Tag Archives: ad agencies

Does Your Agency Agreement Address “Special Relationships?”

29 May

relative party risksWhen it comes to the subject of contracts between advertisers and their marketing agency partners, there is one principle, long understood within the legal, financial and audit sectors that is frequently overlooked… the concept of “Related-Party” transactions.

Why is this important you might ask? Primarily because as principal agent, an advertising agency has a fiduciary responsibility to solely serve the interests of their clients. In fulfilling their role as a fiduciary, agencies are held to a standard of conduct and trust in which they must avoid self-dealing or conflicts in which the potential benefit to the agency is in conflict with that of their client. 

Over the course of the last thirty years, growth within the advertising industry has been chiefly driven by acquisitions and marked by consolidation. The net result was the emergence of large, complex and highly influential agency holding companies such as; WPP, Publicis Groupe, Omnicom, Interpublic and Dentsu. In turn, each of these organizations own dozens of diverse agency brands providing full-service advertising, media, creative, digital and social media, public relations and multi-cultural advertising services and resources. 

Each of the aforementioned holding companies is a publicly traded entity focused on maximizing profits for their shareowners. As such, one of the primary roles of holding company management is to leverage intra-group synergies across their agency brands to profitably drive group revenues. No one would begrudge them this focus, particularly in light of the need to offset acquisition costs and the marketing and operational expenses associated with maintaining dozens of agency brands. 

Unfortunately, advertisers are often unwitting participants in the act of leveraging intra-group synergies. Further, more often than not, the agreements which are in place to formally govern client/ agency relationships do not afford advertisers the requisite controls and or transparency concerning related-party transactions. 

So what is a related-party transaction? In short, related-party transactions can be defined as arrangements between two parties that are joined by a special relationship. For example, if an advertiser’s media agency of record were to funnel a portion of that advertiser’s digital media buy to a digital trading desk operation, which happened to be owned by the media AOR’s parent company that would be considered a related-party transaction. 

While there is nothing wrong with the premise of related-party transactions, they do carry the potential, or at least perception, for conflicts of interest. This may be as simple as an agency awarding work to a related party, rather than competitively bidding that work to a range of providers. Further, undisclosed, these transactions can mask the overall percentage of an advertiser’s budget being spent through their agency, its parent and subsidiary companies.  

Fortunately, this issue is easily addressed in the context of a client/ agency agreement. The first step is straightforward and involves defining the terms “related-parties” and “related-party transactions.” Secondly, it is imperative that advertisers introduce standards for the identification of agency related party relationships that may come into play on its business and to provide disclosure requirements for when an agency seeks to engage a related-party. At a minimum, such requirements should include: 

  • Identification of the related-party and the nature of the relationship
  • Statement of the business purpose of the transaction and why the related-party is being considered
  • Securing the requisite transparency controls ranging from access to invoices, compensation agreements, contracts and audit rights with regard to the related-party
  • A list of client personnel authorized to sign and approve related-party transactions, in advance of work being awarded 

Too often client/ agency agreements do not establish guidelines for behavior in this area. When combined with the fact that agency operating styles sometimes do not openly reveal related-party transactions, a control gap is often created, which can have negative financial consequences for the advertiser as well as blemish the agency relationship. 

In our agency contract compliance auditing practice, we have found that the best approach for all stakeholders when it comes to related-party transactions is total transparency. As President Calvin Coolidge once said when speaking about “living right:”

“The right thing to do never requires any subterfuge, it is always simple and direct.”

If you would like to like to learn more about client/ agency contract “Best Practices” please contact Cliff Campeau, Principal at Advertising Audit & Risk Management via email at ccampeau@aarmusa.com for a complimentary consultation on this important topic. 

