The agency kickback scandal you couldn’t make up if you tried

One staple theme yet to make its appearance in our favourite TV soap, Mad Men, is the celebrated agency kickback. No doubt it will in time.

But why wait for the soap when you can have the real thing, authentically reproduced in verbatim court transcripts?

I refer here to a protracted States-side legal case which Grey Advertising Group has just lost after attempting to suppress the evidence for a decade.

And what a very unedifying picture that evidence paints. Internal memos and personal transcripts reveal an agency whose senior executives were steeped to the gills in a conspiracy to deny major clients Procter & Gamble, Mars, British American Tobacco (BAT) and SmithKline Beecham (now GlaxoSmithKline (GSK)) about £4m that was rightfully theirs.

Before going any further, you’ll appreciate that I have to flag up a legal health warning. All these events took place a long, long time ago – up to 20 years ago in some cases. Almost all the protagonists have now quit the business. And at that time WPP, which now owns Grey, was no more than an expletive uttered by Grey supremo Ed Meyer – who then held the agency lock, stock and barrel – every time he lost an account to JWT or Ogilvy.

Also, I’d like to point out that what follows is a very much abbreviated version of a story recently broken by my fellow blogger Jim Edwards, whose detailed account can be found here.

Now back to the script. The scene is Grey’s London office, then at the top of Great Portland Street, circa 1998. New American ceo, Steve Blamer (left), has just arrived to take over from long-serving managing director Roger Edwards. An increasingly incredulous Blamer is updating himself on the agency’s financial position, with the help of chief financial officer Roy Wilson:

Blamer: P&G is that much?

Wilson: Yep.

Blamer: Jesus… I’m telling you, the reality is you as the financial officer and me as the ceo and now Roger (presumably Edwards) could be sued. I mean, we’re cheating and stealing from our clients. That is the truth.

And later…

Blamer: I believe we should return these discounts. I’m not going to, I can’t make that decision unilaterally…If those guys (senior management, in New York) say that we’re not going to do it, and we can keep the discounts… then I say, fuck it that’s crazy, send me a note, I want a ‘Get out of jail free’ card.

Of course, handing back the discounts – mostly from print contracts – would open a whole new can of worms; as Edwards was quick to explain, citing one client in particular.

Edwards: Mars is such a vitriolic client, that if they did catch you doing that they would probably punish you very severely. They would take you back years, take a brand off you or something like that.

Not surprisingly, everyone decided to stay mum. But they did change the terms of business, so that future discounts would be rebated to the client.

You might ask yourself why clients were not better informed about what was going on. After all, it was their money. The answer seems to be Three Wise Monkeys syndrome. Indeed, even those party to what was going on within the agency were baffled by clients’ seeming ignorance, or indifference.

Blamer: Have they [clients] ever discovered that in an audit?

Wilson: No.

Blamer: And why is that?

Wilson: …I mean to be honest one has to be a bit surprised that none of them have ever specifically, eyeball to eyeball… and then asked the question, since it’s a clause in every one of our contracts, but…

In view of this circle of deceit and self-deception, it might seem surprising that anything ever came to light. The weak link, indirectly, was Wilson, who rightly feared he might be made a scapegoat and had the conversations taped and transcribed as an insurance policy should he ever get fired. Which he later was.

The case of Grey is, of course, no isolated instance, merely a well documented one. Currently, there is a still-breaking media-buying scandal in China – involving broker kickbacks – which has already claimed the scalps of Vivaki Exchange’s two top China operators. Earlier this year, Aegis Media finally put the so-called Aleksander Ruzicka affair to bed, when it settled €30m on Danone in lieu of unpaid TV advertising rebates. And going back a few years, readers may remember Interpublic’s belatedly generous settlement on clients of media volume discounts, whose non-payment had come to light as a byproduct of the accounting scandal that engulfed the group at the beginning of this decade.

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One Response to The agency kickback scandal you couldn’t make up if you tried

  1. [...] (DSPs). But at heart the issue is simple. It’s exactly the same one aired in one of my recent posts on a historic kickback scandal at Grey Advertising. It’s about playing the agency client for [...]

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