Neogama founder and creative chief upsets the BBH applecart by trying to sell his stake

December 19, 2011

There’s an interesting ownership conundrum facing BBH and its 49% sponsor Publicis Groupe. Here is what I have learned.

It concerns Neogama BBH, the global micro-network’s Sao Paulo agency. Its founder, president and chief creative officer Alexandre Gama wants to cash up the majority stake he owns.

Neogama, set up in 1999, is one of Brazil’s top ten agencies and quite a feather in BBH’s cap. It is creatively highly regarded and was the first Brazilian agency to win at Cannes. In fact, if my recollection is correct, it now has at least 18 Lions to its name.

The agency’s biggest single client is burgeoning Brazilian bank Bradesco, but it also plays an important role in servicing BBH global clients such as Unilever and Diageo.

Here’s an example of Neogama’s latest work for Diageo’s Johnnie Walker, which may well be a Cannes prizewinner next year. It was devised by Gama himself:

As you can see, a slick, confident peaen to Brazil, the awakening economic colossus.

BBH, seeking to increase its profile in up-and-coming Latin America, came about its minority Neogama stake in a convoluted way. Back in 2002, Neogama was 40%-owned by Chicago-based holding company BCom3 – the 3 referring to an alliance between Leo Burnett, DMB&B (now deceased) and Dentsu. BCom3 passed on a part of that stake to BBH, in which it by then held a 49%  share through Burnett. Still there? Because it gets even more complicated. Earlier that year along comes Publicis Groupe, which swallows the lot, including Dentsu’s 20% strategic stake, in a $3bn takeover deal, making it the then fourth-largest marketing services group in the world. The important point to note is that PG ended up holding a direct 49% stake in BBH, but only an indirect one through BBH in Neogama. Publicis Groupe CEO Maurice Lévy and Gama are not thought to be best buddies.

Although the subsequent BBH relationship has been mutually beneficial, Gama is known to have been hawking his stake at other agency group doors. Why now? Nine years is a long time to wait for your investment to mature, but some go further in speculating that he is worried about his agency’s dependence on Bradesco as a client.

The sense is that Gama is engaged in an act of brinksmanship with Lévy, which involves using rival groups as a stalking horse. He well knows his own worth: Neogama is far and away PG’s best agency in Brazil (and one of its best in Latin America).

However, buying him out may not prove that easy. If BBH could stump up the cash on its own, that would be the simplest and most elegant solution; but  the likelihood is it cannot. So why doesn’t the parent group just step in and sort it out? Well, PG is not a bank – it will want something in return. Such as buying a majority stake in BBH. The trouble is – PG is also Procter & Gamble’s biggest agency group. BBH is of course a Unilever agency, but the 51% majority stake held by the partners keeps the relationship at arm’s length. Even in this enlightened era of agency conflict management, full ownership of BBH might not go down at all well with the good folk in Cincinnati.

As I say, it’s an interesting dilemma. Let’s see how Gama, Lévy and BBH group chairman Nigel Bogle sort it out.

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Why Victoria’s Dirty Secret is giving Fairtrade a bad name

December 17, 2011

Burkina Faso? No, wait, it’s on the tip of my tongue – know that name, it’s been in the news hasn’t it? – Tunisian singer or something …

Wrong. It’s a small, landlocked country, dirt-poor, situated in the upper-Volta region of West Africa. And the only reason it has been in the news recently is because it is giving global lingerie brand Victoria’s Secret a bad name. By implication, it has also managed to raise profound questions about the wisdom of the Fairtrade concept.

How so? A recent exposé by Bloomberg’s Cam Simpson has revealed that Victoria’s Secret sources its cotton from plantations where child-workers, some as young as 6, are subjected to serial abuse, including routine physical beatings.

Still worse for the glossy lingerie company that has up-and-coming supermodels such as Rosie Huntington-Whiteley and Candice Swanepoel clamouring to be on its books: Victoria’s Secret has in the recent past been actively boasting about its do-gooding activity in Burkina Naso. In 2008 it launched a lingerie line that made specific mention of the fairtrade deal: “Good for women. Good for the children who depend on them.”

