Can Sara Arnell Save the Shop That Peter Built?

In One of Adland's Stranger Tales, Founder Sues Struggling Agency as His Wife Attempts to Revive It

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"I'm getting condolence letters here," said Sara Arnell, summing up her situation just a few months after one of the more bizarre CEO appointments in memory.

She recently took the reins of the ad and design shop co-founded by her husband, Peter, about 30 years ago. Not long after, he filed a lawsuit against the agency and its parent, Omnicom Group, alleging he's owed about at least a million dollars worth of high-end books he bought in part with agency money. With Mr. Arnell's departure came a dramatic downsizing of an agency that not long ago boasted a long list of A-list brands, a staff of about 170, some $16.3 million in '09 revenue, according to Ad Age DataCenter, and a unique position on Madison Avenue as a go-to place for big, bold ideas -- or, at the very least, big, bold talk. What remains is about 50 staffers and just three clients. Well, two, really, but we'll get to that later.

Sara Arnell
Sara Arnell

The 50-year-old mother of three and 23-year veteran of the agency is now left to oversee a deeply humbled Arnell Group, floundering with the loss of both the agency's major clients and its polarizing front man, who declined to comment for this article. Yet Ms. Arnell, by her own admission a rather unlikely CEO, is fighting the good fight.

Last week I went to visit her in the agency's new offices in an unglamorous, pizza-parlor-heavy slice of SoHo. In late February staffers packed up and left behind the 36th floor of 7 World Trade Center and its soaring views of the New York harbor. Mr. Arnell, friend to Frank Gehry, designed those offices himself. The sight of his agency's new home would probably induce one of the screaming fits that helped Mr. Arnell get named in 2007 by Gawker as one of the worst bosses. Ms. Arnell has improved things by ripping up a maroon rug and slapping on a coat of white paint, but it's safe to say that New York magazine won't be doing a spread any time soon. It's not that it's bad, it's just not very Arnell.

The fact is Omnicom placed the shop in that building, which houses a few other of its agencies, because Arnell doesn't have many clients or employees left, and smaller, cheaper space was in order. Though the client list on the company's website lists more than 200 brands, Ms. Arnell told me early last week it has three: GNC, Belvedere Vodka and ConEd, the New York utility company.

I subsequently found two executives familiar with the matter who told me that GNC has, within the past month or two, terminated its relationship with Arnell Group. One of the people I spoke to said that decision has everything to do with the departure of Mr. Arnell: "Peter was the creative force behind the agency, and without Peter it's not the same place."

GNC executives, currently in a quiet period following the company's initial public offering, declined to comment and referred me back to the agency.

Therein lies the problem for Ms. Arnell. In the ad world, clients choose agencies for a variety of reasons: Process. Price. Chemistry with an account team. A network of 120 offices all around the world. Did we mention price?

Very few at this point make the determination based on a singular creative ego. For more than a decade, though, Mr. Arnell has been an exception. The self-made man, whose adorers range from Martha Stewart to Gwyneth Paltrow, grew a business based on the seduction of marketers at PepsiCo, Mars and Chrysler. But to the outside world there was no Arnell Group aside from Peter Arnell.

Since news of Mr. Arnell's departure and the lawsuit broke earlier this year, the industry has scratched its head over how Ms. Arnell ended up with the gig, especially given the legal kerfuffle.

But several people within the agency and elsewhere in Omnicom told me that Sara was a natural choice to replace to Peter. Said one, "The only thing that makes it weird is the fact that they're married." Big falling-outs at agencies, the logic goes, aren't unusual. Neither are lawsuits. What is weird is that Ms. Arnell is attempting to execute a major agency turnaround in the shadow of a lawsuit filed by the man who is both her predecessor and her spouse.

And, Ms. Arnell said, they are still married, thus answering one of the biggest questions raised by the news of the lawsuit. When I asked about the status of their union, she simply waved her ring at me. Then I asked her how much of a distraction his lawsuit is.

"It's not ideal," she said, laughing. "My focus is on running the business. It has nothing to do with me and this company day-to-day."

Ms. Arnell claimed, without a hint of a smile, that she and her husband don't talk about the business, keeping things separate to the point that she didn't know about his legal action before it was filed. "You know, I read about it the same day everybody else did." In our interviews, Ms. Arnell disputed the generally-believed version of how her husband left the agency, which is that he was forced out after some high-profile flops and questionable comments relating to client business. The classic instance is a short-lived 2009 Tropicana package redesign that caused an uproar among the orange-juice brand's fans. Reacting to the furor, the brand quickly decided to go back to its original packaging. Later, in a thoroughly unflattering profile in Newsweek, Mr. Arnell was quoted as saying, "It's not my brand. It's not my company. So what the hell? I got paid a lot of money, and I have 30 other projects. You move on."

The Arnell team today.
The Arnell team today.

You could imagine how such a quote might rattle Omnicom bigs and, during my reporting, I found no one within the holding company who disputed that. (An Omnicom spokeswoman declined to comment for this story, citing the corporate policy against talking about personnel matters and litigation.)

