Mediacom revelations shine light on industry at breaking point

Darren Woolley

Darren Woolley is Founder and MD of TrinityP3, an independent strategic marketing management consultancy that assists marketers, advertisers and procurement with agency search and selection, agency engagement and alignment and agency monitoring and benchmarking. With his background as an analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

It’s is a sorry day for the whole industry when trust is compromised.

The news concerning MediaCom and irregularities around media reporting and billing with two of its clients is a sorry day for the whole industry. It can be seen as an inevitable consequence of market trends from advertisers putting pressure on agencies to do more with less and less, and agencies and their holding company groups striving to report improved profitability to their shareholders.

Trapped in the middle of these industry trends are people like you and me, who are just trying to do their job. While there is no excuse for acting unlawfully or unethically, the fact is that when people are under pressure to meet unrealistic expectations, it is often ethics that end up being compromised. The consequence is a loss of trust and integrity in the relationship and the process.

Only the week before the news broke and at the AANA AGM, Dr Simon Longstaff AO, executive director of the St James Ethics Centre, recounted working with people in war zones facing many ethical dilemmas, and how they were able to work through these issues to achieve a resolution. How much more challenging is war than marketing?

While we may never know the actual mechanisms of what has occurred here, it is worth reflecting on the impact opposing pressures have on individuals at the centre of the client/agency relationship.

We cannot forget that it is a relationship - and often a very personal one - and that it is not between brands or companies or organisations, but ultimately delivered and managed and maintained by people.

The first pressure is the ‘Race to Zero’, which we have commented on and discussed publicly, as recently as the SAGE (Secrets of Agency Excellence) in Sydney last month. There has been a sustained and downward pressure on agency fees and margins and profits since the Global Financial Crisis of 2007/2008.

This pressure has met with little resistance from agencies, as it is a highly competitive market with far too many agencies competing for far too little revenue. This, combined with the divergence of specialist disciplines converging into all agencies now offering digital, ‘full service’ integrated capabilities, means there is little distinction between agencies let alone difference. This has only supported a commodity buyers’ market.

To make matters worse, this is occurring at a time when advertisers have access to greater amounts of performance data than ever before and are demanding a greater level of performance accountability from their agencies. They are under the same pressure to be accountable for results within their organisations.

The counter-pressure, especially among publicly listed agencies and their holding companies, is the constant drive for profit increases to appease shareholders and investors. At reporting time we see the holding companies announcing modest increases in profits at best. In many markets, including high-growth markets, the pressure on cost means that while revenue may increase, profit margins are often compromised. It is difficult to see how they can sustain this profit reporting.

This pressure is applied down the line from the holding company level to the individual agency networks at a global, regional and local market level. There is a huge inducement to deliver, with big financial incentives and the promise of fame, glory and promotion to London, New York and beyond, for those who deliver at any cost. And there’s significant career reduction for those who do not.

At an agency office level, we are regularly told that CEOs are required to cut costs, freeze headcount even after a new business win, and have staff working long, unpaid overtime, to meet the management expectations. In Asia, we saw a member of staff die from overwork, causing one agency to close the office each night to stop this practice. But perhaps they just drive the work home and save on their electricity costs?

In the middle of all this and at the pointy end of the client/agency relationship are people. Professionals wanting to do a great job, who want to be recognised and rewarded for their efforts. They are working long hours and forgoing pay increases as agency budgets are frozen. They’re under pressure to deliver results to exceed the client’s expectations, and to meet the expectations of their boss, their boss’s boss, and their boss’s boss’s boss. And while we cannot condone unethical or illegal behaviour, we can understand why it may happen in these circumstances.

What we have to decide now is how we deal with it. How do we make sure it does not happen again? It is a sorry day for the industry because this is evidence that the system has reached breaking point. People have broken their responsibilities to each other. Trust is broken and the integrity of us all is called into question.

Rather than a witch hunt, which only punishes those in the middle, it would be best that we try to understand what caused this and start to address the issues that compromise the ethics of all involved. If some good comes of this, it will be that all of us - agencies, marketing, advertisers, media, procurement and yes, consultants – work to find ways to make the whole process more sustainable, based on the value each party contributes, rather than simply reducing it to its most basic form.

Because if nothing changes, then nothing will improve.

Tags: agency management, mediacom

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