The issue was again thrust into the industry spotlight this month when Edelman created The K Group Public Relations Company to handle PR for Kellogg's US brands. The account was originally awarded to Weber Shandwick and sister firm Current Lifestyle Marketing, but they were forced to resign it because of potential conflicts within their holding company, Interpublic Group. Although the conflicts in question weren't revealed, it's known that Nestlé and General Mills work with IPG agencies.
Asked why Edelman will create a new firm, US CEO Matthew Harrington told PRWeek last week that his agency has “a wonderful, longstanding relationship with PepsiCo and Quaker, so we definitely wanted to be certain that we respected that.”
The episode illustrates how some clients feel about conflicts, despite agency assurances, says Philip Palazzo, president and founder of the eponymous investment banking firm for the marketing services sector.
“There are some overly aggressive, even small-minded CMOs that insist on holding company clearance,” he explains. “We don't see it often, but we saw it in the case with [a client at] Interpublic.”
Yet despite the split between Kellogg and Weber, Palazzo believes most clients understand it is impossible to avoid perceived conflicts within holding companies, particularly given years of agency consolidation.
“Clients generally don't look at the holding-company level when determining if there is a conflict, although there are a few exceptions like Coca-Cola and PepsiCo,” he says. “By and large, clients look at the operating unit.”
Even at the agency level, it can be difficult to assess what constitutes a conflict. The Council of PR Firms explains in a position statement that “the fact that a member firm serves two or more clients in a single sector does not automatically present an inherent conflict of interest.” The industry group adds that management consultants, accountants, and attorneys all handle assignments from competing companies.
“However, it is inappropriate for a firm to provide services to two clients whose interests are adverse to each other on the same issue,” reads the statement, adding that firms should “move swiftly to address the matter” when such a situation arises.
The Council of PR Firms turned down an interview request from PRWeek on the topic, as did a number of PR agencies, such as Hill+Knowlton Strategies, Ketchum, Burson-Marsteller, and Edelman. Corporate PR pros from companies including Procter & Gamble, Kraft Foods, and Verizon Wireless also declined to comment.
However, Dave Senay, president and CEO of Fleishman-Hillard, said clients are “understanding that global firms must reserve the right to represent more than one company in any given industry sector.” He adds that the contract between agencies and clients has evolved from “blind and exclusive loyalty” to access to an “A-team and assets of the network.”
“This can be accomplished in a variety of ways: individual counselor exclusivity; team exclusivity; office exclusivity; regional exclusivity; use of a secondary brand; and creation of a bespoke organization,” explains Senay. “In each of these instances, clients must be assured that there are air-tight boundaries between people and key information.”
However, he adds, clients ultimately dictate how firms respond to the issue.
“Conflicts are in the eye of the beholder, or more importantly, in the eye of the client,” he says. “Clients will always have the last word on conflicts and whether remedies to mitigate conflicts are acceptable.”