Culture shock

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In mid-October, one of the two American flags flying outside the Madison Avenue headquarters of Young & Rubicam was taken down. In its place rose the Union Jack with its vibrant red and white crosses on a blue field-the flag of the U.K.

Reaction inside the agency was mixed, but leaned mostly toward unfavorable and skeptical. Although staffers were still digesting the impact of the acquisition by British-based WPP Group just weeks before, employees had learned to be suspicious after a yearlong roller coaster ride of merger rumors and half-truths. Many wondered why the new flag was raised, who made the decision and what it meant to Y&R's future.

The first two questions were easy: The flag was the outward symbol that Y&R had officially joined the WPP portfolio. And the switch was ordered by Ed Vick, chairman-CEO of Y&R Advertising, who did it "as a symbol that recognizes, welcomes and embraces our new owners and expanded family," as he explained in an internal memo.

The third question, however, won't be answered for some time.

And it's not just those inside the company who wonder what the ownership change means for Y&R's future. Just three months after the merger, this is where most agree the challenge begins. Can this storied Madison Ave. agency maintain its essence--that intangible center that makes it unique--under a holding company structure? More important, does it even matter? In the high-stakes game of account machinations and Wall Street kowtowing, does it make a difference whether Y&R or one of WPP's other agencies, Ogilvy & Mather or J. Walter Thompson, wins? After all, no matter which of the three prospers, WPP benefits.

The early signs indicate finding the answers won't be easy. Y&R's morale has been wracked by divided loyalties, layoffs, account losses, a dearth of creative leadership and a rumor mill that's working overtime to spit out speculation about additional layoffs, weakening client links and the impending departures of key executives. Some clients aren't waiting to see whether the merger will have a positive or negative impact; since the takeover, KFC, Ericsson and Informix have fired the agency, and Kraft Foods re-assigned most of its business. Those losses follow the departures of Citibank and the U.S. Army. United Airlines is in review.

The most recent rumblings, strongly denied, had newly installed Chairman-CEO Mike Dolan on his way out the door already, held in place only by the considerable persuasive powers of WPP Chief Executive Martin Sorrell.

Mr. Dolan, in fact, remains very much a cheerleader for Y&R and insists the company will emerge stronger and better, and with its unique selling proposition intact. "Culture is very important. The culture of Y&R is different from the culture of Ogilvy, which is different from JWT. WPP doesn't want to create a homogenous company that ends up killing the genes of the agencies," he says. "There ought to be, and there will be, something special about working for Y&R."

"As far as what clients see and want to see, that's Y&R, not WPP. The agency shouldn't change and probably won't," agrees James Dougherty, analyst at Prudential Securities. "There may be a few more stringent financial constraints than they're used to, but this should just be business as usual for Y&R."

It was Oct. 3, 2000, when the YNR stock symbol was taken off the New York Stock Exchange, former CEO Tom Bell quietly left the sixth floor at 285 Madison Ave. for the last time, and a round of layoffs of redundant jobs began to be implemented. But the $4.7 billion acquisition by WPP wasn't as simple as removing a stock symbol, a CEO or dozens of employees. Y&R spent years getting to this place.

The journey began before media coverage of possible secret meetings leaked last April, before Messrs. Sorrell, Bell and Dolan first met as a prelude to the mating courtship in January 2000, even before Mr. Sorrell first declared the match an attractive one well over a year ago. The path for Y&R to join WPP began to be paved even before May 1998, when Y&R put its stock on the open market by going public.

The exact date, or even crystallization of inevitability, will likely never be known--and possibly bears little investigation. The fact is, the ad industry years ago began to evolve from a single agency service structure to a complex system of holding companies acting as financial and strategic parents to a group of competing agencies. Y&R found it had to play ball--either it had to become a holding company or join one. By executive decision and shareholder approval, it chose the second option. The agency's first real step to being acquired, although neither intended nor desired at the time, was to go public. In the mid-90s, Y&R was not only feeling the pressure to compete in the new holding company structure, but also the pressure to compete in the public marketplace. Its biggest competitors at Omnicom Group, Interpublic Group of Cos. and WPP were already public and using their shares to make acquisitions and attract talent.

"Our competitors then were growing at 50% to 70% and even 100% per year. At best, a private company could do about 15% to 17% growth. Tell me how we were going to compete," says Peter Georgescu, who was then chairman-CEO. "Without public stock, we couldn't keep the best talent, we couldn't attract the best talent and we couldn't make as many acquisitions. We had to do it, or over the next 10 years Y&R would have become an also-ran."

Part of what Y&R had to do even before going public was shape up its bottom line. Messrs. Georgescu and Vick say it was a priority as far back as the early '90s. Y&R re-embraced and updated its failed whole-egg theory with a more modern integrated-marketing theme and aggressively courted clients' entire marketing budgets. During those years, the agency added major pieces of consolidated business from Colgate-Palmolive Co., Sears Roebuck & Co., Citibank and Philip Morris Cos., wins often accompanied by rivals' rumblings about slashed fees and razor-thin profit margins. (Y&R has always strongly denied those charges.)

