Feature

Networker: David Bell - Judgement Day

Three years ago Interpublic was the largest advertising group in the world. It has since lost confidence, profits and its way. But its upbeat chief still has a dream, writes Caroline Marshall.

It is late morning in London and the reception of the Lowe building in Knightsbridge is a triumph of minimalist architecture. Tasteful and elegant, the agency's UK headquarters has the buzz of a film set as casually dressed people come and go. It is the perfect cliche of agency life.

But behind the glamorous stage scenery is a parent company where all that glitters is producing less and less gold. Interpublic, the third-largest ad conglomerate in the world, is 16 months into a 12- to 36-month resuscitation that began a few months after David Bell replaced John Dooner as its chief executive in February 2003.

His task is formidable. IPG's problems include a $2.2 billion debt, a federal investigation into a $181.3 million accounting imbalance, and leadership and growth issues at networks such as Lowe and FCB.

Recently, Standard & Poor's placed IPG on CreditWatch. Its reasons? Debt, rapid turnover of senior management personnel, and "material weakness in the company's internal controls related to the processing and monitoring of transactions".

After more than four decades of success, the holding company - whose founder, Marion Harper, invented the agency conglomerate model in 1961 - now finds itself up against the wall. Its problems are more serious than those facing the sector as a whole, although it was the economic downturn that exposed the group as an unwieldy mess.

"It's a question of watching what they do, not what they say," one industry analyst says.What they are doing, and what Bell and his new chairman, Michael Roth, have got little time to make work, is going back to basics.

A decision to get away from an acquisitions-led dependency was taken early on, with good reason. The previous Interpublic chief, Phil "Deals" Geier, earned his college nickname by buying out competing fraternity sandwich-making concessions to build himself a profitable monopoly. At IPG, sitting on top of a $3.7 billion holding company, "Deals" lived up to his soubriquet. He saw through more than 225 acquisitions by 1999.

Another priority was to reduce the group's debt-to-equity ratio to less than 50 per cent. "At the start of the turnaround, it was close to 60 and we are now at 46.5," Bell says.

A number of sell-offs and brutal restructuring decisions have aided the balance sheet. In 1999, IPG bought Brands Hatch and merged it with its Octagon sports marketing division. The plan was to blend motorsports ownership, events promotion and venue management but the venture never gained the traction needed and, this year, IPG sold the racetrack and washed its hands of motorsports entirely. In 2000, it bought the market researcher NFO Worldwide for $580 million; three years later it sold it to Taylor Nelson Sofres for $425 million. In 2002 alone, the company laid off 6,800 employees and closed 180 offices worldwide.

Bell dates his masterplan - the "turnaround", as he calls it with his trademark Midwestern optimism - from 15 June 2003, when IPG told Wall Street about its rescue package. It's a strategy, for sure. Trouble is, for its embittered senior managers, IPG's share price tells the real story.

As Campaign goes to press, it is at $11.54, from a high of $58.37 in 1999.

How low can the price sink before IPG becomes a takeover target? "I can't comment, but it's interesting that you raise it. When we started the turnaround, no-one wanted us!" Bell says.

Did the board ever seriously consider a break-up strategy? Many believe such a proposal led to the chief operating officer/chief financial officer, Chris Coughlin's abrupt exit in July. "Beyond selling a few non-strategic assets such as NFO, break-up is not something we are interested in. We don't think it's the best way to achieve value," Bell insists.

So, beyond the PR flimflam, what strategy does he have for unlocking shareholder value?

He maintains the entire sector is depressed, not just IPG. "Put simply, the industry stocks were the darlings of the 90s, the surrogates of the internet craze. When investors didn't know where to put their chips, they figured we should be the recipients of the internet money.

"Now we're the negative surrogates. Concerns about mass media and uncertainties about new media have depressed the whole sector. Our strategy for unlocking shareholder value is to execute the turnaround and to improve margins to previous levels."

McKinsey provided some of the thinking that fed into the rescue plan.

"We hired them to be very smart arms and legs, to get us a data benchmark," Bell says. "Rather than hire 27 MBAs, we decided to rent McKinsey."

Aware that the move proved unpopular with many senior managers, Bell vehemently insists the strategy for the future belongs to the IPG board, not to those McKinsey consultants. "We didn't hire them to give us a way forward but to interrogate the systems and look at costs and waste, nothing on the creative side," he says.

And so to that creative side. Viewed from London, where everyone tries to sell themselves as the sexy local boutique, the scale of McCann WorldGroup is difficult to grasp. It is the undisputed financial engine of IPG and, however you cut it, the largest agency group in the world. In 2003, McCann's worldwide revenue totalled more than $1.2 billion, while FCB recorded $452.8 million and Lowe, $406 million.