Here’s the glossy brand surface:

And here’s the grimmer underlying reality.

In fairness to Limited Brands, the company that owns VS, it seems to have been conned along with everyone else. Its fairtrade programme was brokered in good faith with the National Federation of Cotton Producers of Burkina Faso and arguably it has managed to produce a few tangible improvements for a labour force used to working for $1 a day, such as new school books and artesian wells.

But that’s not really the salient point of this story. The Victoria’s Secret scandal is one of a number gradually unravelling the skein of public goodwill towards the Fairtrade concept. Nike has never quite recovered from an exposé over 10 years ago of it use of sweatshop child labour overseas. More recently major retailers such as Macy’s and Costco have been accused of knowingly using “dirty gold” for their jewellery.

At very least these stories reveal a woeful lack of micro-management on the part of companies signing up to Fairtrade pacts; at worst, outright cynicism. Either way, the public is getting tired of the excuses. This reaction from Tom Mackendrick at RAPP rather sums the situation up:

It has become increasingly difficult to purchase anything and know how it was made, who was involved and if anyone was exploited. I suggest that buying American, although difficult, is one way a consumer can usually be sure of fair working conditions. Until then, consumers will continue to research and expose. Brands need to “live in the culture” and understand that they are culpable for their actions…especially in their striving for cheap labor and products.

Quite so. No member of the public wishes to feel that he or she is an unwitting accomplice of neo-colonial exploitation. On the other hand, buying American, or British for that matter, is not the solution. Yes, there might be a trade-off between higher prices and a cleaner conscience. On the other hand, shutting our eyes to “Third World” poverty is not going to make it go away. Fairtrade, as a principle, is admirable: what’s letting it down is the practice. In reality it’s very difficult to be “fair” in $1-a-day countries where simply staying alive is an unceasing struggle. Ought ‘doing good’ be limited to safe, bland and frankly unmemorable corporate CSR initiatives? Or should it involve something altogether more ambitious – taking risks, getting your hands dirty from time to time and paying the inevitable penalty for trying harder? It’s a poser.


Maurice Lévy’s “salary sacrifice” is not quite as self-sacrificing as it appears

December 16, 2011

For Maurice Lévy and Sir Martin Sorrell – a pair who love to loathe  each other – politics is clearly a continuation of war by other means.

By now we’re all familiar with the WPP chief executive’s increasingly assured role as a political and economic soothsayer. He’s forever popping up on the Today programme as a commentator; he recently made his debut on Any Questions (which proved a surprisingly bruising experience for its quizmaster, Jonathan (or is that “David”?) Dimbleby); and he’s even opened up to us on Desert Island Discs. If you want an authoritative opinion on David Cameron’s Euro veto, ask Sir Martin. The national newspapers certainly did – his scathing denunciation of our isolationism has been plastered all over their front pages.

Less familiar by far, at least on these shores, is the accomplished political role played by the head of Publicis Groupe in his native France. Perhaps because he is nearing 70 – and therefore inevitable retirement despite the recent extension of his term of office as PG pdg – Lévy has become an increasingly outspoken, if measured, critic of French president Nicolas Sarkozy’s handling of the economy.

It’s important to note that Lévy and his company are regarded by the French business and political class with a reverence out of all proportion to that enjoyed by WPP in the UK. WPP is no slouch, but Sir Martin can only dream of headlines such as the following: “Maurice Lévy est le patron le plus “performant” du CAC 40” – substituting, of course, the FTSE 100 for France’s principal financial index.

Lévy has used this enviable reputational platform to morph himself into the key spokesman of French private enterprise – as chairman of Afep (Association Françaises des Entreprises Privées), a sort of French CBI.

Last August, in transparent imitation of the Sage of Omaha (aka Warren Buffett), he and a number of leading French businessmen signed an open letter in Le Nouvel Observateur pledging to plug the gaping holes in their country’s budget by means of a Robin Hood tax levied on France’s richest – such as themselves.

