2002 GLOBAL RANKINGS: United States - Julia Hood finds the USmarket in the midst of troubled times. With big-name firms falling foulon a regular basis, corporate responsibility and PR counsel have takencenter stage

There is only one business story in America, and it's a PR story.

There is only one business story in America, and it's a PR story.

Corporate reputation has emerged as the prevailing national theme as accounting scandals continue to roil the stock market, the government, and the boardroom.

The alleged misdeeds of Enron and Andersen were bad enough - but news of WorldCom's supposed deception has eradicated what little trust the public had left in both regulatory and commercial institutions.

Even blameless corporations are wondering how to communicate their value to the cynical media. "All of the challenges created by so much adverse news have convinced everybody that if they are guilty, or vulnerable to the perception of guilt, they have to do something about it, says Rich Jernstedt, CEO of Golin/Harris.

In spite of the continuing economic malaise, this could be a perfect opportunity for PR firms to increase their relevance to clients and prove that PR is a crucial function for meeting underlying business objectives.

But PR practitioners in the US are still reeling from the cumulative impact of the technology slide, September 11, and corporate budget shrinkage.

The trick for the industry is to balance the opportunities created by this new era of corporate responsibility with its own need to continue to build business and service clients responsibly. Moreover, PR agencies, like other service providers, are under greater pressure to demonstrate ethical execution with measurable results, while communicating effectively with their own stakeholders.

Even amid tangible signs that business is picking up, no one pretends the hard times are over.

"It is still tough, says Harris Diamond, CEO of Weber Shandwick Worldwide, which is ranked number one globally and in the US. "What we have not seen yet is the shift into a more aggressive marketing effort by most corporations. In 2001, the top 100 firms in the US lost nearly 8% in total revenue, from $2.88 billion to $2.66 billion. Layoffs were ubiquitous as the total headcount of the top 25 firms dropped 25% from 2000.

Even with all of the negative news from the previous year, conventional wisdom at the end of 2001 was that the recovery would start to take hold in Q3 of 2001 - and that was the pessimistic view. Now business leaders are knuckling down for the long haul. "At the first part of the year, it looked like people were more confident spending money, says Helen Ostrowski, CEO of Porter Novelli. "But I've noticed in the last month that people seem to be getting a lot more cautious again."

However there are signs of optimism at the halfway mark in 2002. "Our new business is definitely picking up, says John Graham, chairman and CEO of Fleishman-Hillard, adding that the firm's June results were the best since 2000. Graham says that healthcare continues to show the strongest growth.

Diamond asserts that WSW's consumer practice is rebounding. "I think what is happening is the consumer marketers are continuing to reach out and develop new products, he says. "We are also seeing much more consolidation there, with companies making regional or continental marketing efforts which a firm like ours, candidly, can take advantage of."

Public affairs work is starting to pick up again for some firms on the issues management and lobbying side, but partisan wrangling and a continued focus on September 11-related issues means it is still struggling. The technology sector is still stagnating almost universally. The recent spate of IPO postponements is further evidence of the continuing struggles in the financial practice areas.

In the past year, agencies have had to find a new balance between maintaining existing clients and aggressively pursuing new business opportunities.

"As an agency, we are placing an increased emphasis on new business development, and a lot of our key people are focused on that, agrees Graham. "We are going about it in a more organized way than we have in the past, and that is a response to the recessionary issues."

But in an obstinately difficult economy, agencies are more anxious to prevent clients from looking elsewhere than ever before. "Like all agencies, we are supporting those sectors that still have growth in them, says Paul Taaffe, president of Hill & Knowlton. "But the reality is there is so little new business out there of any size and substance that we don't already have a conflict with. Our priority is with our existing clients. To that end, H&K appointed a chief client officer responsible for maintaining service standards.

PR agencies that are facing their own challenges in a tough market find opportunities to help other companies do the same. "We are seeing an awful lot of big projects around restructuring, government enquiries, and Chapter 11 issues, says Taaffe. "Companies are looking for someone to help them make these very complicated issues easy to understand."

The problems of missed earnings and layoffs must seem relatively simple to contend with compared to the issues facing companies like WorldCom, Qwest, Andersen, Tyco, and Martha Stewart. Senior corporate management has been implicated in everything from personal tax evasion to insider trading to fraud. Trust between stakeholder groups from investors to employees has eroded.

In the midst of the very real issues of fraud and deception, the vast majority of companies are becoming increasingly fearful of a media that is perceived to be intent on rooting out troubled management. Add to that politicians jockeying for the high ground ahead of mid-term elections, and it is a recipe for paranoia.

"There is very clearly a political agenda that says if in doubt do something, and at the moment, in the current media and regulatory environment, it is guilty until proven innocent, Taaffe says. "The Securities and Exchange Commission knows that the court of public opinion is almost more important than the legal courts."