Technology Companies Are the New Media Owners

1 Apr

technology firms as media ownersBy Oliver Orchard, Senior Client Director – EMM International 

This week I was fortunate to attend a debate in the British Parliament, The House of Commons.  The debate was hosted by the International Advertising Association (IAA) and organised by The Debating Group.   The IAA was formed in the 1930’s to help advertisers who were moving more and more towards export trade to understand the complexities of the different global ad markets. EMM’s staff are encouraged to take an interest in the work of the IAA, and we put many people through the residential training courses, with some of our senior staff holding committee positions.  The remit today is very much about helping to develop the client and agency heavyweights of the future, through networking, training and support.  The Debating Group has been holding debates in the House of Commons since 1975, and they regularly bring politicians, journalists and marketers together to discuss the political issues that surround marketing; and together they host a number of debates annually for the industry to participate in. 

The motion “Technology Companies are the new media owners” was supported by Rory Sutherland, Executive Creative Director and Vice Chairman of O&M and seconded by Anjali Ramachandran, Head of Innovation at PHD.  It was opposed by Hugo Rifkind of the Times and Chad Wollen, Group Head of Innovation and Commercial Futures at Vodafone. 

Rory and Anjali focused on the idea that ever since the Caxton Press printed the first secular work technology has always been the new media owner; whilst Hugo and Chad focused on the idea that media owners display some sort of moral conscience, or in some way better the world, through editorial.  Naturally, with Hugo’s work as a journalist this focused on print media and the role of Twitter and Google in events such as the Arab spring; though what sort of conscience media owners such CBS Outdoor, Exterion or Decaux demonstrate was conveniently overlooked.  Chad explored the idea that the message is separate to the medium; which as any junior planner will tell you is exactly why they have a job. 

The panel spoke eloquently for 40 minutes, and ultimately the motion was defeated. I voted against it myself, though with a different line of argument I feel the result would have been very different. 

The proposers missed a trick by ignoring media agency trading desks, DSPs, SSPs, RTB and inventory wholesaling.  Media agencies are the new technology companies, they are also the new media owners.  This situation is becoming more and more apparent to advertisers.  Many are scrambling to change their contracts in order to maximise their returns on the ‘good’ output of these technologies (the fantastic targeting and pricing), whilst seeking to limit the ‘negatives’  (unaccountable placements, lack of evidence of genuine exposures and the opaque margins anecdotally between 20% and 80% depending on quality of placement as one rather inebriated global head of a big five DSP network let slip to me recently). 

These technologies are increasingly supplanting the traditional agency/vendor relationship and are replacing transparency with opaqueness in an unprecedented way.  The share of digital on the schedule grows every year, the number of clients with a DSP clause in their contract grows weekly and every day traditional media channels become more and more digitalised.

Clients are often under-informed about these developments and contractually deficient when it comes to agency scopes. So what can you do? 

  1. Make sure that your contract with the agency is updated every year to cover all new technologies that might emerge – mobile advertising, RTB and interactive TV were all unthinkable until quite recently.
  2. Employ a specialist with a broad helicopter view of the market to ensure you are giving and receiving best practise in your process and relationships with the agencies for traditional and new media.
  3. Ensure you understand fully what the benefits and limitations are of new technologies.  With a recent study showing that just 8% to 15% of impressions online are actually “real” does that CPM deal really offer the best value?
  4. Understand which data is relevant and which is not.  Don Peppers, the social media guru, once said “trying to extract relevant data from digital is like putting a fire hose in your mouth when you’re thirsty” – it’s easy to be blinded by numbers, but in reality very few of them are important.
  5. Don’t go it alone, a market specialist can save you time and money by getting to the point, training your staff, and sitting on your shoulder during important future strategic discussion with the agency. Once you understand the game, ask the right questions, and make informed decisions, increased effectiveness will follow.

Some technology companies are the new media owners, they also happen to be your media agency.

To learn more about EMM International and how media accountability can drive advertiser value, contact guest blogger Oliver Orchard at Oli.Orchard@emminternational.comMr. Orchard is a Senior Client Director for EMM International and a key contributor to the company’s digital media accountability practice.  EMM is a provider of international media auditing and media optimization consulting services.  The company is based in London, England.   