Entirely consistent with this initiative, Lévy proudly announced at the beginning of this month that he would waive his annual PG salary (€900,000) in favour of a performance-based bonus.

In these straitened times what could be fairer, more laudable, or altruistic than that?

Well, let’s put it this way: Lévy will not exactly be losing out as a result of this apparently noble gesture. In the first place, as he himself admitted, he will be receiving a generous “deferred compensation package” (ie pension) when he retires next year (as he assures us he will, though I still have my doubts if Arthur Sadoun fails to cut the mustard). The calculus for this severance package is somewhat delphic, but it is increasingly certain to be worth around €35m when he cashes it in (for more on this issue, see my earlier post). And that’s not to mention a personal fortune estimated at €164m by the French media.

Nothing wrong with that you may say, while inwardly noting the laxity of French corporate governance. After all, Lévy is a man who has deserved well of his company: he has, during his long career there, propelled Publicis from French hot shop to the world’s third largest marketing services group, making a lot of other people rich along the way.

But let’s move on. Have I mentioned the 2009 so-called Lion Lead long-term staff incentive scheme? I have not. It’s so complicated that virtually no one fully understands it. But the bottom line is that it vests in March 2012 and Lévy liked it so much he invested in it himself. I’m told the pay-off, providing all the complicated provisos are satisfied, is about 20 times the original investment.

Then there is the annual bonus itself to consider. Most of Lévy’s conventional package is, as it happens, already performance-related, allowing him to earn about €3m a year gross. The “double digit” (ie several million euros) bonus conditionally granted him by PG’s supervisory board this year will not, I speculate, actually leave him out of pocket. Given PG’s stonking organic growth recently, he may even end up ahead of his normal game. Yes, I know Lévy was studiedly downbeat about the global economy in his message to staff yesterday. And that his subsidiary Zenith Optimedia has pared back its 2012 global ad forecast of 5.3% growth. But the downgraded figure of 4.7% is not exactly zero growth territory.

One last thought before leaving this dusty financial subject. There’s a Sorrell angle here as well. Lévy may feel that by making a “salary sacrifice” he is getting one over on his long time foe into the bargain (never underestimate the driving force of enmity). Chief executives (and Sorrell is no exception here), are forever justifying their increasingly handsome remuneration packages by pointing to the competition abroad. But what if the competition abroad is actually taking a high profile pay-cut? What will WPP shareholders have to say then?

We’ll find out when the next pay round arrives, and Sir Martin asks for a raise on his existing £4.5m (€5.4m) annual package.


Carat in line to scoop $3bn General Motors global media account

December 7, 2011

A strong rumour suggests Carat has scooped the $3bn General Motors global media buying and planning account, which has been under review since August.

If true, this outcome amounts to a huge blow for Publicis Groupe, which services the majority of the account through its media specialist Starcom MediaVest, and – by the same token – a big fillip for Aegis, owner of Carat, the publicly listed company steered by Jerry Buhlmann.

The review, one of the biggest of its kind in the world, was instigated by GM marketing supremo Joel Ewanick as part of a slew of measures designed to tighten up the automobile giant’s worldwide marketing performance.

Before the review, GM used up to 20 media specialists. However, the bulk of the spend – two-thirds in fact – is committed to North America (the Chevrolet, Buick and Cadillac marques), and much of that has passed through Starcom since 2005. Carat, which has been on the GM roster for a slightly shorter period but consolidated its hold during a 2010 review, handles the $500m European business (Opel and Vauxhall). Interpublic’s Universal McCann was responsible for much of the Latin American business.

Although the review was slated as “global”, it did not in fact include GM’s operations in nascent markets India and China. What it did include, according to the briefing notes, was “digital…, SEO and social media.”

If Ewanick has stuck to his word and included these in the consolidated Carat package, his decision will represent a double-whammy for Publicis. Back in the summer, PG boss Maurice Lévy sought to shore up his position in the increasingly important GM digital account by taking a 51% stake in Big Fuel, which holds the North American social media account. The acquisition was aligned under the Vivaki digital unit.

