Agencies can't turn a blind eye to kickback culture
A view from Maisie McCabe

Agencies can't turn a blind eye to kickback culture

One of the common responses to the holding company results was concern around online media and transparency.

Last week was a bumper one for anyone interested in poring over agency holding company results. Publicis Groupe, Omnicom, WPP and Interpublic all reported their figures for the first three months of 2015.

One of the common responses to the results was concern around online media and transparency.

Earlier in April, Brian Wieser of Pivotal Research downgraded each of the major agency holding groups and recommended investors "move to sidelines or exit the sector for the time being" amid growing awareness of "undisclosed agency rebates". His note followed a number of articles in the press, particularly in the US and Australia.

Over the past year, there has been increasingly nervous chatter about how agencies buy media on behalf of their clients. In March, MediaCom Australia announced a raft of additional checks and balances following a scandal over the reporting of TV campaign data for clients including Yum! Brands, Foxtel and Insurance Australia Group. At the same time, there has been renewed discussion about the issue in the US after a former MediaCom chief executive said kickbacks were "widespread".

Insisting that everything is transparent while your margin goes in the opposite direction of your fees just smells funny

In the analyst calls and meetings last week, executives from all four groups were quizzed about rebates and volume deals. They responded with varying rebuttals and explanations about why it wasn’t a problem for them. WPP is starting a one-company crusade to get rivals to publish net sales figures because it believes the digital media space sold on by agencies to their clients is brightening revenue figures. Either way, the issue is not going to go away. The American Association of Advertising Agencies has established a working group with the Association of National Advertisers to look into the matter.

When talking with people in UK agencies about why volume deals and rebates have not been as public a concern here, some point to the mature audit industry, which is not replicated in the US and Australia.

Yet agencies will only let auditors see what they want them to see, as ITV found in 2012 when it unsuccessfully attempted to expand its share deal audit to "forensic testing" of agencies’ finance departments.

It is no coincidence that these matters have come to the fore just as the ANA gathers for its financial management conference in Phoenix, Arizona. Insisting that everything is transparent while your margin continues to go in the opposite direction of your fees just smells funny. Even if it’s true. Agency groups need to tackle the issue properly and, dare I say it, collectively, before more analysts and investors decide to move away from the sector.

maisie.mccabe@haymarket.com           
@maisiemccabe

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