Mr. Dougherty says there was a more immediate reason to go public--to save Y&R. "The reason they went public was because the agency had been run into the ground. For 75 years, they had depended on a well-known venerable brand, but they were hardly profitable. After being mismanaged for a number of years, they didn't even have the money to buy back retirees' stock, so they went to Hellman & Friedman."

Y&R turned to the San Francisco-based private equity investment firm to help facilitate the stock buyback in 1996; the investment bank put in $224 million. Y&R wanted to buy out retirees' shares to use as enticements for new hires and as an incentive for upper management. Although it has been painted at times as a greedy maneuver by management, those at the very top of Y&R actually ended up with fewer shares, according to several executives, because it was decided to disperse the shares to a broader layer of management. Back then, executives denied there was a bigger plan to go public; now, they acknowledge the decision was a deliberate first step in taking the company public.

Hellman & Friedman certainly never thought otherwise. One executive there explains the investment firm's strategy of choosing a handful of private companies each year, investing in them and then helping to take them public. Once the company goes public, Hellman divests itself fairly quickly. That was the case with Y&R--Hellman was out within three years, by the end of November 1999, for a total return of more than $1 billion to its investors. Y&R went public in May 1998 at $25 per share; it traded at $48 1/16 on its last day on the Big Board.

With the company now public, it was more vulnerable than it ever had been to a takeover. However, there was at least one big hurdle, particularly to a hostile takeover: Mr. Georgescu, the tall, dapper and soft-spoken chairman-CEO. Mr. Sorrell had approached him in 1997 before the initial public offering and was rebuffed. Mr. Georgescu was instrumental in the creation, as part of the IPO, of two years worth of deterrents and roadblocks to a takeover. However, in August 1999, Mr. Georgescu announced he would retire as CEO and would vacate the chairmanship on Jan. 1, 2000.

"I felt Y&R was at a potential crossroad. And I felt that if it went one way, I had to sign up for four to five more years," he now says. "I was 61, and both my wife and I said we had enough. I'm concentrating on those things I wanted to do while I still had the energy and enthusiasm for them," including pro bono work, philanthropic pursuits and writing a book.

While Mr. Georgescu had both personal and professional reasons for stepping down, his move created some hard feelings inside the agency. Some blamed him for "abandoning" the agency when it needed a strong leader to fight takeover attempts. Still, as one executive says now, "How fair is it to blame or credit all of that on him? Did they expect him to stay forever?"

Mr. Georgescu, asked if his departure left the agency vulnerable, says, "I don't spend two nanoseconds speculating on that. Once you make a decision to leave, you leave. Life is not a video game; you can't go back to Go." As for regrets, he has none, he says. "I left behind a pretty stellar team."

So partly due to a series of management decisions, partly due to Mr. Sorrell's persistence and partly due to employee enthusiasm for the deal, Y&R became a part of WPP. But it is the company's struggle to maintain its identity and priorities that will help it retain its individuality even as it becomes part of something bigger. Many agree one of the keys in that struggle is leadership.

Before 1998, Y&R had only six leaders in its 75-year history. Then No. 6, Mr. Georgescu, stepped down and it was decided former Burson-Marsteller chief Mr. Bell would ascend into his job. The industry was taken aback; it had been widely assumed that Mr. Vick, Mr. Georgescu's right-hand man for years, would step into the job. Mr. Vick says he didn't want to run a public company and wanted to spend more time with his family. So he took the non-management titles of chairman and chief creative officer.

Now Mr. Vick is back in the thick of things as chairman-CEO of Y&R Advertising. "A funny thing happened on the way to the golf course," he says. "I got bored. This is a brand I've really come to care about and I didn't want to see it lose its power. My ego is not tied up in this. After all these years, I'm doing this because I want to."

With Mr. Georgescu gone, Mr. Sorrell focused on wooing Messrs. Bell and Dolan, the latter then chief financial officer. Messrs. Dolan, Bell and Sorrell met face to face in early January 2000-just a few weeks before a Young & Rubicam board meeting in Florida. Mr. Dolan says when Mr. Sorrell brought up the idea of a sale, the Y&R executives told him they didn't want to discuss it just then, but would bring it up with the board. And so began the mating ritual. What followed was an on-again, off-again tangle of meetings and e-mails over five months that resulted in Mr. Sorrell turning away from Mr. Bell to concentrate his attention on other influential managers and board members.

While Y&R clients kept mostly silent, they played a key role behind the scenes. Ford Motor Co. spent at least six months discussing the impact of a deal, and the automaker expressed displeasure when Y&R entertained an offer from French holding company Publicis Groupe, because of conflicts with other car accounts. Other clients common to Y&R and WPP agencies, such as Sears, Kraft and Mattel, plus those with potential conflicts, including Colgate (Y&R) and Unilever (Ogilvy and JWT), were consulted. Most were said to give limited blessings, although none were thrilled with the uncertainty generated by the prolonged wrangling.