What we don’t know, of course, is how profitable the account will be for Aegis. In their desperation to win an account, media men often allow their competitive negotiating instinct to overcome more rational arithmetical considerations, and pare the margins down to the bone in an all-out attempt to win. That said, a win will do Aegis’ share price no harm at all. And, being on a roll, Buhlmann can expect more clients to put him and his team at the top of their shortlists.

 


Why HSBC £40m fine over mis-selling scandal gives marketing a bad name

December 6, 2011

Chris Barraclough is right. While the marketing community obsesses about Marks & Spencer lingerie ads, Size Zero models, Twitter trending and the monetisation of Facebook, it is almost entirely oblivious to some criminality of Dickensian proportions tarnishing its name.

Criminality? We’re talking big banks here, and yet another “mis-selling” scandal, although in truth the scandal involves everything from new product development through to sales, marketing and marcoms. Not to mention some truly appalling internal supervision, with a hint  of News International about it.

Villain of the piece is HSBC, Britain’s biggest bank, which has just been fined £10.5m by financial services regulator the FSA and ordered to pay back £29.5m to old age pensioners it had systematically swindled out of their savings over a period of 5 years.

It’s a complex story with many, unflattering, angles. Here are a few of them, to give the flavour. The mis-selling involved an investment bond with a capital protection element. The snag was, you had to put the money away for about 5 years or incur a huge financial penalty. Many of the 2,485 victims were very old; one was 94 – the average age was 83. Obviously, a large number had a life-expectancy shorter than the term of the bond. Yet, they were easy prey, not necessarily on account of mental infirmity but because they were 1) capital rich (compared to most of the rest of the population) and 2) very fearful of the eventual cost of living in a halfway decent care home. Quite a few sold their houses to fund what they were told was the answer to their financial prayers; on average, they handed over £115,000 each. The average loss was £11,790 per customer, spookily adjacent to the £11,500 commission over 5 years received by advisors who had helped to sell the product. The FSA judged that 87% of sales were “inappropriate”.

HSBC is not solely culpable. It bought the rogue organisation responsible, Nursing Home Fees Agency, long after it had been set up in 1991 – presumably on the basis that NHFA was a nice little earner (as indeed it was). Then, too, NHFA came highly recommended. Help the Aged, the charity, was being paid commission for passing on names to the NHFA, while the Royal British Legion listed the company as a place to seek advice on how to pay for care fees. NHFA salesmen were also aided by a listing in the government’s financial advice website at Direct.gov.uk.

For all I know, malpractice may date back two decades. But that hardly exonerates HSBC, which took 4 years to wake up to something being rotten and then to report it. NHFA was only closed down in July of this year.

Horrendous though this mugging of pensioners may be, it would be nice to think of it as an isolated incident. No such luck.  In January 2011 Barclays was fined £7.7m and ordered to pay £60m compensation to thousands of elderly victims of a similar mis-selling scandal. In April, the banks finally lost a case in the high court, after years of procrastination over the payment protection insurance scandal – making them liable for billions of pounds of compensation. In May, the Bank of Scotland, a subsidiary of Lloyds Banking Group, was fined £3.5m and forced to pay £17m compensation to elderly customers after – guess what? – selling them risky investments.

How do they get away with it? Well, because they can. These fines may seem astronomical by my standards or yours, but they are a spit in the ocean compared with the Big Fours’ bottom lines. HSBC, for example, made interim profits of about £7bn this year. Banks also benefit from a culture of impunity. This is usually taken to mean stratospheric and wholly unjustified annual bonuses, or irresponsible, arcane, casino investments that eventually bring the house down. It is equally apparent they have a licence to plunder the needy and vulnerable with little fear of meaningful retribution.

For that state of affairs we too, as Barraclough implies in his blog post, are partly responsible. And marketers, obsessed with youth and cutting-edge technology, especially so. Finance, particularly retail finance such as pensions, investment bonds and mutual funds, is nit-pickingly complex and unsexy. It’s also, as often as not, about an unsexy sector – the over 50s – who happen to own most of the nation’s wealth. So we defer to the so-called experts. These experts don’t mind being boring, in fact they positively revel in it. And you can well see why.


