GLOBAL RANKINGS 2002: North America - Reputation to the fore

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 at Enron and Andersen were bad enough - but news of WorldCom's supposed deception has practically 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 Golin/Harris International chief executive Rich Jernstedt.

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, 11 September, 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. But 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, 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 eight per cent in total revenue, from $2.88bn to $2.66bn. Layoffs were ubiquitous as the total headcount of the top 25 firms dropped 25 per cent 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 Porter Novelli chief executive Helen Ostrowski.

'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 Fleishman-Hillard chairman and CEO John Graham,adding that the firm's June results were the best since 2000. Graham says the healthcare sector continues to show the strongest growth.

Diamond asserts that WS'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 that 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 11 September-related issues means it is still struggling.

The tech sector continues to stagnate 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 balance between maintaining existing clients and aggressively hunting out new business.

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

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 Hill & Knowlton president Paul Taaffe .

'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 our existing clients,' he adds. 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 have found opportunities to help clients overcome similar situations. '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,' he adds.

The problems of missed earnings and lay-offs must seem relatively simple to contend with compared to the issues facing companies such as 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 problems of fraud and deception, the 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,' he adds.

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,' says Clarke Caywood, professor of integrated marketing communications at Northwestern University.

'Sometimes people think PR is "call as we need it". For the companies that handle it correctly, it will presumably be taught that (the) PR (chief) is a core member of the management team because defending and preserving your reputation is a core management process,' he adds.

Some in the industry see the current problems as an unprecedented opportunity to advance the status 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.'

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 V-P 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 behaviour, and that doesn't do anything for PR,' Diamond says. 'PR is not going to solve the issues for anyone engaged in fraud.'

But just because corporate reputation is top of mind in the boardroom, it does not necessarily follow that the PR industry will be elevated within the organisation.

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,' says Caywood.

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.'

It is widely believed that even companies that pay for elaborate data often fail to apply the intelligence in any significant way.

The problems that erupted between Enron and 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 who have no shoes, PR agencies may neglect to apply their own strategic council to their own cases.

'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 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 Council of Public Relations Firms president Kathy Cripps.

'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 realising they need to look inward as well,' she adds.

Canada

The Canadian economy has been affected by the downturn in the US although the impact has not been as severe as many expected.

While Canada, and Ottawa in particular, is the headquarters - or at least an important centre - for such tech or telecoms giants as Nortel, JDS, Uniphase, Adobe, Alcatel, Cognos and MDS Nordion, it did not experience the same influx of dotcom cash as the US. Accordingly, it did not suffer as greatly when the bottom fell out of that market.

Ketchum Canada managing director Geoffrey Rowan says: 'It is not that we didn't see increased tech activity during the dotcom era, but just that the craze wasn't as crazy or the funding as intense.'

But that is not to say there weren't casualties. Several small tech firms closed, while the corporate communications departments of companies such as Nortel - which laid off 45,000 of its 94,500 employees - undertook major cutbacks.

The larger agencies found themselves working hard to make up for lost tech revenues. Hill & Knowlton Canada president and CEO Michael Coates says tech PR accounted for 38 per cent of the firm's billings at the start of 2001, but now comprises just over a quarter. It was only the growth of work in areas such as public affairs that enabled H&K to remain fairly flat over the year.

This year, according to Benchmark Porter Novelli president Stan Didzbalis, business has grown modestly. 'The same caution that characterises the US market at the moment also afflicts ours,' he says.

Didzbalis says he has not noticed budget cuts, as such, but has seen few long-term projects being contracted out to agencies.

'Four of our top ten clients have actually increased their budgets this year,' he says.

'But most of the new work out in the market is very short term. The caution translates to a nervousness about commitments to future projects,' he adds.

Like Coates, Didzbalis, feels that public affairs and corporate affairs are the strongest growth areas. 'Whereas back in 2000 everyone wanted to know how we could help them grab the next opportunity, we now find ourselves increasingly asked to deal with issues, crises, positioning and reputation,' says the PN chief.

'It's gone from being all opportunity, opportunity, to being much more about protecting reputations,' he adds.

In this respect, Didzbalis notes, there may be something of a reaction to the accounting and insider dealing scandals that have rocked US investor confidence.

Coates says the increase in public affairs work is partly the result of the slow - though not recessionary - economy. 'Everyone turns to government at these times,' he says. 'Government has to keep spending and it pays its bills.' In particular, trade issues, such as the current battle with the US over its 28 per cent tariff on Canadian lumber, have proved a big boon to several agencies.

Despite these strong signs, the agency chiefs who spoke to PRWeek did not expect to see a raft of new agencies popping up. The 1990s were characterised by multinationals moving into Canada, either by acquisition or by setting up shop and hiring local staff, but with almost all of the top 15 multinationals now present in the market, it seems unlikely that there'll be too many entrants from south of the border.

'We're still seeing one- or two-person shops emerging,' says Didzbalis.

'They're normally former corporate people or agency people who wanted to go it alone. We don't expect too many new entrants, but there's certainly room for good people.'

But despite the fact Canada was shielded from most of the woes afflicting the US economy, the whole of North America had a challenging year.

US TOP 20 RANKING 2001
Rank Agency                             USA Income (USdollars)         %
01                                              01            00  change
1    Weber Shandwick                  283,084,398   358,202,702      -21
2    Fleishman-Hillard                 263,345,095   262,406,498       0
3    Hill & Knowlton                   190,931,000   174,363,000      10
4    Ketchum                           161,425,000   143,779,000      12
5    Edelman PR Worldwide              152,385,810   167,485,878      -9
6    Burson-Marsteller                 150,417,000   182,259,000     -17
7    Porter Novelli                    116,764,000   135,888,000     -14
8    Ogilvy PR 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   Manning Selvage & Lee              79,926,519    80,390,676    -0.1
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                33,585,526    23,325,000      44
     Communications
18   Cordiant Communications Group      22,914,000    28,939,000     -21
19   Rowland Communications             20,437,000    26,033,000     -22
     Worldwide
20   Text 100 PR                        15,004,479    13,003,773      15
Source: Council of Public Relations Firms




INTERNATIONAL AGENCIES OPERATING IN CANADA
 Rank   Agency                         Canada Income (USdollars)       %
01  00                                          01            00  change
1   1   Fleishman-Hillard               23,505,000    27,928,000     -16
2   3   Weber Shandwick                  8,449,000     8,696,000      -3
3   2   Hill & Knowlton                  8,393,000     8,782,000      -4
4   4   Edelman PR Worldwide             5,067,694     6,817,645     -26
5   6   Porter Novelli                   4,548,000     4,001,000      14
6   7   GCI Group/APCO Worldwide         3,314,474     3,112,296       7
7   8   Manning Selvage & Lee            3,003,126     2,926,000       3

Sources: Council of PR Firms Note: This is a list of global PR firms in
Canada. It does not include local independents

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