When the final details were worked out, Mr. Bell and then-Y&R Advertising President Graham Phillips, who had been CEO of Ogilvy when WPP bought it in 1990, both walked away. Mr. Dolan was appointed to the top job, while Mr. Vick took over at Y&R Advertising. While it became gradually apparent during the acquisition process that Mr. Bell-who had clashed with Mr. Sorrell several times-would leave, it was almost pre-ordained that Mr. Phillips would go. He and Mr. Sorrell had never gotten along, and Mr. Phillips had left Ogilvy after WPP's takeover of that agency.

Suddenly Y&R, a company that only had six leaders in 75 years, had two chiefs in as many years. The first, Mr. Bell, fell into an unfortunate situation, according to insiders. Because he came from public relations rather than advertising, he had difficulty picking up support within the company. And he refused to refute rumors or quell suspicions during the WPP courtship. Instead, he focused on ignoring the outside gossip and media attention to run an agency that was growing increasingly fragmented under the stress.

The second leader, Mr. Dolan, comes to the job with a lot of embedded support and respect from upper-level executives, middle management and rank-and-file employees. Agency President Linda Srere says she believes Mr. Dolan is right for the job even though he doesn't have the same style as Mr. Georgescu.

"You need to be able to empower a team and Mike does that quietly and in his own way. He has an authenticity about him and you know what he stands for. He's very gracious and sincere," says Ms. Srere, herself a well-liked executive."Mike is setting a vision and tone, and a lot of us are stepping up and taking up the challenge."

Before he moves the team forward, Mr. Dolan still has to deal with fallout from the past year's internal politics. The ups and downs unfortunately divided managers and employees into different camps. One Y&R executive says, "It seemed to be all caught up in egos. It never used to be like that." It will be important for Mr. Dolan and the other top executives to re-impose a team spirit, he says. That's a new challenge at Y&R, where team spirit had never really been a problem like it can be at other, more internally competitive agencies.

"Every company needs a leader who sets the tone. That, more than anything else, determines the feel of the agency. They bring out the attributes they want in their people and they hire for those attributes," says Nina DiSesa, chief creative officer of McCann-Erickson Worldwide, who worked at Y&R in the '80s. "I always felt cherished at Y&R."

That feeling originated with the agency's founders. John Orr Young and Raymond Rubicam met in 1918 at the Armstrong agency in Philadelphia where they shared an office. They reunited at N.W. Ayer & Son in 1921 and became even closer. It was then they realized they had a similar vision: to build an agency that would turn the traditional top-heavy power structure on its head, an agency where writers, artists, media buyers and account people would all share in the power and profits.

It is that then-revolutionary notion that formed the foundation for Y&R's culture. That, along with stable leadership, led to the agency's familial feel. Ironically, it also led to problems during the merger talks. Because there were many executives and employees with a stake in the outcome of a merger, there were many differing opinions. That fostered internal conflicts that raged for months before the merger was finalized.

Y&R's stability also comes from its location.While Messrs. Young and Rubicam opened in 1923 in Philadelphia, they moved to New York just a few years later. The shop re-opened on one floor (the ninth) of its current home in 1926 because of client pressure. General Foods, then called Postum, offered up Jell-O as a prize if Y&R made the move. Although Mr. Rubicam was known for refusing unreasonable client demands, the agency was young and needed the business. What followed was the gradual building of a stable of long-term clients, including Ford, Kraft and Philip Morris.

Y&R added diversified services such as PR, direct marketing and promotions, with its first integrated solution in 1974. But Y&R lost its fabeled Jell-O account when Kraft pulled the business in the tumult of 2000.

Although there have been ups and downs in recent years, current and former employees believe the agency's culture has never been as threatened as it is now. "Everyone knows in their hearts Y&R is not what it was even a year ago," admits one current executive. "Maybe the top people have to accept that what they accomplished is much more than what they couldn't and move on."

The agency also needs to strengthen its creative output. Although it was never known for its creative prowess, the shop had been trying to raise its profile. But Y&R has been without a creative leader since Worldwide Creative Director Ted Bell left last summer; a search is now underway for his successor.

Additionally, some executives are worried about Mr. Sorrell's hands-on management style. While he has not directly hired or fired anyone, his guiding hand is apparent, executives say, and has contributed to unease among the staff. They also are concerned about financial restraints under WPP. Mr. Phillips once joked he knew it was time to leave Ogilvy when Mr. Sorrell considered putting coin slots on bathroom stalls. A former JWT executive says, "One of my biggest problems was finding money to keep people and convincing WPP that we needed more money for compensation."

Mr. Dolan brushes off such concerns and in fact seems content to let Y&R's new parent worry about financials while the agency company focuses on the basics. "It took an enormous amount of energy on the part of the senior management team to be public," he says. "It distracted us at times from focusing on the client. The merger with WPP is a great opportunity to get back to where we were. It frees us up to do what we're good at, and what made Y&R great."

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