The Annual 2004: The Year in Review - 2004: You couldn't make it up

Fat cats and fat kids were the main themes in 2004, as corporate greed and junk food advertising threw a dim light on adland's ethics.

Advertising was forced to examine its collective conscience in 2004 as questions about its personal conduct and public image came under widespread scrutiny. If the industry wasn't defending itself against charges that it was fueling obesity and binge-drinking, it was being castigated for over-rewarding its fattest cats and for its moral bankruptcy.

Additionally, some of the industry's biggest talents and personalities were in the news for the wrong reasons.

Garry Lace, the chief executive of Grey London, was caught up in a messy story of anonymous e-mails and an alleged plot to start a new company - all at a time when the agency was forced to make widespread redundancies; then there was the Ben Mark Orlando saga - Ben Langdon realised early on that this start-up life was not for him and not only quit BMO after only 116 days, but added insult to Mark Wnek's injury by taking his erstwhile partner's old job at Euro RSCG London.

Such stories made it harder than ever for the industry to defend itself against the popular perception of it as feckless, irresponsible, shallow and greedy.

"Here we are trying to present ourselves as serious business people and this stuff just confirms people's worst stereotypes of us," Rupert Howell, the McCann Erickson chairman and former IPA president, complained. "It makes us look like a bunch of flash wide-boys who'd sell their grandmother for tuppence."

To make matters worse, other disclosures of extravagant financial settlements only reinforced the prevailing view of an industry going to hell in a superannuated handcart.

Masterfoods' dumping of Grey from its global roster sparked speculation that the decision was less to do with the network's sale to WPP for $1.5 billion and more with the dim view taken by Masterfoods' Mars parent of the $286 million pocketed by Ed Meyer, Grey's chairman and controlling shareholder, from the deal.

Nor were Interpublic's shareholders much impressed at the poor performance of their stock compared with the generous bonuses being paid out to senior executives, including $1 million to the company's chief executive, David Bell. As one angry investor pointed out, a chart tracking the IPG share price "only looks good if you turn it upside down".

Not even a demonstrably successful performer such as the WPP chief executive, Sir Martin Sorrell, could avoid suspicion over the size of his £2.45 million package - up 27 per cent on the previous year.

But while such tales attracted attention and controversy, they masked the reality of a cash-strapped industry struggling with the legacy of a recession that refused to go away.

At DDB London, where a tough trading climate was exacerbated by a series of domestic account losses, Paul Hammersley, the former chief executive of Lowe in New York, was drafted in to help the agency regain its place in a commercial world that threatened to pass it by.

At Mitchell Patterson Grime Mitchell, the partners chose to shut up their £20 million-billing shop after 14 years rather than keep fighting for business in an intensely competitive market in which even top-20 agencies scrambled for accounts they would once not have got out of bed for.

Those choosing to remain in the game needed to draw deeply on their stoicism.

As if persuading reluctant clients to shell out the extra levy needed to fund an overhauled advertising self-regulation wasn't enough of a problem, agencies found themselves increasingly incapable of attracting the best young talent.

This was confirmed by an IPA-commissioned survey that found junior staff were being paid substantially less than their counterparts in other fields and that the gap was widening further. Higher up the ladder, the picture looked as bleak. Stressful work, sweatshop hours and little security were the traditional reasons senior agency executives drew bigger salary cheques than their client counterparts.

Not any more. Such staff are no longer earning significantly higher salaries than their client counterparts, according to a report by the Marketing Communications Consultants Association and the media finance specialist Willott Kingston Smith.

Even direct, usually a beneficiary when budgets get tight and clients look for more measurable returns, felt the pinch. This was no better shown than when General Motors asked Draft London and TBWA\GGT, the incumbents on Vauxhall and Saab respectively, to pitch for the combined business.

Draft won, clearing the way TBWA\GGT to merge with its sister network, Tequila\London. The continuing diversion of budgets below the line also served to prompt above-the-line shops to move into DM. Clemmow Hornby Inge led this year's wave in a partnership with the former Proximity bosses Simon Hall and Warren Moore. WCRS and Vallance Carruthers Coleman Priest followed suit.

Against such a background, it was hardly surprising that the IPA was prepared to think the previously unthinkable and consider introducing a ratecard to restore the balance in fee negotiations seen by agencies as heavily weighted against them by client procurement specialists.

Whether a stronger global economy is a precursor of better times remains to be seen. The good news is Europe's advertising recovery proceeded at a healthy rate. In fact, ZenithOptimedia predicted that Britain and France were returning to the kind of growth not seen since the telecoms and media technology bubble of the late 90s.

