IPG woes threaten its shops

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Interpublic Group of Cos.' latest round of bad news could cause a host of difficulties for its agencies, ranging from slumping morale among managers to staff defections and nervousness among new-business prospects.

Even executives used to the holding company's roller-coaster performance are grousing privately about the most recent blows. Rivals, usually happy to snipe about Interpublic's bad news, are holding fire, worried it could drag down the market value of the segment's other players.

The latest announcement, March 17, made the company's financial management sound amateurish. Interpublic said 2004 and 2005 reports may be late, it may restate multiple years of reports and that the work to fix the controls will stretch into 2006. It also admitted that it doesn't have an adequate staff of competent accounting personnel.

Interpublic's bad week was made worse when Unilever puts its $266 million global detergent creative account into review-most of the business is currently at its Lowe. This on the heels of the bombshell from General Motors, which put its $3.5 billion media-buying business into review a week earlier (AA, March 14).

`IT'S TOUGH'

"This kind of stuff is demoralizing when you bust your butt the way we all do," said one executive at an Interpublic company. "It's tough," admitted another. "The agency is doing well, but you'd never know because it gets buried in the bad news from IPG."

Anonymous or not, it seems inevitable that the latest spate of bad news will hamper new CEO Michael Roth's efforts to turn around the company after a span of several years that have been marred by bookkeeping issues that sparked a Securities and Exchange Commission investigation, shareholder litigation and operational difficulties at some of its big ad agencies. Mr. Roth acknowledged the tough tasks, warning the "ride will get a little bumpy in the coming months" in a March 11 memo to Interpublic staff.

TRICKLE DOWN

Observers said those bumps will include a significant threat to Interpublic's reputation that can't help but trickle down to its agencies. Interpublic and its rivals have long been fond of distinguishing problems at the holding-company level from the operations of agencies, but analysts and agency executives are convinced that eventually they take a toll.

"It causes a brand-equity problem for Interpublic," said Michael Nathanson, an analyst at Sanford C. Bernstein. "If you're a client, it makes you think about the company in a negative way." (Bernstein's parent companies, AXA and Alliance Capital, are Interpublic's largest shareholders, with a 10% stake.)

That, of course, doesn't necessarily point to client defections, but it could suggest problems on the new-business scene, where Interpublic has snagged Intel, some Nokia business and Computer Associates-an impressive recent record.

Still, Interpublic's renewed admissions of financial difficulties offer competitors the opportunity to trash the company during reviews, an environment where agency brands are crucial-and some rivals already suggest a breakup is possible. "The damage tends to happen through innuendo and suggestion, during the credentials and presentation process," according to a former Interpublic agency executive.

Over the next few months, Interpublic's ability to recruit talent will in many ways hinge on the strength of its agency brands. Executives said the company's ills are often a bar to getting the most talented managers, even in a day in which compensation packages are largely about salary and bonuses rather than stock. But one executive recruiter in the industry said that certain Interpublic agencies remain places where people want to work even during tough times for the parent.

" Deutsch, for instance, is a very desirable place to work," said Kurt O'Hare, president of O'Hare Associates. "I don't foresee a talent or brain drain."

Still, rivals claim to be inundated with resumes, and the media side of the company faces major personnel challenges, especially after a week in which top executives at both of Interpublic's media-buying and planning networks, Universal McCann and Initiative, were removed from their slots.

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