While some outsiders said agencies are smart to be cautious, legal experts question the explanation. Regardless, actions by agencies and media will change the way agency finance is discussed and could call into question the future of such imprecise measures as billings.
The sequence is this: Congress, reacting to the collapse of Enron Corp., Arthur Andersen and other failures of corporate governance, in July passed the Sarbanes-Oxley Act, tightening rules on disclosure, accounting and analyst conflicts and requiring corporate officers to sign financial statements. Agency companies, like other companies, scrambled to comply.
Last month, CEOs of the world's top three holding companies-Omnicom Group, Interpublic Group of Cos. and WPP Group-reviewed the issue and discussed the situation among themselves. The companies then told Ad Age and others they would not release 2002 financial breakouts on their numerous holdings. Smaller agency companies followed suit.
A spokeswoman said Omnicom is withholding data because of Sarbanes-Oxley and Regulation G, a Securities and Exchange Commission rule implementing Sarbanes-Oxley. Officials at Interpublic and WPP also cited the act and rule.
Experts questioned the explanation. "There is nothing in Sarbanes-Oxley that is designed to reduce the amount of disclosure," said Donald Langevoort, a professor at Georgetown University Law Center and expert on securities regulation. "The reporting of this kind of performance data could occur within the confines of the regulation if the firms were motivated enough."
pays to be prudent
Added Howard Meyers, a New York securities lawyer and accountant and former SEC official: "If you are going to disseminate accurate information to trade publications, I don't see how that runs afoul of the act."
But JoAnn Golden, president of the New York State Society of Certified Public Accountants, said it makes sense for agencies to limit disclosure if they are waiting for clarification on regulations. "It's prudent to be cautious," she said.
Some agency executives privately cite another reason: They say methodologies used by publications such as Ad Age, which do not follow generally accepted accounting principles, allowed some agencies to overstate billings and revenue figures in data released to publications. Executives say companies-under pressure to issue bulletproof financials now-are concerned that data they release this year could call into question some data they released in the past.
Omnicom stood by the accuracy of past data the company provided to Ad Age. "We reported numbers in accordance with the guidelines you gave us," the spokeswoman said.
Interpublic said in a statement: "To the best of our knowledge, the data shared by Interpublic with Advertising Age for past ranking reports was prepared and submitted in conjunction with the publication and according to Ad Age's proprietary methodology. In light of the current environment, we do not feel it is appropriate to provide information that, like many such methodologies used by industry journals, does not conform to GAAP."
A WPP spokesman said: "The [WPP] operating companies stand by the numbers that we released."
Interpublic during the past year has been forced to restate financials and is defending itself against class-action shareholder suits. Omnicom Group also is defending itself in suits filed by investors who allege it's made misleading and false statements.
Differences by design
By design, there have been differences in what companies reported to Ad Age and the SEC; Ad Age`s past reports did not use GAAP because the publication developed an approach to track organic growth and account for companies' partial ownership of agencies.
Regulation G puts rules on how companies release non-GAAP data, but Mr. Langevoort said there is no blanket prohibition against disclosing non-GAAP data. Under the rule, however, companies generally must reconcile non-GAAP data with GAAP figures so the SEC's key audience-investors-can see how the two relate.
Given the focus on Sarbanes-Oxley and on GAAP, it's likely that holding companies will emphasize GAAP in whatever they issue going forward. That raises questions about the future of such key non-GAAP metrics as agency billings.