ANALYSIS: PR practitioners rank the effect of Sarbanes-Oxley

Last July's signing of the Sarbanes-Oxley Act has significantly changed how PR firms are ranked. Andrew Gordon speaks to top PR pros to survey the industry's attitude.

Last July's signing of the Sarbanes-Oxley Act has significantly changed how PR firms are ranked. Andrew Gordon speaks to top PR pros to survey the industry's attitude.

The decision by many of the holding companies not to release revenue figures for their operating units has generated a great deal of discussion within the industry. The following are comments by some key professionals on what impact, if any, the decision will have. ----- John Graham CEO, Fleishman-Hillard The obsession with size and rankings in our industry, as well as throughout the business world, is in some quarters more about competitive vanity, and less about quality of service and true indicators of reputation. In some ways it is a bad thing, given that some major corporations tried to financially engineer their size and market cap to win bragging rights over their competitors. Some engineered themselves right into oblivion. Our ranking in the Harris/ Impulse Survey has always been the most important indicator of our reputation, not the revenue rankings. We have always believed that our true market position is in the minds of our clients. As long as they think we are the best solvers of their problems, our relative size is less important, especially since on most days we operate as 80-plus different offices in one well-connected, culturally- and values-bonded organization. Our rise in revenue rankings has been a consequence, and not a goal, of our strategies for success. (These comments were part of an internal memo to Fleishman staff members.) ----- Lou Hoffman President, The Hoffman Agency Let me try and get this straight. Enron melts down. The Tyco CEO loots his company. Then the SEC establishes new financial disclosure rules to ensure companies come clean with the public ... which causes the Omnicoms and WPPs of the world to conclude they can't release revenue numbers of their individual PR firms. Huh? It's obvious the agency-holding companies have put their own creative spin on Sarbanes-Oxley to justify their decision. A recent story in a marketing trade title mentioned that the CEOs of Omnicom, Interpublic, and WPP huddled to discuss the issue among themselves. I can imagine the powwow culminating with the "brilliant" brainwave: Blame the lawyers for not letting us release the information. This way, no agency takes a hit for declining revenue, and everyone looks like a winner. The unfortunate part of the decision is it hurts the PR industry. The rankings serve as an advocacy and marketing tool for the profession. Also, within the industry, the rankings provide a means to keep score, to see who's growing, and who isn't. Here, The Council of PR Firms has done a commendable job of defining the rankings so the figures compare apples to apples. Unfortunately, without the participation of agencies in the holding companies, the rankings become useless. If the rankings go by the wayside, it won't change how we conduct business and, what ultimately counts the most, client service. It's just a shame that our leaders with the biggest pulpits chose a shortsighted course over what's best for the industry. ----- Andy Lark Vice president, global comms and worldwide marketing, Sun Microsystems This will have negligible to no affect at all on the PR industry in terms of how a communicator selects an agency. Revenue was useful information for investors, and it was interesting to track the PR assets of the holding company. But revenue doesn't tell you anything. It's just one of the indicators of health. But profitability or revenue-per-employee is a better indication of how an agency is doing. The rankings didn't give you that much insight into the true performance of the agency. Some firms choose not to grow. Revenue has never been a good indicator of an agency's success. As for Sarbanes-Oxley, it's transforming the way corporations communicate with their investors, and the PR industry is oblivious to this. PR agencies don't realize how this is impacting their clients and the way they have to talk to shareholders and investors. I don't see this reflected in the way agencies are working with their clients. ----- Morgan McLintic Vice president, Lewis PR The industry league tables have historically been more about market positioning than a mechanism to report financial performance. It's therefore no surprise that the spin put on figures stops when the SEC comes along with a sharp pencil it likes to poke in unpleasant places. So now the conglomerates must just sit there like a huge amorphous blob. I pity the agency heads working hard within them. How can the market see their success? More importantly, how can clients see their performance? They probably can't - they have to be content with dealing with part of PlasticInterCom, which grew 2% last year. Of course, as the mercury beads of conglomerate agencies combine, smaller global players, like Lewis PR, will move up the charts. And whoopee for that windfall. But how can I tell how we fared compared to my regular sparring partners if they're forced to team up in the tables? It's like all the recording artists of EMI having just one position in the music charts. How do we know who's popular? Which ones are setting the industry firsts, and pushing our industry forward? Well statistically, we can't. ----- Dave Samson Vice president, international corporate comms, Oracle Having spent more than 16 years on the client side, I have never hired an agency based on annual billings. The notion that the largest agencies are the best ones is an inaccurate metric to measure PR firms by. You should judge them by their philosophy, how they service your business, the kind of people they hire, how they work across offices. Actually, Sarbanes-Oxley will be fine if it helps us focus on metrics that allow us to determine how good or successful a firm really is. Hopefully, we'll be able to judge the agencies on more even footing. But it will be harder for people to get a sense of the industry's health, and more difficult to identify patterns. When Silicon Valley fell off a cliff, you saw the bottom open up on the West Coast agencies. It will be harder to see those kinds of trends. And if some agencies are not giving numbers, they might not be as forthcoming on what parts of the business are down. It will also be harder for agency heads to have a macro picture of their industry. They will know what's going on in-house, and maybe at other firms in their holding company, but not at the other agencies. Hopefully, people will look at your client list more. You might just see the whole notion of customer references become more important in the PR industry. ----- Sam Singer President, Singer Associates In reality, non-disclosure by PR holding companies will have little to no real effect on the industry. Clients don't choose firms based upon size of billings - they pick agencies based on quality of work and reputation. That being said, the holding companies' decision makes it harder to separate the truth from fiction when it comes to determining the actual billing and size of firms, and, ultimately, their financial success at the local, regional, and national levels. As an independent regional firm, it's nice to be able to measure one's financials against the large national and multinational shops. However, as the saying goes, the best competition is against oneself, not others. Ironically, the decision is a poor PR move by the large firms. We are in an era in history that values public disclosure. The PR industry, for the most part, has historically shown its financial success through agency rankings. The intent of the Sarbanes-Oxley Act was to bring more clarity, not less, to the public and investors.

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