Murky rebates: Who has yours?

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Memo to client CEOs, CMOs and procurement chiefs: Is your ad agency pocketing media or production rebates that belong to your company? Don't know? Demand answers.

Credit for shining the light on this murky practice goes to none other than Interpublic Group of Cos. It's prepared to distribute a total of $175 million to $200 million to about 100 clients over the next 24 months to cover media and vendor rebates Interpublic improperly pocketed over the past five-plus years.

Media outlets and advertising-production companies often give agencies rebates, volume discounts and other credits. Under U.S. contracts, clients generally get the benefit of volume discounts and similar credits.

But in some countries in Europe and Latin America, it's customary for agencies to keep the money. The practice is legal. When this is done unbeknownst to the client, it's unethical and unacceptable.

We'd like to see the practice banished in its entirety. Agencies create a potential conflict of interest if they pocket the cash: Did the rebate influence the media buy? Then there is the specter of corruption: If agencies quietly take money from media above the table, does that foster a culture where dirty employees are more likely to take kickbacks under the table?

Interpublic isn't ditching agency rebates. It says it's appropriate for an agency to keep rebates on "fixed-fee" accounts, where the amount it charges isn't affected by the level of expenses the shop incurs (or the credits it gets). It would be hard for Interpublic to forgo this revenue source if rivals are taking the cash.

But Interpublic is taking a positive step, promising "proper handling and accounting" for such credits and "a formal policy to require proper transparency" in contracts. Good moves. Now let's see Omnicom, WPP and Publicis show they have nothing to hide by being perfectly clear on how they count credits. The buck stops with the agency, but the money belongs to the marketer.

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