In the UK, the IPA's Bellwether Report added to the air of cautious optimism, reporting the longest period of continuous growth in adspend since the recession kicked in. The not-so-good news is that the recovery remains problematic. The Olympic Games and the European Football Championships, along with previously deferred product launches, drove the year's improvement. But the rising tide of interest rates precipitated in the UK and the US by the growth of personal debt and a stalling housing market could throw a spanner in the works. An oil crisis could cause the whole machine to seize up.

Nowhere was the slow and fragile nature of the economic recovery felt more strongly than at the debt-laden IPG, which not only has to deal with the legacy of an accounting scandal and an over-ambitious acquisition programme but resolve the future of its under-performing Lowe network in an evolving communications world.

Too big to be a creative boutique, too small to compete on a global scale, Lowe has an identity crisis to solve and an account haemorrhage to staunch.

Jerry Judge, the network's worldwide chief executive, was overwhelmed by the task.

Now Tony Wright, newly arrived from Ogilvy & Mather, must transform Lowe into a creatively led micro-network, occupying the kind of middle ground that's seen as fertile territory. Bartle Bogle Hegarty and Wieden & Kennedy are already there. So is WPP's Red Cell, which hired Amanda Walsh to bring some synergy to its European operation.

Among all the behemoths - WPP, IPG, Omnicom and Publicis Groupe - pressure to provide added value to their operating companies was intense. So much so that the original formula of the holding company laid down by Marion Harper at IPG almost 40 years ago seemed increasingly passe and inflexible for the new millennium.

Indeed, Harper's original vision of drawing agency networks under a single umbrella in order to resolve conflict clashes is a world away from this year's pitch for HSBC's £350 million global account. Far from promising to erect "Chinese walls" , WPP won the business as a group with the account now shared between several subsidiaries.

At the same time, the global consolidation of the communications industry neared its endgame. Grey Global Group held out against the tide before bowing to the inevitable in June and putting up a "for sale" sign. Few doubted Grey would fall to WPP, although the auction, along with the less-than-spectacular interest from the investment community in the M&C Saatchi flotation, illustrated the industry's continued enfeebled condition. No wonder private equity companies saw Grey's undervalued stock as an opportunity to make a fast buck. No wonder also that their activities caused concern in a business where stability and long-term relationships are crucial and in stark contrast to the short-term preoccupations of the corporate raider.

No more so than at Havas, whose failed bid for Grey leaves it as the last medium-sized player in a polarised market. As a result, its chairman, Alain de Pouzilhac, having already trimmed his sails by agreeing to sell WCRS back to its management for almost £15 million, must glance nervously over his shoulder as the secretive Vincent Bollore builds his Havas stake.

Media agency consolidation was no less relentless. WPP, which already owned MindShare and Mediaedge:cia, acquired MediaCom as part of the Grey deal. WPP also took a stake in KR Media, the French agency launched by Bruno Kemoun and Eryck Rebbouh, the former Aegis Media Europe chief executives.

Omnicom joined the big buying league by bringing together the clout of its OMD UK, PHD and Manning Gott-lieb agencies into the OPera buying unit to rival WPP's Group M and IPG's Magna. There was change at Aegis, too, with Nigel Sharrocks coming in as UK chief executive.

Meanwhile, Unilever reflected the prevailing mood for streamlining by switching its £680 million pan-European media account from Initiative to MindShare after a review led by Alan Rutherford, its global media director.

Merger mania was rife elsewhere. Capital and GWR announced their engagement while the Telegraph Group's future was decided when the Barclay brothers triumphed with a £665 million bid to add it to their media empire.

Now everybody waits to see what changes will be wrought by Sorrell when he formally takes control of Grey early next year. His aim of raising its poor operating margin of 6.5 per cent to 15 per cent was always going to be a tough task and has been made even more so with the departure of most of the network's Mars business.

No less tricky will be balancing a strict financial regime with the need to keep Grey's best management talent locked in and motivated. What's likely is that some of Grey's specialist operations will be merged with other WPP companies to cut duplication and bring synergies. The question is whether Sorrell will want to signal that Grey is changing by appointing an outsider to head it.

Meanwhile, as the industry continued to reconfigure itself, the questions about its contribution to Britons' ever-expanding waistlines grew more strident. Hysterical tabloid reporting of how obesity was said to have caused the death of a three-year-old girl weighing six stone didn't help.

No matter her death was later found to be the result of a rare genetic abnormality; it graphically illustrated how hard it was for advertisers and agencies to break the siege.

With the industry seen as a personification of the obesity issue, attacks on it are unlikely to abate. At least not until some inspirational advertising is seen to be changing not only consumer behaviour but the perception of an industry in which morality is seen as a poor second to self-interest.

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