Roth's battle to save IPG

Interpublic has become emblematic of all that is wrong with the holding-company concept. But its chairman, Michael Roth, tells John Tylee he can make the business successful again.

Like the New Yorkers on Fifth Avenue enjoying the unseasonably mild post-Thanksgiving weekend weather last week, Interpublic's Michael Roth needs no reminding of the hard winter that lies ahead.

Interpublic, which pioneered the holding-company concept 40 years ago, has become the emblem of its shortcomings. Financial malpractices that have their roots in the 90s look like reverberating well into the first decade of the new millennium.

For Roth, who almost a year ago became IPG's chief executive and co-chairman, not just a severe winter but also a dreary spring and a not-so-hot summer beckon. Indeed, he acknowledges it may be another two years before IPG and its operating companies - McCann Erickson, FCB, Initiative and Lowe among them - get that nice warm feeling back.

On the face of it, Roth appears an unlikely saviour of the world's thirdlargest communications group. A silver-haired six-footer attired in a dark suit and monogrammed shirt, he epitomises the law and accountancy environment from which he comes ("very Long Island, very Wall Street" is how Rupert Howell, McCann Worldgroup's regional director and president for Europe, the Middle East and Africa, describes him). A starker contrast to his predecessors, the cigar-chomping Phil Geier, the ebullient John Dooner and the agency account man David Bell, couldn't be imagined.

Roth's brief is to transform IPG from a financial basket case to a group that can again command a healthy share price and balance sheet.

"My background is actually an advantage because I don't have any preconceived ideas about this business," he argues. "It's been a learning process for me - much of it taking place under fire - but it's been a good process.

In fact, I think some clients are pleased to be dealing with somebody who sees things purely from a business perspective. They know I'll not be coming to them with a big marketing idea."

A symbol of the kind of financial extravagance with which Roth must deal lies in the corridors of his own offices, previously the headquarters of the Lowe network - now the group's most troubled child. The marble flooring and gold door handles, installed at the behest of Lowe's eponymous founder, Sir Frank Lowe (a long-time critic of IPG corporate insensitivity), are expensive legacies of the free-spending days that, along with Sir Frank himself, have now returned to haunt the group.

Roth has set about his task with resolve and energy that belie his 60 years. In appointing him, IPG seems to have belatedly concluded that the successful behemoths such as Sir Martin Sorrell's WPP, Maurice Levy's Publicis Groupe and John Wren's Omnicom are led by businessmen, not admen. The expectation is that Roth will make the tough calls his predecessors sidestepped.

Donny Deutsch, the head of the IPG agency that bears his name, has called his boss a "thug". The Brooklyn-born Roth wouldn't go that far, but he likes the sentiment. "I don't take bullshit. I probe and I want answers," he declares. "I want people to be accountable for their actions. If you call that being a thug, then that's what I am."

Nobody doubts Roth will need all his powers of persuasion and coercion in the coming months. IPG has not only sustained heavy account losses such as General Motors and Bank of America, which between them bring in $115 million worth of revenue, but could face more defections if a probe by the Securities & Exchange Commission proves damning.

About 95 per cent of IPG's revenue is being audited (costing it $200 million in fees last year) compared with the norm of less than 50 per cent for US multinational companies. "We've had to turn over rocks and look in a lot of places you wouldn't go in normal circumstances," Roth says.

At the same time, the group has seen its share price plunge as it struggles to get its financial house in order so that it complies with tough US accountancy regulations. What's more, it must overcome multimillion-dollar operating losses and raise its margins to the levels of its closest rivals.

If that's not enough, Frank Mergenthaier has just become IPG's fourth chief financial officer in three years. Hardly a statistic to inspire investor confidence.

The SEC report is slated for early next year. Roth is coy about what it might say, but denies reports that the scope of the inquiry has been widened. "They've asked us for additional information on our most recent filings, which is what we expected them to do. All we've done is give them some more material," he says.

Charming though he is, Roth has some no-go areas. One is his personal life (three children, two grandchildren and a home in New York is all the detail he will divulge). The other is the lowdown on IPG's turbulent history.

There's no doubt, however, that IPG has to face the consequences of what was a reckless growth-by-acquisition policy and the failure of subsequent regimes to take firm corrective action.

Roth, who was the non-executive chairman of IPG's audit committee when the accountancy scandal surfaced, suggests complacency and a changing market bought IPG's shortcomings to the fore. "In companies of our size, there's a doctrine which says that if it ain't broke, don't fix it," he admits. "Having less control is OK when things are going well, but when the internet bubble bursts and the market goes south and becomes a lot more competitive, a lot of difficult issues come to light which might not have previously been seen."

He remains tight-lipped about what measures he will take to restore IPG to health and bring its growth into line with WPP and Omnicom. The group is due to make a strategy statement in the first quarter of the new year and he will not be drawn on details in the meantime. "I don't think there's any secret about how you get new business," he says. "You hire talented people - we've replaced more than 20 senior positions at McCann alone - and make your offering good and competitive. We have to focus not only on the retention of our client base but growing it. To do that, we need the support of our different businesses."

Roth cites the group's capture of the brief to promote Nokia's new generation of handsets as an indication of how things will go. Lowe London shares the account with three other IPG companies - Jack Morton, an experiential marketing company, R/GA, an interactive specialist, and Draft, the direct marketing shop.