With Dooner back in charge, some financial discipline restored and institutionalised efficacy rather than awards as its schtick, McCann is the least of Bell's worries. Its biggest problem is conflict - McCann has major clients in most categories.

Does it trouble Bell that McCann so dwarfs his other two advertising networks? "No, not at all. It doesn't trouble me in the same way that it doesn't trouble WPP that Ogilvy is by far the biggest of its networks."

The Securities and Exchange Commission report into accounting discrepancies at McCann-Erickson WorldGroup (renamed McCann WorldGroup this year) is expected before Christmas. Bell clearly wants it in the past: "We did our own investigation and terminated a number of employees and we turned over everything we found to the SEC. It's the last of the legacy issues. Motorsports, the balance sheet, shareholder suits - they've all gone away."

To what does he attribute the fact that financial wrongdoing took place at all? "It has a lot to do with the decentralised nature of the company and the lack of infrastructure. Now the likelihood of those things re-occurring is way down."Bell will not comment on whether some individuals should not only have lost their jobs but have been forced to repay bonuses earned as a result of the accounting anomalies.

Foote, Cone & Belding's woes are in a different league. The company shows minimal growth. It has yet to name a successor to its 61-year-old chief executive, Brendan Ryan, who is heading for retirement and, the gossips have it, delaying the search for a successor. Many ask what is the point of FCB, other than as a repository for the hyper-conflict-sensitive FMCG giant SC Johnson? "What FCB can be within IPG is a very strong entrepreneurial integrated network," Bell says. "People forget that Taco Bell had four agencies trying to turn it around, including TBWA. The only one that did it was FCB and on the strength of that they took KFC from BBDO."

The next topic is IPG's over-merged and account-shorn problem child, Lowe. Its hopes lie with Tony Wright, formerly at Ogilvy & Mather, who replaced Jerry Judge as Lowe's worldwide chief executive in September.

Bell chooses his words carefully when talking about Judge, but the sentiment is one repeated in conversation with every chief executive. As accounts such as HSBC and Braun abandoned ship, Bell saw the crisis deepen at one of his most high-profile operating units, but did little until drastic action was necessary. "I have great respect and affection for Jerry," Bell says. "I enjoyed working with him but time was not on Jerry's side."

Wright is a planner by trade who has little international experience and no experience of running a network. Why is he considered the right man for the job and what is the strategy for Lowe?

"Does it feel like a risk? Everything's a risk!" Bell says. "Wright is a client, product and strategy person. He is conversant with more major markets in the world and with who's doing what to whom than half of the global people I've met.

"His priorities are growth from current clients and growth from new clients and that comes from doing great work for current clients."

As for a vision for the Lowe network, the past offers lessons, but only of the how-not-to-do-it variety. Ammirati Puris Lintas' 1999 merger with Lowe proved a messy solution. Similarly, the 1994 Lintas merger with the New York creative shop Ammirati & Puris failed to make an impact. Yet another merger would be ridiculous, so the chosen solution is to contract.

Bartle Bogle Hegarty, with its handful of offices, has proved that it is possible to score big wins and do good work without scores of nameplates.

Bell's vision for Lowe is for it to end up with key offices in 12 to 15 markets. He does not use the buzz term "micro-network", but that's the idea. "I don't like (the term) because our clients are too global to be micro," he explains. "Nonetheless, all of our major competitors are moving towards the centre-of-excellence model."

As to the costs of making this happen, Bell is vague. Surely the inevitable divesting of scores of offices would only add extra burden to the group's debt? "No," he says. "In many markets we already have affiliates and minorities.

It's just that the focus of Lowe management should be on the 15, not on whether we should have 60 per cent equity in Kazakhstan."

DLKW, Deutsch, Gotham, Car-michael Lynch, Campbell-Ewald ... IPG's independent agencies have punched well above their weight throughout the holding group's recent troubles.

Why? "One thing that unites the independents is that they deliver holistic solutions routinely, either on their own or with IPG. They did not fight integration, they embraced it."

Media is an area within IPG without a single global figurehead. "I look less for a global baron than for a strong team concept," Bell says. IPG was the first large agency group to move towards consolidated negotiation, creating Magna in 2001. It is starting to incorporate practices such as sports and entertainment marketing into its media offering.

Insiders suggest IPG might be considering a media arrangement with Havas.

Bell refuses to say any more than: "We discuss such links all the time with various potential partners."

