4A's Conference

Peeler, Liodice and Mower Talk Regulatory Challenges

Industry Bigwigs on Online Privacy, Tax Codes and Childhood Obesity

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The marketing industry's interest in regulatory issues ebbs and flows, depending on the tide of government interest and public outcry. Right now, that tide is high -- thanks to Congress' interest in online privacy, a push to close federal and state budget loopholes by revising the tax code and a global push to end childhood obesity.

In a prelude to our panel at this week's 4A's Transformation Conference in Austin, Texas, I checked in on the issues with Lee Peeler, head of the National Advertising Review Council; Bob Liodice, CEO of the Association of National Advertisers; and Eric Mower, CEO of eponymous agency EMA, as well as chair of the 4A's government relations council and chair of the National Advertising Review Council.

Ad Age: What has the industry learned about regulatory issues over the past several years?

Bob Liodice
Bob Liodice

Bob Liodice: We've learned it's important for us in the industry to not just be technically right. For example, on the food side of things a few years ago we were doing things technically right -- adhering to CARU guidelines, abiding by First Amendment privileges. But as one of our board members said then, we had lost in the court of public opinion. And we can't do that. We need to make sure self-regulation has credibility and the support not just of Congress and the FTC but also of the public. ... That's why we developed what we think is a very robust system for self-regulation around food, managed by NARC and done in concert with the food and beverage industries.

Ad Age: Now you're facing the same issues with online behavioral advertising.

Mr. Liodice: When we found out Connecticut and New York were going to pass laws to regulate this practice of online behavioral advertising, we put the pedal to the metal and we brought in NARC and Stu Ingis from [law firm] Venable and we started a painstaking process to develop the principles, which led our move into the accountability phase, which is NARC signing a contract with Evidon. The system is largely there and now we need to move into communications phase, with the industry and the public at large.

We've been pushing water uphill in convincing regulators and public-policy groups that we are serious and moving forward -- now we're convincing them that it's here and real. This is also being viewed by the World Federation of Advertisers, and they're about to use it as a template for the EU.

Ad Age: Are there limits to self-regulation?

Lee Peeler: Sure. For self-regulation to work, you've got to have a clear set of standards that are shared by the industry and are capable of objective, judgment and enforcement. The second set of limits is that for self-regulation to be effective is the relevant industry needs to participate in good faith.

Lee Peeler
Lee Peeler Credit: Doug Goodman

Finally, self-regulation needs to meet three basic criteria: There needs to be independence of decision makers.

There needs to be transparency. When this process was started there was a long debate over whether more advertisers would participate if it was completely confidential. It was a courageous call at the time to make it public and that turned out to be a great move -- we publish every decision. That provides public accountability for a self-regulator and also imposes some discipline on the process.

Finally, there need to be consequences to not complying. ... We get great backup from the government and we have low levels of cases that need to get referred [to them] -- maybe 10 out of 150 cases annually.

Ad Age: Is there a role for the industry to play in making better or healthier products, rather than just monitoring the advertising?

Mr. Peeler: Except with regard to young children, the basic approach of industry and government has been that you tell the truth -- and if there's an issue of the product it's not an ad issue but a product issue. So if lawn darts are dangerous the [Consumer Products Safety Commission] should take them off the market.

For young children, that has not been true. We don't allow advertising on programming primarily directed to kids for any products that have keep-out-of-reach-of-children labeling -- vitamins or OTC drugs. For other products we try to make sure they're presented in a context of safe use, so if you show kid skateboarding, you need to show elbow pads and knee pads.

The other important step, in response to food advertising, is the Children's Food and Beverage Advertising Initiative. A group of 17 of the nation's largest food advertisers have come up with nutrition standards about what foods they'll advertise to kids under 12. ... And the self-regulatory body monitors to make sure they're complying with those standards.

Ad Age: How much do bad actors hurt the whole?

Eric Mower: I've never felt we're put upon as an industry. There are valid reasons why people in Washington have concerns about the ad industry. But those concerns aren't adequately differentiated. The companies in the ANA or the clients of the member agencies of the 4A's -- those aren't the ones creating the problems. [Problems are created] by outliers, marketers who have very little concern about the standards, practices and norms of the advertising industry gathering in Texas [this] week.

Eric Mower
Eric Mower

The problem is regulations tend to not be surgical in nature but nuclear in nature. ... When Washington attempts to deal with our industry, it's attempting to apply a fix to much of what's not broken.

Ad Age: What are the biggest threats to self-regulation? Is it the marketers who take stuff directly to court? Is it the government? Is it bad actors?

Mr. Peeler: The biggest threat to self-regulation is anything that would undermine the system's integrity, and the second constant challenge is paying for it. How does it get funded, and do we have enough support within the different industries to do the job we need to do? And that's challenging when the industry is in the state it's been in recently.

The big national advertisers we deal with hold themselves to very high standards. Every once in awhile they slip up, but generally they're good. But when you talk to the general public, if there are advertising practices they disapprove of, they think of that as a failure of self-regulation.

Ad Age: What about advertising tax deductions? We keep hearing concern about those.

Mr. Mower: When you look at advertising deductibility, I can understand why Washington would look at every corporate-business-expense deduction as worthy of evaluation. But advertising isn't just a string that you can pull from the fabric without it affecting the fabric.

If deductibility would be reduced or eliminated it would affect our industry, but lost jobs in the industry wouldn't be the biggest issue. The real issue is the competitiveness of our nation and lost jobs in our nations. Every advertiser who does not file a U.S. corporate tax return -- advertisers from other nations, for example -- gains an advantage. They can continue spending on advertising at the same rate while U.S. advertisers may very well have to spend less. And the result may be a change of market share. So the bigger issue is as the world is flat, the net effect of ad deductibility losses could very well be U.S. competitiveness.

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