The combination of intense public scrutiny and regulatory changes would seem an ideal moment for PR practitioners to press their case for greater involvement in senior management decisions. "There will be substantial opportunities for execs to understand the fragility of a reputation or a corporate brand. This is probably a very teachable moment for the C-suite, agrees Clarke Caywood, professor of integrated marketing communications at Northwestern University. "Sometimes people think PR is 'call as we need them.' For the companies that handle it correctly, it will presumably teach that PR is a core member of the management team because defending and preserving your reputation is a core management process."

Some in the industry see the current problems as an unprecedented opportunity to advance the significance of PR. "I've been in this business a long time now, and nothing compares to this, Graham says. "I think it represents a sea change in the way corporations look at their reputation and understand that once the reputation goes they don't have anything. The whole importance of corporate reputation has increased dramatically throughout all of this."

Can PR solve the problems?

There is solid evidence that PR is gaining a greater degree of prominence in companies under scrutiny. Enron, which has become the poster child of corporate malfeasance, recently promoted its VP of corporate communications to managing director and a seat on the management committee. WorldCom heralded a new commitment to stakeholder communications only weeks before the extent of its problems were made public.

Others point out that even the best PR counsel could not solve the problems of companies that have acted illegally. "Many of these implosions appear to be caused by fraudulent behavior, and that doesn't do anything for PR, Diamond asserts. "PR is not going to solve the issues for anyone engaged in fraud."

But just because corporate reputation is top of mind in the C-suite, it does not necessarily follow that the PR industry will be elevated in the organization. In order to add value, PR professionals need to continue to demonstrate a comprehensive understanding of business practices.

"If you don't know how financial statements work, how the reporting of sales is done, if you don't understand the business of business, which PR people have been accused of for too long, this is the time to step up and be able to demonstrate competence in this area because the corporate survivor depends on it, Caywood says.

Agencies also need to continue to push for greater adoption of meaningful measurement standards by clients. "They don't really exist or are discounted, Taaffe says. "There is a growing awareness that there is completely insufficient metrics to help clients understand why they should care about PR. Even companies that pay for elaborate data often fail to apply the intelligence in any significant way.

The problems that erupted between Enron and Arthur Andersen raised serious questions for all service providers. Corporations seek partnerships with ethical companies. PR agencies cannot afford to be less vigilant than accountants even if the industry does not experience the same regulatory scrutiny. But like the cobbler's children that have no shoes, PR agencies may neglect to apply their own strategic council to themselves.

"I think to a certain extent companies are looking to make sure they have good partners, Ostrowski says. "Total transparency is going to be the norm with your constituencies. She says that Porter Novelli is offering its employees more financial training, and that communicating with them on the state of the business, the industry, and clients has become a bigger priority.

Discussions about intensifying internal communications efforts are happening across the industry, says Kathy Cripps, president of the Council of Public Relations Firms. "Many of the CEOs that I have spoken with have talked about how they need to be sure their house is in order, and it is important to them. As we look at what's happening to clients, senior management of the firms are realizing they need to look inward as well."

TOP 20 AGENCIES IN THE UNITED STATES

Rank Agency Name                            Income (dollars)           %
2001                                          2001           2000  chnge
1    Weber Shandwick Worldwide         283,084,398    358,202,702    -21
2    Fleishman-Hillard                 263,345,095    262,406,498    0.4
3    Hill & Knowlton                   190,931,000    174,363,000     10
4    Ketchum                           161,425,000    143,779,000     12
5    Edelman Worldwide                 152,385,810    167,485,878     -9
6    Burson-Marsteller                 150,417,000    182,259,000    -17
7    Porter Novelli International      116,764,000    135,888,000    -14
8    Ogilvy Public
     Relations Worldwide                94,904,500    129,063,800    -26
9    GCI Group/APCO Worldwide           85,434,598     87,520,051     -2
10   Golin/Harris International         81,897,283    107,905,495    -24
11   MS&L                               79,926,519     80,390,676   -0.6
12   Ruder Finn Group                   69,890,000     75,574,000     -8
13   Incepta (Citigate)                 63,392,291     79,271,575    -20
14   Waggener Edstrom                   57,237,800     56,162,000      2
15   Brodeur Worldwide                  39,601,900     53,500,000    -26
16   Cohn & Wolfe                       33,785,000     41,945,000    -19
17   Euro RSCG Corporate
     Communications                     33,585,526     23,325,000     44
18   Cordiant Communications
     Group                              22,914,000     28,939,000    -21
19   Rowland Communications
     Worldwide                          20,437,000     26,033,000    -22
20   Text 100 Public Relations          15,004,479     13,003,773     15

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