There was a febrile atmosphere in the halls of Madison Avenue on Tuesday. PR departments were crafting carefully worded press statements, lawyers and financial analysts were studying every last word of a 58-page paper prepared by K2, the "originator of the modern corporate investigations industry," which — if you believe Business Insider — was going to "lead to jail time." Some people were undoubtedly nervous.
On Wednesday morning we woke up to discover that the world was still rotating and the report was nowhere near as impactful as billed. The criticism of the report, in my view, is broadly fair, as the ANA missed a huge opportunity to call out offenders and clarify the issues. There is no doubt that trust is being challenged between clients and agencies, and the report by K2 (which is a well-respected firm, by the way) highlights some of the behaviors that, if proven, would make life very uncomfortable for the agencies involved. The trouble is we simply don’t know which ones are in the firing line because that wasn’t the purpose of the paper. So in the end we all suffer.
To be clear, we do need transparency on transparency, this just isn’t it. And to those of you who think the issue will go away, you are missing the point.
The paper covers wide-ranging subjects from rebates to arbitrage. But I think the real insight was right at the start of the piece, and it essentially sums up the problem at hand. Clients believe that agencies are duty-bound not only to act in their best interests (no argument there), but that there is a "fiduciary duty" that "extends beyond stated terms in their agency contracts." This is where things get tricky, because it begs the question: "What are the KPIs they are being held to?"
You know pretty quickly what the relationship is going to be like if you are described as "the supplier" and the motivating KPIs are focused on price and productivity. Supplier/client relationships are bound to be driven by contract compliance, and this is where agencies start to get into hot water, because they often "sell" on relationships and perform on scope. I have to say, if that’s the way you treat your agency, don’t be surprised if they live by the book. What you really want is a balanced scorecard of KPIs so that the relationship is fair and there is enough flexibility to make sure that you can go "beyond stated terms in their agency contracts."
By having a business model that doesn’t include arbitrage or rebates, you have to ensure that the commercial relationships between client and agency work for BOTH parties. If an agency doesn’t have the pressure to look for other sources of non-transparent revenue to make up for the inbuilt losses in the core contract, it means that relationships are focused on how to grow the clients’ business. If you are a client and you want crazy payment terms or 0% profit margins, then don’t be too surprised if you get nothing beyond the very tight terms of the contract. If you are the agency and you accept them, good luck dodging the fire over the coming weeks.
You get the behavior you design for — that is true for both agencies and clients, it’s just a shame this lesson was hidden in 58 turgid pages.
Martin Cass is CEO of Assembly & MDC Media Partners.