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Publicis Groupe raids top Chinese shop Betterway after corruption scandal

February 20, 2012

News reaches me that Publicis Groupe has raided one of its most important marketing services outlets in China, after corrupt practices came to light.

Betterway/Publicis Dialog, the outlet in question, is China’s largest field marketing network, with offices in Shanghai, Beijing, Chengdu and Guangzhou.

The company is said to have raided its subsidiary last week and to have sent all staff home. Arrests are rumoured, but unconfirmed.

The driving force behind Betterway is CEO York Huang, a former Procter & Gamble executive, who joined the company in 2001. In 2006 PG acquired an 80% stake in Betterway. Huang and junior partner Jenny Zhang remained minority stakeholders.

Two years ago, PG claimed Betterway had 346 full-time employees and 15,000 part-time staff operating in over 100 cities. Principal clients include Wrigley, Kraft, Microsoft, J&J, L’Oréal, Coca-Cola and Samsung. Betterway won a substantial contract from China Mobile and China Telecom to represent them at the high-profile 2010 Shanghai Expo.

What has gone wrong? It seems that despite the Chinese marketing services economy growing at over 10% a year, some just can’t get their hands on enough money. The speculation – and I stress that it’s no more at this stage – is certain senior Betterway executives created a ‘shadow’ agency which then pumped revenues into Betterway in order to inflate revenue, and thereby substantially boost their earnouts.

Publicis has had problems dealing with corrupt practices in its Chinese operations before, of course. Readers of this blog may recall that, in September 2010, it fired Vivaki Exchange’s chief executive Warren Hui and general manager Ye Pengtao .

More on the Betterway story when I have it.

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

November 10, 2010

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.



Chinese corruption probe extends to Publicis media operation

September 14, 2010

In the global village, there’s nowhere you can hide – for long. A spreading corruption scandal in the little-known Chinese city of Chongqing (population about 35 million) will be causing the worldwide media bosses of Vivaki Exchange (Publicis Groupe) and OMG (Omnicom) some sleepless nights. It’s a cautionary tale about using Chinese brokers as intermediaries in media negotiation. All the main global networks, with the exception of WPP, use one – though not necessarily the same one. They broker the client rather than the media owner.

Last week, the chief executive and number two at Publicis’ buying point in China, Vivaki Exchange, left (or more likely were forced to leave) abruptly. Vivaki Exchange is an on- and offline amalgam of Publicis’ Solutions Digitas, Starcom MediaVest and Zenith Optimedia, formerly known (in China) as China Media Exchange (CMX). The reason for the two executives’ departure?  Warren Hui (left) and Ye Pengtao had had dealings with a media broker called Chongqing Huayu, which operates in China’s so-called South Western markets (Yunan and Sichuan as well as Chongqing itself). Chongqing Huayu is owned by a certain Zheng Zhixiang, recently arrested by the police in connection with the Chongqing Hilton prostitution scandal (highlighted here in the Daily Telegraph). The allegation is that he had been using the media broker to launder money from the prostitution racket. If convicted, Zheng will probably face the death penalty.

According to well placed sources, the broker Huayu (unusually in China, I’m told) owes money to the two buying points: perhaps Rmb100m (£10m) in the case of Vivaki Exchange; the amount owing to OMG (which uses the same broker) is unknown. Whatever the exact nature of the shortfall, it will now be impossible to make good, owing to the scandal. As a measure of how serious the situation is, both Hui and Ye were interviewed by the police on September 4. They were released after 48 hours, but told not to leave the country pending further investigation. I understand that police enquiries have extended to the general manager of Pepsi’s bottler in south-west China. Pepsi is Huayu’s second largest client. Media buying is handled by OMG via OMD.

China is one of the fastest developing advertising markets in the world. Asia Pacific, of which China is the largest component, will overtake North America in size by 2014, according to recent research sponsored by Starcom MediaVest. China’s ad market is already nearly as big as that of Western Europe.

UPDATE 13/10/10. OMD China has “let go” its managing director of five years Winnie Lee and replaced her with Siew Ping Lim, formerly of WPP-owned Mindshare, who holds the upgraded title of ceo. Lee, who “does not have a clear plan at the moment“, will leave next month. Is her departure by any chance related to the above events?

FURTHER UPDATE 23/11/10. More evidence of stress and strain at OMD China. OMD’s Johnson & Johnson global account director, Ben Jankowski, who relocated to China in June – because, he said, it was the place to be – has quit. He is crossing the line to become global media head of Mastercard early next year. Team turmoil is said to be the cause.


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