Tightened Policies on Conflicts Box in Agencies, Clients

'Conflict Shops' Trend Could Return as Holding Cos. Seek to Save Revenue Lost by Zero-Tolerance Edicts

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Agencies got a stern directive on client conflicts when Marriott International conducted a global review this past summer.

Moving beyond the standard "Hilton can't be on your roster," Marriott, which was in the process of consolidating buying and planning duties under a single network globally, served up a fresh conflict policy. For the first time in its 84-year history, Marriott drew up a list of competitors and ranked them in tiers. The winner, WPP's MEC, had to resign a piece of a rival's business in Asia Pacific to land Marriott.

Client conflicts have always been an industry hot button. But the issue has intensified for both sides as agencies seek revenue growth and diversification by aggressively pursuing new business and creating tools and platforms at the holding-company level and as a rough economy makes marketers more competitive than ever.

"Clients are completely demanding it," said Andrew Essex, CEO of Droga5. "I haven't noticed any discussions where [their stance on the matter of conflicts] is loosening up."

Clients' rigorous view has helped shape Droga5's approach. Despite having the flexibility of independence and being younger than most of its competitors, the agency has old-school values in the area of conflicts.

"We're probably painfully conservative in this regard," said Mr. Essex. "We can't risk anything that might smack of some violation of business ethics."

Heightened concerns on the client side could herald the return of conflict shops. Setting up a new entity to serve a single account was in vogue 10 or 15 years ago but cooled off because marketers viewed the operations as artificial barriers, experts said. But for some holding-company-owned shops, it now looks like the only viable path.

Mediabrands Global CEO Matt Seiler
Mediabrands Global CEO Matt Seiler

Matt Seiler, global CEO of Interpublic Group of Cos.' Mediabrands, told Ad Age that the holding company is preparing to introduce a third media agency group as an alternative to Initiative and Universal McCann.

The intention is that the group will form a firewall for domestic business that the agencies have typically had to turn down, as well as for a growing number of global conflicts. For example, Hyundai's Kia is handled by Initiative , while UM works with Chrysler and BMW. Mediabrands is understood to be a contender in General Motors' $3 billion media review, and were it to be successful, a third network would seem a necessity.

An extreme focus on avoidance can also be a disadvantage for clients. When SC Johnson embarked on a massive creative review this year, so many agencies were boxed in by conflicts that its choices were slim.

Further complicating the conflict situation is the evolution of media-agnostic marketing, which means different types of agencies once divided by strict lines within a holding company are working more closely on integrated efforts. That's prompting clients to be more protective of their strategies.

Several insiders pointed out a recent new-business gaffe in which IPG's Weber Shandwick won Kellogg's PR account, only to resign the business weeks later because of a holding-company conflict. Though its exact nature isn't clear, the conflict was most likely a product of a strategic relationship agreement between IPG and a Kellogg competitor, such as Nestle or General Mills.

The convergence of marketing disciplines has been a double-edged sword, according to Chris Graves, CEO of WPP-owned Ogilvy PR.

Though it has been "a large net gain" in terms of bringing on work from "sibling disciplines," Mr. Graves said, it still stings that two years ago the group had to resign a piece of business from Tropicana, a Pepsi property. Advertising sibling O&M was a Coke agency. The only way to handle conflicts at the agency is to "prove the genuine robustness of the separation," he said.

To that end, Marriott's new conflict policy included language warning agency executives against sharing brand strategy or data across the holding company. What might that mean?

As an example, Susan Thronson, Marriott senior VP-global marketing, cited potentially drawing a line between the MEC and WPP sibling Xaxis, an audience-buying platform that could extend its tools to a competitive client from another agency within the holding company.

Strict conflict systems can put an agency between a rock and a hard place, an executive explained, as one of the only ways for agencies to continue to grow in a "procurement-led world" is by expanding the client portfolio. More and more, agencies are thinking twice when a particular category or client might be overly restrictive.

And as one industry vet, MediaLink CEO Michael Kassan, has said publicly for years: "There are no conflicts, only ironies."