 

 

The Value of Consistency in Building Brands

11 Mar

brandingMarketing pundits the world over have long championed the role of consistency when it comes to building great brands.  When citing examples, we frequently here about creative expressions of that consistency ranging from Budweiser and the Clydesdales to Nike and their “Just Do It” slogan to McDonald’s and their “Golden Arches” or Coca Cola’s iconic red can. 

Rarely do we tout the generation’s long relationships between advertiser and agency which have contributed mightily to building so many of today’s top brands.  Chevrolet and Campbell-Ewald, Ford and J. Walter Thompson, Exxon Oil and McCann, Kellogg’s and Leo Burnett, Met Life and Young & Rubicam or Unilever and Lowe + Partners are but some of the examples of long-term collaborations.  And yet, sadly, even some of these unions are no more.

Great advertising is the result of proven methodologies and sound processes, which guide talented professionals steeped in brand knowledge and keenly aware of the needs and desires of the brand’s target audience to produce compelling work.  This doesn’t happen overnight.  Great advertising requires a commitment between an advertiser and their agency partners, a culture which values brand building and the vision to be able to balance that with the need to generate sales and build share today.  Importantly, it requires a resource investment on the part of both client and agency and a deep level of respect between those organizations which allows for a robust, long-term relationship in which both parties can challenge and feed off of one another.

So why then has the length of Client/ Agency relationships shrunk so dramatically over the course of the last thirty-years?  Why does it seem that when an advertiser changes CMO’s that an agency review is but a few short months behind?  Why do so few corporate CEO’s take the time to get to know their organization’s advertising agency partners? 

An advertiser’s agency network, which can number dozens of agencies across disciplines, geographies and brands, is a corporate asset which is at the heart of the organization’s ability to create near-term demand generation and long-term brand value.  Thus, the agencies which comprise this network should be afforded the requisite level of respect and attention which a valued strategic partner would warrant. 

Advertising agencies are not the property of, nor the sole purview of a CMO.  This is not to diminish the importance of a CMO’s agency stewardship responsibilities or their contribution to deftly managing the outputs of an organization’s agency network.  It is the realization that enduring, effective collaborations must be anchored in a culture that values long-term relationships.

At its low in 2006, the average time-in-position of a CMO was 23.2 months according to research conducted by executive recruiting firm Spencer Stuart.  The good news is that CMO tenure has climbed to 43.0 months in 2011.  However, 3 ½ years is but a blink of an eye in the context of some of the Client/ Agency relationships referenced earlier.

It is a truism that “great clients, get great work” when it comes to advertising.  So what makes a “great” client?  It begins with an organization that respects their ad agency and the agency personnel which work on their business and values the work that is done on behalf of their brands.  This is augmented by the willingness to integrate the agency into the broader marketing team and to work seamlessly as one unit, while understanding the division of roles and responsibilities.  Importantly, it involves a commitment to the relationship.  Agency CEO’s are much more willing to invest in adding resources, developing personnel and building infrastructure to elevate the caliber of work on a client business when they can do so with a long-term perspective and the opportunity for a return.

David Ogilvy once shared his perspective on the role of his agency and the investment required to implement his vision in a memo to his board of directors in 1978:

“I have a new metaphor. Great hospitals do two things: they look after patients, and they teach young doctors.  Ogilvy & Mather does two things: we look after clients, and we teach young advertising people.  Ogilvy & Mather is the teaching hospital of the advertising world.  And, as such, to be respected above all other agencies.”

Needless to say there are a myriad of processes, controls and performance monitoring tools which come in to play to maintain focus and to incent all parties to engage in the proper behavior and motivate each member of the team to achieving in-market success.  These include everything from a properly structured letter-of-agreement, a fair remuneration system which rewards superior performance, annual 360° relationship reviews, proper client briefing processes, independent performance assessments and access to key decision makers within both the Client and Agency organizations.

It is safe to say that with the passage of time and repetition, the ability to improve these processes and tools… and their outputs, becomes infinitely more doable than when changing agencies every few years.  Perhaps Leo Burnett had it right when he intoned:

 “I have learned that you can’t have good advertising without a good client, that you can’t keep a good client without good advertising, and no client will ever buy better advertising than he understands or has an appetite for.”

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