From the editor-in-chief: Edelman’s u-turn on cuts leaves him red-faced but we should avoid schadenfreude

Richard Edelman’s described his decision yesterday to cut seven per cent of his agency’s global workforce – nearly 400 people - as "heart breaking" and the hardest decision he’s had to make in 23 years’ leading the PR firm.

From the editor-in-chief: Edelman’s u-turn on cuts leaves him red-faced but we should avoid schadenfreude

One doesn’t doubt that it was. I’ve known RE for fifteen years and he’s a man who tends to wear his heart on his sleeve. Speaking on the phone yesterday, he sounded genuinely shaken.

Compared to the cuts we are seeing from some sectors during this global pandemic, a single-digit reduction in workforce doesn’t read as particularly dramatic. But what makes this move particularly ‘gut wrenching’, however, was Edelman’s personal reassurance, made only two months’ ago, that the jobs of his 6,000 employees would be protected during the crisis.

When Edelman made that reassurance at the end of March, some praised his ‘leadership’, although many PR bosses from other agencies privately expressed their surprise that he could make that call without knowing how the crisis would develop.

And indeed, since the Edelman news yesterday afternoon, a number of PR leaders have been expressing their ‘I told you so’ sentiment, some doing so publicly.

“You have to wonder why a professional comms agency made itself a hostage to fortune in the first place,” said one.

PRWeek’s own industry analysis two weeks’ ago had already begun to question whether Edelman may have been regretting his promise made so early in the crisis.

And there was a report in early May that Edelman in Australia had made 15 out of 80 jobs redundant but it responded that this ‘restructure’ had been planned pre-COVID-19.

It now seems Richard Edelman, who employs more PR professionals across the world than any other executive, had been sticking much too closely to his experience of the past two recessions during the 2000s (the post crash and then the financial crisis) in which he steered his eponymous agency through the downturns without significant job losses.

At least he was honest enough yesterday to admit this mistake. “Danny, we really did everything we could to maintain staff levels but sadly the playbook of 2001 and 2008 didn’t apply here” he told me yesterday.

Was it that some clients had simply stopped spending the longer the crisis went on? He wouldn’t answer this directly, instead responding: “Sectors such as hospitality, aviation, automotive, energy are obviously undergoing a protracted recovery.”

But there are two reasons why rival comms leaders should avoid too much schadenfreude over Edelman’s very public u-turn, tempting though that may be.

Firstly, Richard Edelman is someone who does lead from the front, who displays an authentic and dedicated passion to his business. Was he rash to guarantee jobs at the beginning of this crisis? Possibly, yes, but he sincerely believed he could at the time, and now accepts that he called it wrong.

Edelman even came clean yesterday on the fact that his firm had been operating on profit margins of 11 per cent in March but today this has slumped to "a slight net loss" with cash reserves now being used up.

Second - as the world’ biggest PR agency, and a privately owned business - Edelman is the ultimate bellwether of this industry; which means if this firm is forced into substantial cuts, it suggests the wider sector is suffering a prolonged downturn.

Most significantly, Edelman said yesterday, “we’ll review the situation at Christmas,” implying he sees little chance of a notable recovery in aggregate comms spend before the end of 2020.

This chimes with what other agency bosses have told me privately of late. There may still be a sharp recovery from this downturn, but it’s unlikely to be a classic V-shape; more like a ‘U’.

“There are some areas of our consultancy business that continue to outperform, such as capital markets work, healthcare, tech and public affairs, ” insisted Edelman yesterday, “but not enough to offset the other work lost.”

Indeed the cuts will have been most keenly felt in big brand promotional spend.

It should be noted that Edelman lost a single social media account worth around $10m in early May, a decision, however, that probably had little to do with coronavirus because the account was shifted to WPP’s Wunderman Thompson.

The irony is that Edelman has been more exposed to such big budget brand work since 2014 when the firm’s eponymous boss embarked on a drive to create a ‘communications marketing firm.’

Does he regret that now? “No, I’m deeply committed to that strategy. Indeed it’s difficult to separate both sides (classic corporate PR and brand work) any more; our teams are highly integrated. The media have become less important, therefore so has traditional PR. We had to transform.”

That said, Edelman admits that the current wave of cuts is less likely to fall on specialist consultants in the areas of public affairs or corporate/financial, with this work looking so buoyant.

One marketing agency boss told me: “I think he’s done this in a good way but it is quite a turnaround; from ‘no cuts’, to substantial redundancies eight weeks later. He says in the statement that Edelman is ‘debt free’. Could a company of this size have borrowed the money necessary to save these jobs for another six months if a longer term recovery was on the cards? Possibly. It’s certainly a blow to Edelman’s stated long-term aim of hitting one billion dollars in revenues.”

If one looks at the big industry picture, however, Edelman’s announced seven per cent headcount reduction is much in line with cuts recently announced by other large PR networks, such as Weber Shandwick, Golin and Hill+Knowlton.

Like these other agencies, Edelman announced that many remaining employees would take salary cuts, ranging from five to 20 per cent.

Even so, when compared to other sectors – such as advertising, for example – if PR firms can get away with an overall 10-15 per cent cost reduction during 2020, the industry would have escaped relatively lightly.

One therefore remains hopeful for PR’s fortunes during this crisis. Agency bosses are reporting growing confidence, as the PRCA survey showed earlier this week.

I put it to RE yesterday that seven per cent headcount cuts was not catastrophic compared to some industries. He replied, again to his credit, sounding genuinely regretful: "It's enough for Edelman..."

The Edelman news certainly shows we are not out of the woods yet, but there are enough shafts of light breaking through to remain cautiously optimistic.

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