Agency Holding Company CEOs' Weeklong Chorus: No Inappropriate Rebates

Swirl of Talk Not Affecting Business, Publicis CEO Maurice Levy Says

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The topic of rebates infiltrated the largest agency companies' first-quarter earnings calls this week following weeks of talk about the subject.

Former Mediacom CEO Jon Mandel sparked the discussion last month at meeting of the Association of National Advertisers, where he alleged that U.S. media agencies were collecting rebates from vendors without disclosing them to clients or passing along the benefits. The powerful media agency network GroupM quickly said its agencies do no such thing, Ad Age later published an in-depth look into the subject and Pivotal Research Senior Analyst Brian Wieser last week downgraded IPG to hold from buy and Omnicom, Publicis and WPP to sell from hold, citing the negative attention.

But this week the global agency holding companies publicly joined the conversation. WPP, Publicis, Omnicom and Interpublic denied having anything to do with U.S. rebates, saying they comply with client contracts prohibiting rebates in the U.S.

Omnicom brought its media agency network CEO Daryl Simm to the call to answer questions, IPG CEO Michael Roth said a similar issue 10 years ago had sparked a transparency policy that the company follows to this day, Publicis CEO Maurice Levy said his company plays by the rules, and WPP CEO Martin Sorrell reminded listeners that GroupM was proactive with its response to the rebate allegations.

Their statements didn't quite assuage Mr. Wieser. Regarding Publicis's earnings, for example, Mr. Wieser wrote: "Of note, management addressed the rebate issue that is a hot topic in the industry with commentary that we think understates concerns that are widely held by marketers in particular." But the holding companies were unambigious in their rebuttals.

Omnicom invited its media agency network CEO Daryl Simm to address analysts on media issues during its earnings call. Answering a question about rebates, Mr. Simm said: "Our media agencies in the U.S. don't seek rebates. The U.S. is not a rebate-based marketplace from a negotiation standpoint. Media agency clients in the U.S. receive all the value that gets negotiated in the U.S. on their behalf, whether it's quantitative or qualitative benefits. Our buyers are pushing hard to extract a maximum value out of those vendors to meet the individual client expectations. For all of the clients we engage with we have comprehensive contracts that govern not only services but the specific performance requirements as well. It's the cornerstone of trust on which we run our business."

Omnicom CEO John Wren added: "There's been innuendo and comment against the industry. Clearing the air on this is a positive thing."

Referring to Mr. Mandel's talk at the ANA alleging the existence of U.S. rebates, he added, "It's odd that no specific allegation came against anybody even though they had redacted contracts and other things. There's now a working group between the ANA and 4As to go through this. As quickly as the ANA and 4As get to a conclusion the better off we're all going to be."

Publicis Groupe
Asked whether Publicis Groupe was suffering from the negative publicity surrounding the ongoing kickbacks and rebates debates in the U.S., and whether clients were being more demanding in terms of billings and fees, Mr. Lévy said, "We are not suffering at all from this kickback situation. Most of our clients know exactly what our practices are; they know that we extremely rigorous and that we are playing by the rules.

"So we are suffering as an industry, because there has been a lot of noise which has been made by a former Mediacom employee, but when it comes to [Publicis Groupe], we have contracts which are scrupulously respected and which have been audited on a regular basis by our clients. It's mad that there has been so much noise made about somebody who left the industry seven or eight years ago, who probably has no idea what's going on."

Interpublic Group
Mr. Roth responded to a question about rebates by reminding analysts that the company cleaned house a decade ago. He said: "The issue of [agency volume bonuses] and rebates is not new to IPG. Ten years ago we made that an important issue as we became Sarbanes compliant. At that point, we set up a significant amount of liability to pay back our clients and embarked on a full transparency program within IPG to make sure there's transparency. In the U.S. we have no rebates, and therefore it's not an issue for us in the U.S. In those markets where there are rebates we're encouraged by clients to get as much via rebates as possible. All of our contracts are fully transparent and consistent with that notion we established 10 years ago. We're comfortable there."

WPP CEO Martin Sorrell told listeners on his earnings call that WPP, the parent company of GroupM, has already proactively responded to the rebate allegations that implicate certain players in the industry. "We are the only group that have made any public statement," he said. "We said what the model is in the U.S., the way it's a non-rebate model. We've made that quite clear. I would urge greater transparency in what's happening to net sales and revenues, then we would have less black box and more open box. I think this is really very important. As an industry we have to get this right.

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