Agency Management: As PR consolidates client conflicts divide - As the PR industry consolidates and client brands diversify into different sectors, Chinese walls within agencies are becoming more important, but their confidentiality is not always trusted

Last week Hill and Knowlton reluctantly pulled out of a lucrative contract for Toronto 2008, the city’s bid to host the Olympic games, because of a conflict of interest with its existing client, the International Olympic Committee. The dramatic exit questions the effectiveness of so-called ’Chinese walls’ and puts the issue of client conflict in the spotlight.

Last week Hill and Knowlton reluctantly pulled out of a lucrative

contract for Toronto 2008, the city’s bid to host the Olympic games,

because of a conflict of interest with its existing client, the

International Olympic Committee. The dramatic exit questions the

effectiveness of so-called ’Chinese walls’ and puts the issue of client

conflict in the spotlight.



When H&K was shortlisted for the pounds 1.3 million account, observers

immediately attacked the move. Questions were raised over the logic of

the IOC giving H&K the green light to bid to represent Toronto 2008,

given the on-going scandal surrounding Salt Lake City 2000. The agency

brought in to help repair the IOC’s reputation following the scandal was

now generating further criticism.



Toronto was keen to appoint H&K, as the agency had run the PR for

Athens’ successful bid to host the games in 2004. The agency stated that

it would erect a Chinese wall, having separate teams, one in New York

and one in Toronto, working on the accounts.



A former judge, Justice Charles Dubin, was asked by the Toronto 2008

executive committee to look into the issue. In mid-March, Dubin

presented a recommendation that H&K could only handle the Toronto bid if

it resigned from the IOC account.



Three weeks later, however, H&K confirmed that the agency had been

appointed by Toronto 2008, while retaining the IOC account. Toronto 2008

denies that H&K was ever formally appointed.



The news was picked up by the national media in the US, and on 12 April,

days after confirming its appointment, H&K resigned from the Toronto

account.



As media giants like Interpublic, Omnicom and WPP Group continue to buy

up PR agencies - Shandwick was snapped by by Interpublic last year,

leaving Edelman PR Worldwide the only independently owned top ten agency

worldwide - conflicts of interest are a growing hazard for PR firms.

Only last month, Shandwick picked up financial PR work from a potential

conflict of interest between two agencies owned by Chime Communications.

Shandwick was appointed by City property firm Greycoat formerly

represented by Smithfield Financial, which was fighting off a hostile

bid from Delancey Estates, which retains Bell Pottinger.



According to Bell Pottinger founder and Chime Communications chair Lord

Bell, ’the vast majority of (major) communications businesses are now

owned by three or four large groups, and clients are recognising that a

rigid conflict policy is actually restricting their options.’



Alex Young, PR manager at AAR, a service which helps clients select

agencies, points out that agencies are running up against new conflicts,

caused by the diversification of companies into sectors they previously

did not provide services in. This is true particularly of supermarkets

and utilities: Sainsbury’s now sells financial services, and London

Electricity is now selling gas. ’Areas of conflict are expanding now as

brands expand their portfolios,’ she says.



Bell believes Chinese walls can be effective, but warns that agencies

have to demonstrate the structure and police the process. Chinese walls

range from simple office partitions to, as H&K proposed to the IOC,

separate teams in different cities.



Larkspur director Matt Fearnley disagrees with the principle. ’Human

nature dictates that people who work together talk together,’ he

says.



’If you are any good as an agency, you will talk to each other.’



Tony Langham, who runs specialist financial services agency Langhams,

comes up against potential client conflicts regularly because of his

specialism.



He believes the key is a flat structure, with several senior directors,

each of whom have distinct account teams.



He believes the teams are quite capable of discretion. ’PR people live

every moment of the day with information that should only be released to

certain people,’ he says.



Direct Line head of press relations Chris Wermann believes in Chinese

walls, but advises that in the case of mergers and acquisitions,

separate agencies should be used to ensure the agency’s top team is

working on your account.



Detergent giant Proctor and Gamble has a strict policy towards PR

agencies and conflicts of interest. It operates in pre-defined areas,

including health and beauty and laundry and cleaning. According to P&G

health and beauty public affairs manager Andrea Witty, the company will

not hire agencies already working for other clients in those areas.



Conflicts in consumer PR arise mainly when firms go head-to-head against

each other and often arise in highly competitive markets where brand

identity is at the fore, like Sky Digital against OnDigital, Persil

versus Ariel, BMW fighting Mercedes.



The hi-tech sector has seen many conflicts of interest and agencies have

often opted for launching second-string agencies to keep the business

within the group. Text 100 launched Joe PR last year to target the

consumer market, but its managing director Matthew Wood says Joe PR is

not restricted from pitching for competing clients. For example, Text

100 handles PR for computer games company Electronic Arts while Joe PR

has just won an account to promote rival LucasArts.



Client conflict is an issue set to grow as consolidation in the PR

industry continues and as brands diversify their offerings. The cost of

setting up second string agencies can sometimes pay off and Chinese

walls are often satisfactory although, as H&K discovered, they do not

always give the appearance of propriety, even if they work in reality.

As Bell says: ’Conflict is like beauty - it’s in the eye of the

beholder.’



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