Recession - the boardroom view

campaignlive.co.uk, Friday, 07 September 2001 12:00PM

Chris Powell, the chairman of BMP DDB, has seen several recessions come and go. Here, he recalls his own experiences of economic downturn and offers advice on how to cope.

While we all know perfectly well that business is cyclical, it

still seems to be something of a surprise when good times give way to

bad and, almost always, we're hopelessly ill prepared for it - privately

and corporately.

For the younger people in our industry such as Matt Pye, who was brave

enough to write about his experiences in last week's feature, recession

is a new phenomenon. I don't know how many recessions the rest of us

have had to put up with in life. I think I've endured four.

It is, of course, a law that recessions happen around the turn of a

decade.

BMP started in the late 60s and moved into its much larger premises,

designed by the late, great, Theo Crosby of Pentagram, just in time for

a 1970/1 downturn. We had stretched our finances to move to such an

expensive area as the railway sidings in Paddington and on our half of

the floor we were so few that we had enough room for an indoor football

pitch. But, as times had been so good, and we had had such a good start,

we splashed out a bit on the decor. The piece de resistance was the

bannisters (God help me) in reception (still there). I think they cost

about £25,000 (which is probably several millions now) because

they "had" to be made from thousands of small pieces of wood glued

together (to get "the look", love). This was a rather larger sum than

our profits, so when both our clients cut their budgets we had to find

some savings to pay the rent.

Unfortunately, the retail value of second-hand bannisters was unlikely

to get us out of the scrape. Unimaginatively we sought out two of our

colleagues, who we thought we could get by without, to keep the ship

afloat.

One of them was a rather good media man, immediately snapped up

elsewhere, and the other a very good art director who refused to

acknowledge his redundancy and carried on coming in to work until we,

eventually, started paying him again (he went on to be the head of art

at an ace agency). The wheel turned and business picked up again, until

early Thatcher.

The early 80s recession was a giant industrial sort out that led to

another round of billings cuts, but I don't remember much else of

significance about it.

The nastiest by far was the one a decade ago that followed on from the

overblown late 80s. Not only did this involve cuts in client spend, it

coincided with client revenge for the patent greed our trade had

displayed - rates of remuneration were cut at the same time as spend

levels fell. This double hit resulted in a loss of about 20 per cent of

all staff in agencies (to staffing numbers that have hardly recovered

since). Recovery was slow, but by the late 90s the dotcom/technology-fed

boom almost exactly matched the froth of the late 80s.

And here we are again, with the oddity this time being that business is

in sharp recession (particularly anything near technology) but consumers

spend blithely on, giving a rather make-believe air to the whole

horrible business.

The first signs of trouble appeared on the west coast of the US in the

summer of 2000. Its roots seem to lie in the transactions between the

technology and dotcom companies, which were based on fantasy money -

nothing was earned from eventual users, it was just borrowed and spent.

This has to work its way out of the system, but if that was all it had

to do it might have been finished by now. But once the ripples start

there is no knowing how far they'll travel or how big they'll get as

their effect on business confidence induces caution and shrunken

expansion plans.

No-one, not even our ruler Alan Greenspan, has any idea when it will end

or if it will get worse (which it could well do as the redundancies of

the business recession work their way through to consumer spend levels

before too long).

If it is any comfort, and I don't suppose it is much, strikes are worse

for agencies than recessions. The three-day week/miners' strike/oil

crisis made a big dent in profits in 1974 and the TV strike (also in the

70s) nearly wiped us all out. Just before the end of that horror BMP was

looking at figures showing that we would go under in three weeks if it

carried on and I guess it was pretty much the same for others.

None of this is any help to those, such as Matt Pye, who take the hit of

redundancy. Why do recessions lead inexorably to redundancies? The

obvious answer is that "people costs" are just about the only cost of

agencies (rent is just to accommodate the people and so a function of

headcount) so when costs have to be cut to retain viability, it is

inevitable that staff numbers will be cut. The pain is shared a little

as the considerable proportion of pay that comes in good years through

bonuses dries up, so everyone at all senior levels takes a hefty pay

cut. Maybe there is a case for deeper pay cuts, beyond bonuses and into

salaries but that would belie the competitive nature of agencies and,

more fundamentally, hide the truth that our lax management had allowed

us all to become a little overstaffed. We get lulled into the delusion

of endless expansion and give in to the pleas for more staffing, leaving

us vulnerable to the next downturn. Every recovery I tell myself not to

repeat that mistake, but after a decade of good times I fall for it

again.

It is also probably no comfort that the advertising trade is not

alone.

Technological advance and worldwide competition make redundancies a

regular occurrence in business generally. Structural change, the decline

of industry and the rise of services, for instance, pressure people out

of one sort of living and into another. We in agencies may all be a bit

more vulnerable than most, but then we go into this trade with our eyes

open.

We know that a few will get the chance to make quite a lot of money

quite young, but it's a gamble that needs luck as well as ability. For a

chance at the rewards we take on the risk of job insecurity (actually,

any job security is becoming something of a fiction, even traditionally

lifetime pursuits such as teaching and medicine are now vulnerable to

reorganisations and consequent redundancies, although in those cases

without the trade-off of relatively high salaries while young and a

chance for the jackpot that we are given).

