis Network. To be fair, Fetch Media has denied what it says are “unsubstantiated” claims by Uber which it claims is designed to draw attention away from their “failure to pay suppliers.”  Allegations include that the agency acted as agent for Uber in some markets and executed principal-based buys in others and that they earned and retained undisclosed rebates tied to Uber’s media spend.

The second case involves RhythmOne, a technology enabled media company and its partner dataxu, a programmatic buy-side platform/ applications provider. RhythmOne originally filed suit regarding $1.9 million worth of unpaid invoices. Dataxu filed a counterclaim alleging that RhythmOne “used a fake auction to consistently overcharge” them and suggested that RhythmOne also “procured inventory from other exchanges, and then marked it up,” both violations of their partnership agreement. As an aside, for the $1.9 million in payments that dataxu admittedly and intentionally withheld from RhythmOne, going back to January, 2017, it is likely that dataxu’s clients had been billed and remitted payment to them. Which raises questions as to how and when their clients will be made whole.

Of note, both of these lawsuits delve into a range of topical issues that pose risks to most programmatic digital advertisers:

  • Agencies executing principal-based buys, rather than acting as agent for the advertiser.
  • The retention of undisclosed rebates tied to an agency’s use of advertiser funds.
  • Non-transparent fees and mark-ups being tacked on to the actual cost of media inventory by multiple middlemen (i.e. agencies, DSPs, exchanges).

These are issues that advertisers should familiarize themselves with and address through the development of a comprehensive client/ agency contract. In addition, advertisers must vigilantly monitor supplier compliance with the terms of those agreements to insure full transparency and, importantly, accountability when it comes to the stewardship of their digital media investment.

As these two cases highlight it is dam difficult for an advertiser to accurately assess the value of digital inventory that is being proffered on their behalf by their agency and adtech partners. Beyond establishing what percentage of an advertiser’s digital dollar actually goes toward media inventory, these separate, but related legal actions demonstrate that it is not just a lack of transparency that advertisers must worry about, but a lack of ethics. When it comes to programmatic digital media the American artist, John Knoll, may have said it best;

“Any tool can be used for good or bad. It’s really the ethics of the artist using it.”

There are steps that advertisers can take to both safeguard and optimize their digital media investment. If you are interested in learning more, contact Cliff Campeau, Principal of AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a complimentary consultation.

It’s Only Money…

5 Jun

digital mediaThere was one particularly startling revelation that came from the ANA’s recent Agency Financial Management conference in San Diego. During the presentation of this year’s “Agency Compensation Trends” survey results it was noted that the ANA found that almost half of the members it surveyed had not reviewed the findings of the ANA’s 2016 Transparency study.

Think about that. If an organization did not review the Transparency study’s findings, that means that there must not have been any resulting internal dialog with or among marketing’s C-Suite peers, no direct interaction with their agency network partners, no review of existing Client/Agency contracts, no improvements in reporting and controls in which to illuminate how an advertiser’s funds are being managed.

This, in spite of the level of trade media coverage regarding transparency issues ranging from rebates, discounts and media arbitrage, to the Department of Justice investigation into potential ad agency bid rigging practices or the level of ad fraud, traffic sourcing or non-disclosed programmatic fees on both the demand and sell side of the ledger.

There is only one conclusion that can be drawn from this remarkable revelation…many marketers simply don’t care how their organization’s advertising investment is being allocated or safeguarded. Unfortunately, we regularly see the ramifications of this attitude of indifference in our contract compliance audit practice:

  • Client / Agency agreements that haven’t been reviewed or updated in years
  • Failure among clients to enact their contractual audit rights with key agency partners
  • Limited controls regarding an agency’s use and or disclosure of its use of affiliates
  • No requirement for agency partners to competitively bid third-party and affiliate vendors
  • Lack of communication to media sellers regarding ad viewability standards
  • Failure to assert an advertiser’s position on not paying for fraudulent and non-human traffic
  • No requirement for publishers to disclose the use of sourced-traffic
  • Incomplete instructions on buy authorizations to media vendors, minimizing or blocking restitution opportunities
  • Poorly constructed media post-buy reconciliation formats that lack comprehensive information and insights

Interestingly, there have been many positive developments from key industry associations such as the ANA, 4A’s, IAB and public assertions from leading marketers such as P&G and L’Oréal to further inform and motivate marketers on the topic of transparency accountability. Yet, given the materiality of an organization’s marketing spend and the publicized risks to the optimization of its advertising investment, many organizations have not yet taken action, tolerating the risks associated with the status quo. As the noted British playwright, W. Somerset Maugham once said:

Tolerance is another word for indifference.”

The failure to proactively embrace transparency accountability can pose perilous risks to an organization’s marketing budget which in turn directly impacts its company’s revenue. Many would rightly suggest needlessly.

In these instances, the fault for the increased level of attendant financial risk, fraud and working media inefficiencies lies squarely with those companies that have adopted an attitude of indifference toward these very real proven threats. One cannot blame an ad agency, production house, tech provider, publisher or media re-seller for taking advantage of the status quo and acting in manners that, while not in the best interest of the advertiser, are not expressly contractually prohibited.

The good news is that advertisers can address these issues head-on in a quick and efficient manner, mitigating the risks posed by transparency deficiencies. It all begins with a review of existing Client/Agency contracts and engaging one’s agency partners in dialog regarding the adoption of industry best practice contract language to facilitate an open, principal-agent relationship. The Association of National Advertisers (ANA) has a wealth of information on this topic and can also recommend external specialists to assist an advertiser with agency contract development and or compliance auditing.

Interested in safeguarding your marketing investment? Contact Cliff Campeau, Principal at AARM | Advertising Audit & Risk Management at ccampeau@aarmusa.com for a no-obligation consultation on this topic.

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