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Dentsu Reports Organic Growth of 5.1% in 2016

By Published on .

Toshihiro Yamamoto, Dentsu's new president and CEO
Toshihiro Yamamoto, Dentsu's new president and CEO Credit: Dentsu

Tokyo-based advertising giant Dentsu Inc. reported organic growth of 5.1% in 2016 and announced more changes to bolster workplace reforms as it tries to cut down on overtime and improve work-life balance at its Japanese operations.

For Dentsu, the last few months of 2016 were marked by difficulties at its operations in Japan, where it was founded 116 years ago and where it still does nearly half of its business. Japanese labor authorities deemed the suicide of a young Dentsu staffer a case of "death by overwork," spurring the company to limit overtime and eventually leading the CEO to step down. Separately, the company also acknowledged overcharging some clients in Japan and other inappropriate business transactions.

Its earnings report for the 2016 calendar year was mostly upbeat. The company reported organic gross profit growth of 5.1% in 2016, adjusting the numbers to account for acquisitions, divestitures and exchange rates. In Japan specifically, that figure was 4.5%.

The company said fiscal year gross profit, a proxy for revenue, was up 3.5% to 789 billion yen, or nearly $7 billion. It said that figure rose 11.3% on a constant currency basis, or factoring out currency fluctuations.

Gross profit in the Americas region rose 14.8% in 2016 as the yen strengthened against the dollar. Organic growth in the Americas was 3.1%, the lowest organic growth for any of the company's regions.

The Asia Pacific region, as well as Europe, the Middle East and Africa, saw their regional gross profits contract in 2016 from 2015, which Dentsu attributed to currency fluctuations.

At the Dentsu Aegis Network – the company's business outside Japan, which includes agencies such as Carat, McGarryBowen, 360i, iProspect and Isobar – digital business overtook traditional business for the first time in 2016. The company said it signed 45 acquisitions and investments in 2016, the largest of which was the purchase of a majority stake in data and performance marketing agency Merkle.

Dentsu is the No. 5 global agency company by revenue after WPP, Omnicom Group, Publicis Groupe and Interpublic Group of Cos., according to Ad Age's Datacenter. The company said it is well on track on a five-year plan it calls "2017 and Beyond," which set out its goals including becoming more international and more digital by this year.

Dentsu wants at least 55% of its business to come from outside Japan by 2017, and last year it logged 54%. The company has already reached its goal of getting 35% or more of its business from digital; in 2016 that figure was 37%.

Workplace reforms

The death of 24-year-old Dentsu staffer Matsuri Takahashi was deemed a case of "death by overwork" by labor authorities in Japan; it led labor inspectors to raid the company's offices and pushed Dentsu to enact workplace reforms to limit overtime, turn off the lights in the office at 10 p.m. every night and promote better work-life balance. Her death sparked renewed attention about the issue of overwork in Japan's corporate culture.

The company said it would appoint new outside board member Nobuko Matsubara, who once worked for the Ministry of Labor, has experience on major corporate boards and is honorary chair of the Japan Institute for Women's Empowerment & Diversity Management.

Dentsu said in a statement that the "ongoing labor reforms are by far the most pressing issue currently facing Dentsu in Japan." In terms of accountability to shareholders, "the input of outside opinions is essential to dynamic discussions regarding this matter," it said.

In another move to bring fresh perspectives to the company, where Japanese executives often spend decades or their entire careers, it established an independent advisory committee of experts from outside Dentsu to supervise workplace reforms and verify that they are working. That committee is headed by a former prosecutor-general and includes a labor lawyer and the chair of the Japan Institute for Women's Empowerment & Diversity Management.

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