TUI knocking campaign enables reeling Thomas Cook to roll with the punches

December 2, 2011

Jeremy Ellis, marketing director of TUI Travel, must be feeling pretty pleased with himself. Not only has he emerged, after 20 years in the wings, as the new brand-meister of Thomson Holidays and First Choice. He has also managed to land his principal rival, Thomas Cook, a satisfying punch below the belt with his first fully-fledged ad campaign.

Whether it’s a knock-out blow remains to be seen. But “knocking” it certainly is. And for that reason it’s attracting all the wrong sort of attention in the financial press, which is savouring the prospect of a second-round comeback from punch-drunk TC.

Knocking copy – the art of negative comparative advertising – is fairly unusual outside budget airlines and politics (which doesn’t, in any case, obey the usual advertising regulations).

And for good reason. It’s fraught with potential legal difficulties, and not many advertisers are robust enough to live with the consequences of an onslaught from the livid victim.

Of course, TUI doesn’t admit to the campaign being knocking. That would be to concede grubby, tactical opportunism. No, “This advertising campaign was meant” – and here I quote from the FT – “as a brand reassurance message and to clarify any confusion between the two separate companies.” And what confusion might that be? Well, “In the past there has been consumer confusion between our brands and our competitors’.” Of course there has: Thomson and Thomas Cook, they’re so alike, aren’t they?

Luckily, TUI has now been able to come up with some clear brand differentiation for the first time: ‘we’re the financially solvent ones’. As a USP it’s quite compelling, in its way.

Here’s the print ad run by Thomson: “Another holiday company may be experiencing turbulence, but we’re in really great shape.” And here’s the copy that featured on the First Choice website: “No worries about your holiday AND no worries about what you’re spending… Unlike a certain holiday company we could mention, you don’t need to worry about the way we run our business.” Ouch!

As is well known (see my earlier post), Thomas Cook has had a few tribulations this year: the Arab Spring for example, and the further collapse of its holiday market in France and Russia. All of which has resulted in 3 profit warnings, the ejection of its chief executive and the very public and humiliating supplication of its banks for £200m-worth of financial sticking plaster to bind the wounds until Spring 2013. Oh, did I mention the collapse of its share price to penny-status, overnight?

Nevertheless, Thomas Cook won’t be taking this particular drubbing, from its main competitor, lying down. It has reported the First Choice ad to travel trade body and regulator ABTA (though not the Thomson one which, bizarrely,TC’s interim chief executive Sam Weihagen earlier called “a very good ad”).

Ooooh, you say, and what are they going to do about it? Well, according to the ABTA code (Clauses 6B and 6L) no member may bring the industry body, or other members, into disrepute; nor may they make representations about the financial status of other members. Theoretically, contravention of the code can lead to expulsion from the organisation. While we’re there, I suspect Thomas Cook could also seek redress from the Advertising Standards Authority, under the CAP clause dealing with “denigration” of a competitor.

But it probably won’t; and nor will TUI be expelled from ABTA. A smack on the wrist is the worst it is likely to endure: the prospect of the UK’s biggest tour operator being ostracized by its trade body is frankly preposterous.

Nevertheless, I think TUI may have overreached itself, and for this reason.

Thomas Cook’s response to its crisis has not so far been well received, particularly by the travel agents on which it depends for much of its UK trade. The company recently ran its very own “reassurance” campaign, the key element of which was a one-off £170 saving (170 years old, geddit?) on 2012 holidays. For which read: more discounting in an industry where margins are already reduced to the bone, more undercutting of agents’ commission and, quite possibly, irresponsible dissipation of the recently acquired £200m bank loan.

Whether this perception is fair hardly matters. The point is it may well be reversed by TUI turning Thomas Cook into a maligned underdog. To Brits, if there’s one thing worse than bungling incompetence, it’s smug triumphalism.

Sooner or later Ellis may find himself smiling on the other side of his face.


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