November was a tough month for Interpublic Group (IPG), the world's second-largest advertising group. After the company had to revise its earnings from 1996 to 2002 for a third time in four months, the SEC decided to investigate the company's accounting. The accounting irregularities were traced to improperly expensed activities by various European offices at McCann-Erickson World Group, IPG's largest division, when working for the same global clients.
In light of the unfortunate and embarrassing series of earnings restatements, CNN (November 14) reported that IPG was forced to do a "hard sell" that the company was making progress in cleaning up its accounting missteps. In fact, Media Watch did find widespread statements from IPG executives to the effect that the worst was behind it. However, the impact of these statements was debatable, as there were also a number of reports suggesting that the company and its chairman, John Dooner, were "fighting a credibility problem" (BusinessWeek Online, November 22).
David Doft, an analyst at CIBC World Markets, has been an influential figure in helping to shape IPG's coverage over the past month. In the sample of coverage analyzed by Media Watch, journalists quoted Doft's assessments of recent IPG events in slightly less than half of the coverage. Doft told Dow Jones (November 19), "Whenever the SEC gets involved with a company, it becomes an incremental overhang on the stock."
IPG's coverage also publicized the fact that it is searching for a COO. Doft and other third parties greeted this news positively. Doft told The New York Times (November 14), "A good chief operating officer who could step up the oversight of the moving pieces would be welcome."
A number of reports went into more detail to specify that the restatement was three times as large as what had been originally announced back in August, when the discrepancies were first noticed. During November, industry analysts were troubled by a number of items related to the restatements. The two factors that concerned analysts most were that the errant charges had occurred over six years and hadn't been noticed sooner, and that the improper accounting had been used as recently as the second quarter of 2002. The fact that the accounting was not better integrated across the advertising behemoth led some to question whether IPG had been able to digest all of the acquisitions it had undertaken over the years.
Reuters (November 14) quoted an analyst at William Blair on the overall impact of IPG's bad publicity: "The series of bad news reinforces our belief that Interpublic's management does not have a firm enough grasp on the operations of its agencies in this difficult environment. We are concerned that the negative publicity and heightened financial focus will continue to distract management and impact the company's ability to win and retain clients."
Judging from the media's coverage of IPG, the road to recovery will be a long one. Reporting suggests that ad industry experts and Wall Street analysts are predicting that IPG will need to notch several quarters of solid numbers on new-business wins and cost-cuttings, coupled with an absence of new surprises about its accounting policies, before the company's credibility is reestablished.