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