I don't know how tough it has been in advertising this time, so far, but

get the feeling that maybe about 5 per cent may have lost their

jobs.

If we assume that the average working life in advertising is not more

than 25 years, then that will be nearly 5 per cent a year in natural

wastage.

There are plenty of occupations around the fringes of advertising

looking for the skills of people from agencies, so I suspect that so far

the displacement that people have suffered will largely be soaked up in

allied trades so the horror of being out of work should be short-lived

for most.

In normal times, if someone is not working out, their employer can, and

should, be a lot of help in making introductions and generally helping

to find somewhere new. This is a pretty empty offer in recession because

hiring obviously dries up. All that can be done is to be honest about

the circumstances and as generous financially and personally as is

possible.

It is important to act quickly in order not to let rumour and

expectation develop. The worst thing is to dribble the process out so

no-one knows when it is all finished.

There's nothing very fair about redundancies, or about business itself,

and those that take the hit are usually just unlucky, not less able.

Recessions are a harsh discipline that businesses need in this imperfect

world to force them to sort themselves out and avoid becoming overblown.

Prolonged good times breed sloppy management habits, too many soft

options and silly wheezes. Before the recession of 1990 advertising had

got pretty silly and indulgent both in its content and in the way it

rewarded itself. Our trade didn't cover itself with glory in the year of

the dotcom either and I should think bonuses were pretty good last

year.

Looking back, advertising has been improved by the shock of recessions,

better work and better agencies have grown out of the rubble as we are

all forced back to the real point of what we're doing and away from the

frippery. I would contend that the better agencies come out of

recessions in a stronger competitive position and the sillier ones fall

away. It becomes more obvious who is delivering and who is not as

results become more a matter of life and death and less something nice

to have in a generally growing market. The flash and the fashionable

that thrive in booms lose out to those who know what they are doing in

the harder times.

Prolonged good times always seem to encourage us to all kinds of

self-indulgence, both financial and in our craft. As the late 80s saw

agency heads sell out to the Saatchis for implausibly and unacceptably

gross sums and ads were judged to be OK as long as they were funny, so

the late 90s saw pretty large sums paid out to new-media operations (and

in bonuses to a few top people) and the utter indulgence of some dotcom

advertising where the nature of the product on offer was near impossible

to discern.

The feeling gets about that this time the good times will last for ever,

there is a "new paradigm" of free-spending e-consumers reached via

websites that are paid for by a ready flow of advertising and the

imminent arrival of heaven on earth. The economic bump returns us to the

eternal verities of the P and L and the idea that advertising is meant

to sell things.

But none of this answers the really interesting question: why does it

seem so many start-ups happen in recessions?

Are these guys gluttons for punishment? In reality it's probably because

they are planned at the height of the good times but can take a while to

get off the ground. By the time they are actually launched the good

times have turned to bad. Now we're well into the recession, I don't

expect there will be an enormous number starting up over the next year

and those who have just got going probably won't be that affected by

movements in the size of the total market when they aspire to only a 0.1

per cent share.

I realise that these ramblings are no real help to anyone suffering the

worst effects of the downturn, but sometimes it is some small comfort to

know this isn't the first time it has happened and just as good times

lead to bad, bad times will turn into better.

One day, maybe, we will all grow up and attach no stigma to redundancy,

just as the American economy benefits so much from the lack of stigma

attaching to bankruptcy.

An element of all our employment is a gamble. When the axe comes down it

can be just a question of who can we get away without right now -

because an account has just folded or a campaign gone to bed or

whatever. Meanwhile it is an unfair pain to those, such as Matt Pye, who

are forced to move on. But, I bet he's back in advertising in short

order.

Enjoy the late 2000s boom. But watch out for 2010/1.

A SHRINKING INDUSTRY

According to the IPA's Census data from across the past four decades,

the ad industry has been quick to react to the impact of recession,

culling numbers, but has also moved swiftly to staff up when fortunes

improve.

Yet at each upturn staffing has not returned to pre-recession levels and

the industry has been contracting.

New technologies have contributed to the slide in the number of people

employed by ad agencies, while the trend for agency consolidation has

impacted on the number of IPA member agencies. But a close look at the

figures shows that economic downturn has had a harsh effect on the size

of the business.

The recession of the early mid-70s saw employee numbers shrink from

17,200 at the start of the decade to 13,300 by 1975, despite a fairly

steady number of IPA agency members (280 in 1970, 276 in 1975 and 310 in

1979).

The 80s kicked off with 15,500 people registered as working in

advertising, plummeting to 13,500 in 1983 and only starting to rise

again in 1986.

The decade ended with 15,400 employees in 257 agencies.

The recession of the 90s contributed to a 25 per cent slashing of

industry numbers, from 14,800 at 275 agencies in 1990 to an all-time

industry low of 11,100 employees at 225 agencies by 1994. If the current

recession has a similar impact, the advertising industry could be

supporting just 10,000 people within a year or so. - Claire Beale.

This article was first published on campaignlive.co.uk

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