Can an Agency Exec Sit On a Tech-Startup Board Without Conflict?

Experts Say Transparency Is Crucial To Keeping Corporate Interests Separate

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Nearly every week brings news of an ad-tech firm getting ready to go public, and recruiters say ad-agency executives are increasingly eyed as advisers or board members for these high-flying companies. While such a position can offer prestige, insight and career growth, the arrangements can be fraught with potential conflicts.

Starcom Mediavest Group CEO Laura Desmond was recently named to Tremor's board.
Starcom Mediavest Group CEO Laura Desmond was recently named to Tremor's board.

Late last month, for example, a pre-IPO securities filing for Tremor revealed that Starcom Mediavest Group CEO Laura Desmond was granted hundreds of thousands in options in the video ad-tech startup for sitting on its board. The filing also showed that clients of her agency group provided a large chunk of the ad tech's revenue. Despite disclosures that Ms. Desmond recuses herself from any business involving both SMG and Tremor, observers decried her role as overly beneficial to her personally.

Ms. Desmond and SMG said they couldn't comment for this story due to a quiet period at Tremor.

Because of the risks of conflicts, experts say the best solution is transparency. Some even say new models should be developed where startups, agencies and their clients all benefit.

MediaLink CEO Michael Kassan, who advises ad-tech companies and agencies, said he encourages agencies and individuals to sit on boards and take equity in their vendors with those principles in mind.

For example, agencies could broker deals in which marketing spending would earn equity stakes in ad-tech companies -- the value of which would be shared among the agency and its clients whose dollars were spent.

"It would make everyone more comfortable if everyone was aligned," he said.

The model is similar to a deal struck in summer 2006 in which Interpublic Group of Cos. snagged a 0.5% equity stake in Facebook by agreeing to place $10 million in advertising with the social network. However, that arrangement raised hackles since Interpublic didn't share that equity with the clients whose dollars made up the spending.

With startup interest growing, agencies should firm up policies now.

Agency executives help startups "gain credibility," insight, and boost revenue, said Dan Goldsmith, a managing director at recruitment firm Three Pillars, which specializes in ad tech.

David Kenny, CEO of The Weather Channel and formerly a managing partner at Publicis' VivaKi and CEO of Digitas, said that, while at VivaKi, he encouraged Ms. Desmond and her counterparts at ZenithOptimedia and Digitas to take board seats. "Ad agencies will have no choice but to have more of their leaders on boards as a way to learn what's going on in ad tech," he said. However, he noted that they should recuse themselves from day-to-day dealings between the companies and report the revenue each makes off the other's business. While he earned equity from most board positions, he said he never worked with a company that derived more than 1% of its business from his agency.

Drawing a bright line like that could be helpful. Much of the commotion surrounding Ms. Desmond's role had to do with the fact that in 2012, Tremor derived 17.9% of its revenue from advertisers represented by SMG. Her board role was vetted and approved by Publicis Groupe, according to a person familiar with the matter.

It's an unusual situation. "Having one of your largest customers on the board? Having done 130 of these searches for Fortune 100-1,000 companies, I've never seen it," said Carter Burgess, head of the board practice at recruiting firm RSR Partners.

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