ANALYSIS <b>2004 Agency Rankings</b>: Debate over firms nearing end as PR enters a new era

Though independent firms show their strength in the 2004 agency rankings, it could be time to end the debate over whether they or owned firms hold an edge. This year's agency rankings, in the 2004 Agency Business Report (found in the center of this issue), are in some ways a celebration of independence. They feature a parade of 203 agencies not bound by the withholding of financial data imposed by holding companies on their firms due to the parents' interpretation of Sarbanes-Oxley.

Though independent firms show their strength in the 2004 agency rankings, it could be time to end the debate over whether they or owned firms hold an edge. This year's agency rankings, in the 2004 Agency Business Report (found in the center of this issue), are in some ways a celebration of independence. They feature a parade of 203 agencies not bound by the withholding of financial data imposed by holding companies on their firms due to the parents' interpretation of Sarbanes-Oxley.

The results show that this is an industry still grappling with the impact of the downturn. But firms like Campbell & Co., with 14% growth, Chandler Chicco, with 12% growth, and CKPR, with 17% growth, defied the odds last year. Smaller firms like Sonshine Communications, The De Moss Group, and Thorp & Co. also posted impressive gains. It is a truism among independent firms that they were better able to weather the downturn. Pam Talbot, Edelman's president and COO, says that a holding company might have restricted the firm's ability to invest in new products and training programs during the rough times. "We have the flexibility to make decisions that are not just profit based," she says. "It's hard to serve [both] your clients and a corporate owner effectively at the same time." CEO Richard Edelman agrees. "We've been able to keep our geographic footprint pretty much intact," he says, adding that owned agencies had a tougher time doing the same in the downturn. "Also, we've been able to continue to invest in our intellectual capital, such as our Trust Barometer. We've always tried to continue to innovate." A new era for firms Both Talbot and Edelman echo familiar sentiments about the relative viability of the two primary business models in PR. The debate over whether independent firms or owned agencies have an advantage over each other has been around forever, with something of the moral highroad typically belonging to independents. After all, this is an industry forged by entrepreneurs, so a strong resistance to the oversight of a parent company, and all that implies, is understandable. But there are signs that the industry is entering a new era now and it might be time to put this ancient argument to rest - or at least replace it with questions that get to the nuances that differentiate a truly great agency from one that merely gets by. Also, as some of the big owned agencies hint at more acquisitions in the future, the question of how to retain a sense of individuality within a holding company becomes relevant for more and more firms. The perspectives at the heart of the debate have not really changed much over time. But it's really the cultural issues that ignite the most passionate rhetoric from the independent firms. There is a strong feeling that somehow ownership restricts the attributes that made the firm special in the first place. "We like the independent nature of what we're doing," says Scott Widmeyer, chairman and CEO of Widmeyer Communications. "We built a family, and it feels like a family. There's a sense that you give up some of your freedom and flexibility." The "family business" roots of many firms also inform the staunch independence of agencies like Schwartz Communications. "Family-held businesses are one of the oldest forms of business, and when you have a closely held company like that, you are able to make decisions very quickly. It is much more agile than any other structure," says CEO Steve Schwartz. MaryBeth Belsito, president of Belsito & Company and an evangelist on this topic, says that owned agencies do not have the freedom to carve out their own culture. "The truth is that we have been approached by other companies four or five times, and that is where we always end up hesitating," she says. The motivation for selling may be largely financial for many firms, but Belsito admits that there might be another factor. It's just hard to sustain that level of passion for a firm when you have to worry about everything from the light bulbs to the biggest clients. "When you are independently owned and your name is on the door, that's a seven-day-a-week job, and sometimes its 18 to 20 hours a day," she says. "There are times when that takes its toll, and you wonder if that really ever goes away. When I've been tempted to explore [selling the agency], it's been for those reasons: to lift the burden and share it." The main differences That very passion over the issue of culture that this topic provokes among un-owned agencies is a point of delineation between the two types of firms. Cast a net for agencies willing to speak on this topic and the independents come in droves. Only a few owned firms choose to speak to it, which might have less to do with the strength of their convictions than the belief that the debate is tired and not worth bothering to engage in. But some recent reviews probably have more holding-company firms thinking about how they differentiate themselves, within agencies and also within the larger agency world. Pfizer's request that the three top holding firms present "best of class" teams across brands for its cardiovascular drugs resulted in a WPP win, led by Cohn & Wolfe. The marketing community, sans PR, is currently awaiting the results of the HSBC pitch, which was also designed to tap the best brains across brands. But even independents talk about calling on their full resources to service clients in new ways (a topic that is explored further in the main feature in the Agency Business Report). "We very successfully launched a low-fare airline last year," says Sean Cassidy, MD and president of Dan Klores Communications. "Our team consisted of professionals drawn from several different DKC business units, including hotel and hospitality marketing, travel, food ... and, of course, airline. The exposure for the client and the positioning was reflective of the multidisciplinary approach." Agency networks like Worldcom and Iprex also are designed to help create partnerships, while other firms focus on forging relationships with marketing disciplines of all kinds. Among the other advantages owned agencies claim is a greater ability to draw on resources across their networks. "The reality is that clients are looking for resources in numerous practice areas, across geographies, and for depth of talent," says Weber Shandwick CEO Harris Diamond. "Holding companies have a greater ability to bring those resources to bear. That's the reason I sold." The perception that holding companies will exert great, debilitating pressure on agencies that are not performing is one of the most pervasive going and one that likely gives many independents pause about selling. Howard Paster, WPP director and EVP of PR/public affairs, says that "agencies that blame their parents for their problems are passing the buck. The parent doesn't cause problems. People want to pass the blame and not accept responsibility." The firm being acquired, others suggest, must take responsibility for ensuring that the cultural negotiation is as important as the financial one. MWW Group, seemingly, has managed to hold on to its culture despite being acquired. The firm, which sold to Interpublic in 2000, seems to be an example of how that might be possible. "I spent more time negotiating how we would operate after the acquisition than on the financials," says CEO Michael Kempner. "I negotiated significant independence for MWW. As long as we continue to perform, we'll keep that independence." Ay, there's the rub for some who wish to stay fiercely on their own. Ideal partnership schematics may fall apart as soon as the economy does. But focusing on running a smart business, and not just servicing clients, has become crucial for all firms, regardless of ownership or size. Given how little themes have evolved on the discussion of agency ownership and how little clients really seem to care, it might be time to call an end to this debate.

Have you registered with us yet?

Register now to enjoy more articles and free email bulletins

Register
Already registered?
Sign in

Would you like to post a comment?

Please Sign in or register.