"I want to see more of that," he says. "We're going to spend a lot of time focusing on how our clients can be better served with an integrated offering."

There has been speculation that some company chiefs who sold their business to IPG at top dollar may now try to take advantage of its misfortunes to buy them back on the cheap. So would Roth listen to a management buyout proposal from an operating company? "If the price was right, I'd have to entertain it. Do I think it likely to occur? No. I'm not in the business of selling our assets at a discount when we've no need to do so," he says.

Certainly the consensus is that Roth will keep IPG largely intact if he can. "He's not a break-up merchant," an associate says. "It's not in his DNA." This is borne out by what irritated Roth most about the roundly defeated motion at last month's annual meeting calling for IPG to be sold.

It wasn't so much that the motion was put, but that it led to destabilising speculation about the group's value ($6 billion, according to some estimates).

"That's dangerous," he fumes. "I think it entirely inappropriate to have that information out there." What's more, he claims, IPG's continuing ability to tap the markets for millions of dollars at a time proves there's life in the old dog yet.

Meanwhile, around 16 executives have been sacked for accounting anomalies and the group has attempted to limit potential SEC damage by setting aside $250 million to compensate clients deemed to have overpaid for media.

"We're currently reviewing more than 100 of our clients to see if we need to make refunds," Roth reveals. "Some will have them, some won't. The $250 million we have set aside for this is a large amount of money but it will be dispersed among a lot of clients, not just one or two."

With greater transparency, Roth also promises better co-operation between IPG companies. He rules out any major mergers, but is determined old rivalries should be set aside to beef up the group's integrated offering.

In this respect, Lowe is particularly problematic. Now under Tony Wright's command and attempting to reinvent itself after a series of devastating account losses, Roth diplomatically describes the network as a "work in progress". And, though he was speaking before the news of Frank Lowe's start-up, he insists his view on the network has not changed since.

Lowe and IPG have always been uncomfortable bedfellows. Much of this has to do with a Lowe creative culture totally at odds with McCann, the global powerhouse that defines IPG and may yet be the engine room that drives it out of the mire. It has even been suggested that IPG could go private, dispose of its assets and reform around its flagship network.

Roth is sceptical. Too expensive, he says. "We have to start performing better for our shareholders. And we can do that best in the old-fashioned way."

Lowe, by contrast, has long been locked in mutual misunderstanding with its parent. "The network has never been an easy fit with other marketing services companies but it's equally true we did a poor job with Lowe," an IPG source says. "Merging it with Lintas never worked out."

Elsewhere, reform is proceeding apace. Three months into his job as the global chief executive of FCB, Steve Blamer has axed 300 jobs and is replacing its regional structure with global "centres of excellence". His objective is to replicate FCB's size and status in the US in other major markets.

The scale of his task is especially evident in the UK, where the newly appointed Nigel Jones must revitalise an agency that's dropped off the radar.

"FCB will always be the most US-centric of our networks," Roth says.

"But Steve is bringing in fresh thinking and it has the resource to expand both its global and US presence."

And what of IPG's media line-up? Roth concedes there's work to be done to bring greater consistency to the Initiative and Universal McCann global offering. The appointment of Mark Rosenthal, the former MTV Networks executive, reflects Roth's determination to remove the silos and stop the two entities competing. "Strangely, it was thought they could only be successful if they did this," a source close to Roth says. "And, of course, it gave the centre a role."

The big question, though, is how IPG's media operations will fare now the group has opted, like Caesar's wife, to be above suspicion. Will their non-US operations be put at a dis-advantage when rivals are not bound by rules forbidding kickbacks?

In the short term, maybe, Roth says. Long-term, though, change is essential.

Nor is it an issue other groups will be able to ignore, he believes.

"The transparency process has been hell," Howell admits. "But we can all see the logic of it." But if networks can't keep the media discounts, how are they to be remunerated?

"Simple," an IPG senior agency manager says. "You hand back the money to the client. But you make it clear you want an immediate conversation about how the network is going to make money out of the business."

When IPG will return to profit is anybody's guess. Roth expects the group to be fully compliant with Sarbanes-Oxley by the end of next year. By that time he also expects some of the measures put in place this year to bear fruit - and to stop the words "IPG" and "beleaguered" invariably appearing in the same sentence.

Will he stick around to see what happens or will he look for other fires to fight? Definitely the former, Roth affirms. "The board wanted a long-term partner for the Dooners and the Blamers and I'm here shoulder to shoulder with them as we make this journey. Besides, I'm finding I rather like advertising." Just as well, really.


MBOs by IPG companies

'If the price was right, I'd have to entertain it (an MBO). Do I think it likely? No. I'm not in the business of selling our assets at a discount when we've no need to do so.'

Being described as a "thug"

'I don't take bullshit. I probe and I want answers, I want people to be accountable for their actions. If you call that being a thug, then that's what I am.'

Kickback refunds to clients

'We're currently reviewing more than 100 clients to see if we need to make refunds. Some will have them, some won't. The $250 million we have set aside for this will be dispersed among a lot of clients, not just one or two.'

On not being an adman

'I think some clients are pleased to be dealing with somebody who sees things purely from a business perspective. They know I'll not be coming to them with a big marketing idea.'

The future

'We're going to be spending a lot of time focusing on how our clients can be better served with an integrated offering.'