But Ms. Arnell said that Peter, done with managing the day-to-day affairs of the agency, left on his own and installed her, then its chief strategy officer, as his successor. That this doesn't jibe with Mr. Arnell's own legal complaint, in which he refers to his own termination, is chalked up by Ms. Arnell to his legal strategy. "It's pretty obvious to me that somewhere between his decision to leave and his exit something didn't go right," said Ms. Arnell.

His lawsuit was filed in early February in New York state court. Basically, it claims Omnicom has been holding on to a number of his valuables, some of which were paid for as business expenses. These include, as the complaint states: "rare, unique, one-of-a-kind signed artist's volumes, volumes of important works of architecture, [his] personal creative portfolios."

In a conference room with a pedestrian view, Ms. Arnell told me she views Arnell Group itself as a client. One of her first undertakings as CEO was a redo of the company logo, switching typefaces from helvetica to trade gothic. Much more important, the agency is scrambling to find itself a new positioning and raison d'etre post-Peter. Probably the central decision was to ditch any pretense of being a design shop and focus wholly on advertising and brand strategy, Ms. Arnell's charge over the years.

Product design, on the other hand, was Peter's ambition. By 2008, when he was named acting chief innovation officer at Chrysler, then a major Omnicom client, he'd designed Pepsi cans and bottles and fire extinguishers for Home Depot, earning plaudits around the industry. Returning to Chrysler, where an ad starring Celine Dion had previously gotten him fired, offered him redemption and a much bigger stage as a designer, not to mention the chance to help the struggling automaker at a crucial part in its history. Back then he told me, "This is a line in the sand where I take my rightful place as an industrial designer. We've had the integrated model from the beginning, but it's always been living in this high state of disbelief. When we talked about Pepsi and about Home Depot, no one believed it."

As quotes from businesspeople go, it is striking for its blend of braggadocio and insecurity. And that is very Peter Arnell. He was a master of self-mythology, by turns brilliant and mercurial.

Ms. Arnell couldn't have been more different, rarely warranting public attention until she became CEO. She joined the agency in 1988, the year she married Peter. The two met when he was doing some work for Tina Brown's Vanity Fair, where she was an associate editor. Six months later they were married. And four months after that, Ms. Arnell was pregnant with her first of three children. She eventually began freelancing for Arnell Group, working on the Donna Karan account that got the agency much of its early fanfare.

Ms. Arnell, who has a geology degree from Skidmore College, describes herself as "writer at heart." She was recently accepted into Sarah Lawrence College's graduate creative writing program and said she's considering the offer. Besides writing, she views her strength as brand strategy, which is what the agency will focus on.

Ms. Arnell won raves from Charles Gibb, president of Belvedere, who plans to stay the course. "We're delighted with their strategic thinking, and we have no intention of leaving. Peter was an important part, but the team is very strong." Mr. Gibb gave an Arnell-created campaign that broke last spring some credit for the brand's double-digit sales growth, especially over the past six months. That focus on brand strategy and content is exciting to the senior management team below Ms. Arnell. When I visited the office, she left the room to chat with five of her top deputies for about an hour. A composite view of their attitudes looks like this: On the plus side, the agency has a well-known brand with good case studies in packaging, design and advertising. Mr. Arnell's departure offers the opportunity for the people who have done the day-to-day work over the years to step up and gain some attention. The agency is, moreover, structured to be integrated, without silos between departments, something that many marketers like. (At one point, Ms. Arnell told me, laughing, "I take credit for completely creating the notion of 360. For years, you've heard all this buzz. We've always done it. We were one of the original integrated agencies." This was perhaps the only time she channeled her husband's ego.)

There's also a sense that the extreme ambitiousness of the Arnell project might have sometimes been a distraction.

"We're about storytelling," said Executive Creative Director-Senior VP Michael Norton. "When you start with product development there's not always a story. We're still going to do innovation and that might have to do with a new product, but we're not saying we're going make the product for you."

Chief among chores for the agency is finding a way to attract marketers without Mr. Arnell's charms. "That's our biggest challenge," said Bill Visone, CFO and exec VP. "The business came in through Peter's relationships. But the story of the Arnell brand and his legacy is that there's more to it than Peter's relationships and his contacts. The pipeline is getting better. We're hearing a lot from old clients."

The new growth approach means that Arnell will have to pitch competitively for new business, something it hasn't done much of historically. When it has, however, it's had some success, as with Belvedere. With that comes the pressure to reach out to the consultants who run so many agency reviews. Typically, the agency hadn't bothered much with them. Mr. Norton, who's helping to lead the new-business effort, said he recently called one who said, "Really? You want to talk to us now?"

Ms. Arnell and company better hope they listen because you can't imagine the agency's corporate masters will let things go on very long if no business comes in, especially given the vote of no-confidence from GNC. When I asked Ms. Arnell how long she expected to have to pull off this turnaround, she said she thinks she has about two years. Others familiar with how Omnicom works said it might be the sort of thing that's evaluated on a quarterly basis, but that a full righting of the ship won't be expected overnight. Said one executive familiar with the matter, "They'll be looking for some evidence of progress."

If a humbled approach counts as evidence, consider at least some progress made.

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