The "we" is Bell's shorthand for the IPG board. The new chairman, Roth, is such a growing presence there that the question "who's in charge?" is inevitable. Roth, a board member since early 2002 who served as IPG's Audit Committee chairman, was appointed after Coughlin's abrupt exit in July.

A fiscal hawk, he is also putting his stamp on strategy, personnel and succession decisions. Before IPG, Roth spent 14 years at the MONY Group, taking a life-assurance company on the verge of bankruptcy and turning it into a successful diversified group of businesses before its acquisition by Axa for $1.5 billion.

Does Roth's appointment mean that Bell is heading for his victory lap?

Has he been shifted into a client-facing role and away from the strategic heavy lifting before retiring next year? "No, I committed to the shareholders when I took over in 2003 that I would do another five years," he says.

But who's really in charge? "Michael's the chairman; I'm the chief executive. I'm the practitioner; he has other strong skills," is all Bell will offer.

Clearly, in his first 18 months, Bell has made an impression. Yet there is a sense of Roth being the man to ultimately see it through, as Bell takes on a more client- and analyst-facing role.

In the forthcoming Campaign A List, Bell, staunchly Republican, cites "residences" as his major extravagance. With 2004 first-quarter losses at double last year's, some shareholders might suggest "bonuses" as a more appropriate answer. After all, IPG paid out performance bonuses for 2003 of more than $41.4 million, which included a $1 million payout for Bell himself. Bell inherited a mess, and such tasks always carry danger money, but the beleaguered company's problems are proving stubbornly difficult to resolve. The phrase "work in progress" has never seemed more apt.

DAVID BELL CV

David Bell starts out in the business with a two-year stint as a

graduate trainee at Leo Burnett Chicago. Joins the Minneapolis hotshop

Knox Reeves Advertising.

1972: Named as the president of Knox Reeves, at the age of 27 1975 Joins

Bozell & Jacobs when it acquires Knox Reeves

1989: Named as the president of Bozell Worldwide

1996: Appointed as the chief executive of Bozell Worldwide

1998: Becomes the chairman and chief executive of True North

Communications, the holding company for FCB, Bozell, True North

Diversified Communications, TN Media, BJK&E and others

2001: Appointed vice-chairman of IPG

2003: Promoted to chairman and chief executive of the Interpublic empire

with a brief to rebuild confidence in the holding company. He replaces

John Dooner, who returns to McCann-Erickson WorldGroup

INTERPUBLIC: A TWO-YEAR TALE OF WOE

January 2001: Philip Geier steps down as the Interpublic chairman and chief executive after more than 20 years. He is replaced as the chief executive by John Dooner.

March 2001: Interpublic acquires True North for $2.1 billion and becomes - for a while - the world's largest marketing communications and services group.

August 2002: First details emerge of accounting irregularities dating back to 1997, which eventually forces the group to restate $181.3 million in earnings. Legal action against the company is followed by profit warnings and a 70 per cent drop in share price.

February 2003: David Bell becomes IPG's chairman and chief executive, replacing Dooner, who returns to McCann Erickson, displacing its global chairman, Jim Heekin, who leaves the company. Earlier in the month, the merger of Bozell with the New York office of Lowe & Partners Worldwide creates Lowe New York.

March 2003: Chris Thomas is ousted as Lowe London's chief executive and replaced by Matthew Bull.

June 2003: Paul Hammersley, the British chief executive of Lowe in New York, resigns without a job to go to.

July 2003: Ben Langdon resigns from his role as McCann Erickson's European regional director.

July 2003: Interpublic's chief financial officer, Sean Orr, steps down and his role is taken over by the chief operating officer, Chris Coughlin.

September 2003: Sir Frank Lowe retires.

November 2003: Universal McCann loses the $350 million Coca-Cola US media buying account. In Europe, the bulk of Coke's UK creative account is pulled out of McCann-Erickson and moved into Mother and the French creative is moved from McCann-Erickson to Havas' BETC Euro RSCG. The US creative account had moved from McCann into WPP Group's Berlin Cameron/Red Cell earlier in the year.

May 2004: Lowe loses the £350 million HSBC account to WPP and J. Walter Thompson takes over as the bank's lead agency.

June 2004: Michael Roth is appointed as Interpublic's chairman. Chris Coughlin is replaced by Robert Thompson as the chief financial officer after retiring to spend more time with his family.

July 2004: Lowe loses Unilever's £25 million pan-European Flora account to Bartle Bogle Hegarty.

September 2004: Tony Wright, previously at Ogilvy & Mather in New York, is made the worldwide chief executive and president of Lowe, replacing Jerry Judge.