Advertising industry stands trial

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When former Ogilvy execs Shona Seifert and Thomas Early stand trial this week on charges of defrauding the U.S. government, it won't just be their names and the Ogilvy brand on the line, but the lax billing practices of an industry that relies too heavily on timesheets.

The careers of Ms. Seifert and Mr. Early-who face jail sentences if convicted-are already stalled. But their trial, which begins Feb. 1 in a federal courthouse in Manhattan, will lay bare every last detail of how these executives and their colleagues managed and billed the Office of National Drug Control Policy account. Prosecutors will try to fashion reams of timesheets, vouchers and internal e-mails and memos into a paper trail linking the defendants to a conspiracy to defraud the U.S. government. They will likely use statements and the testimony of co-conspirators to try to prove that the defendants ordered Ogilvy employees to pad timesheets in an effort to make up for a projected revenue shortfall on the account.

In severity and scope, the charges pale next to other white-collar scandals, like those being leveled at former executives such as HealthSouth's Richard Scruschy or Tyco's Dennis Kozlowski, both now standing trial. Yet the Ogilvy case, expected to last about a month, could act as the advertising industry's footnote on the epic tale of corporate scandals that has unfolded over the past five years and ushered in the age of the Sarbanes-Oxley Act, the landmark corporate-governance legislation.

"For any smart corporate CFOs, controllers, and marketing people, the allegations raise the question of how Sarbanes-Oxley impacts the client-agency relationship," said Arthur Anderson, principal and co-founder of Morgan Anderson Consulting. "Since marketing communications is such a huge investment for so many companies, there's a relevance here. This should get the attention of the financial stewards who sign off on internal controls of companies."

wary marketers

The Ogilvy charges-along with overbilling accusations recently lodged against the Omnicom Group public-relations firm Fleishman-Hillard on a contract with the Los Angeles water and power department and the ongoing magazine and newspaper circulation scandals-has created an overall climate in which marketers are more wary. Mr. Anderson said fiduciary assessments of agency-client relationships now make up about half his business, a growth driven by high-profile scandal as well as the increased sway of procurement executives in marketing decisions. And the added drama of a criminal trial should only serve to heighten interest.

"Whenever you have a public trial of this magnitude you have more awareness, especially when people face the possibility of jail time," said Sandy Frank, president-U.S. operations for Firm Decisions.

If convicted, Mr. Early, who resigned from his post as chief financial officer at WPP Group's Ogilvy, New York, last January, and Ms. Seifert face up to five years in jail as well as a fine. For Ms. Seifert, the indictment put a halt on a rising career. In 2002, she was named president of the New York office of Omnicom's TBWA/Chiat/Day, enlisted to help the office better compete with its Los Angeles counterpart, a creative powerhouse. Ms. Seifert reorganized the New York creative department and helped land the Nextel account. However, in August, the agency brought in Brett Gosper over her head. Ms. Seifert went on paid leave at the beginning of the year.

The criminal charges were filed after controversy over about Ogilvy's initial billings for the Drug Office account drew repeated congressional condemnation, even as Drug Office officials praised Ogilvy for its work and after rebidding the account, gave Ogilvy the account all over again. Ogilvy, which subsequently chose not to compete in a second rebidding of the contract, settled for $1.8 million claims that executives altered records to make up for what they saw as low revenue on the account.

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