Madmen, Megamergers & Megalomaniacs

Omnicom and Publicis say their merger has many merits; David Ogilvy’s right-hand tells Marketing editor-in-chief David Thomas that he isn’t so sure When news of the plan for the biggest merger to ever hit adland came down earlier this summer, my first impulse was to reach for my copy of The King of Madison Avenue: David […]

Omnicom and Publicis say their merger has many merits; David Ogilvy’s right-hand tells Marketing editor-in-chief David Thomas that he isn’t so sure

When news of the plan for the biggest merger to ever hit adland came down earlier this summer, my first impulse was to reach for my copy of The King of Madison Avenue: David Ogilvy and the Making of Modern Advertising and reread the dog-eared section on the madness of mergers.

Ken Roman, former chairman and CEO of Ogilvy & Mather and colleague of Ogilvy for 26 years, wrote an excellent book and one of the chapters that really resonated was its firsthand account of the big bang that hit the industry in the 1980s and is still reverberating today. It’s fascinating to see how David Ogilvy’s rant held up against all the tongue wagging surrounding the Publicis-Omnicom marriage.

At the time, Saatchi & Saatchi (aka Snatchit & Snatchit) was on a binge, and BBDO, Doyle Dane Bernbach and Needham Harper Worldwide had already circled the wagons to form Omnicom in 1986 – all this before Martin Sorrell broke away from Saatchi to set up WPP Group with a fantastically ambitious plan to build it from scratch into the largest agency in the world.

David Ogilvy

The book captures Ogilvy’s aching remorse in losing control of the company he had built to WPP, an act he likened to “seeing one of his children sold into slavery.” It seemed like a good time to ring up Roman, now 82, at his summer house in Nantucket to talk mergers, megalomaniacs and get a little perspective on Publicis-Omnicom. I really wanted to find out if a quarter century’s deal making had changed his thoughts on whether advertising agencies should even go public in the first place.

In conversation, Roman is refreshingly blunt. “In retrospect, it was a terrible mistake for us to go public,” he states. “There is no reason for agencies to ever have to go public, other than to provide getaway money for the founders. I don’t think we would had to have gone public to do a lot of things that are being done now. We could have controlled our own destiny.”

The reality is that a company’s board generally has a fiduciary responsibility to accept a strong bid. In 1989, Ogilvy’s board discovered this cold reality would severely limit any hope of rebuffing WPP. “You can’t make any decisions as to what’s good for the clients,” Roman explains. “You can’t make any decisions as to what’s good for the people. You can only make a decision as to what’s good for the shareholders.”

It was Ogilvy himself who pushed hard for the firm to go public in the first place, driven more than a little by the appeal of an immediate personal financial gain. Two past marriages and the cost of a grand chateau 160 kilometres south of Paris had encouraged that way of thinking. In the end, when faced with a hostile bid, he found he didn’t have a defence and Roman still recalls breaking the news: “He’d write these memos saying ‘The worst mistake I ever made was going public. Can’t we go private?’ I said, ‘Dave I didn’t take us public. But no, we can’t. We don’t have enough money to buy back the shares.’ ”

While shareholders stand to gain the most from megamergers, Roman is sceptical of the real value of synergies and scale touted in the Omnicom-Publicis tie-up and other mega deals, labelling back-office savings as “transitory.”

He also believes it will be hard to wring out more savings from publishers in today’s market. “I can see where there’s some benefits and there’s no question that media buying agencies deliver more bang for the buck because they can negotiate higher. But at some point the media can say I’m sorry there’s no more, I can’t give any deeper discounts. We don’t have any profit left.”

Roman confesses he’s a bit of out of touch when trying to gauge the rising marketing clout of technology companies like IBM, Google and Adobe. But he says it is sure to lead to a period of confusion where the “whole traditional setup of the agency as a service business” is challenged by clients working directly with channels and bypassing agencies entirely in some cases. “Whether [the model] is on its way out, I can’t tell you.”

The best way for agencies to ensure they stay relevant, he says, doesn’t lie in beefing up scale or building out in programmatic trading; it’s the tried-and-true notion of being able to come up with big ideas.
“I doubt whether some of these companies with the technology can develop the creative resources to come up with the advertising ideas and the creative ideas. And what is the one thing that agencies can do that the clients can’t do? There’s never been a successful in-house agency. Nobody else can do ideas and I think that’s where the leverage is.”

But what about fostering and protecting the kind of environment that stimulates ideas and where creative people can deliver those big ideas? That’s where the importance of culture comes in and Roman believes that Ogilvy & Mather, while diminished today as a result of the WPP takeover, has nevertheless held up comparatively well because of its DNA.

“David built a very strong agency that was damned resilient. The culture of Ogilvy & Mather was, and I think still is, quite strong. Ogilvy is still a great agency and it will do well. Did the takeover by WPP help it? I don’t think it did. And I didn’t think it did at the time.”

Roman still has an impeccable inside source who keeps him on top of how things are going at Ogilvy—the company barber.
From what the barber says, the company is doing well but, like most firms today, lacks the continuity in talent development he saw in his day. “He’s telling me that among the younger kids coming in, there’s over 30% turnover. We used to say nobody leaves this agency if we don’t want them to. But now they come in, spend a year or two, get their credentials, and get out.”

He insists it’s possible to keep strong agency cultures intact under the roof of a large holding company structure and credits Omnicom as being one of the best in this respect. He calls WPP “much, much more finance-driven” than Omnicom, and he got a first-hand lesson during the brief post-takeover period when he worked with WPP.

“Let me tell you, dealing with that organization is brutal – cutting salaries and delaying raises… Martin Sorrell, I think, understands that good creative work is important but at the same time it’s a money culture, much more so than Omnicom.” Over time, he says that would wear away at whoever runs an agency under the WPP umbrella.

Our chat winding down, he offers a bit of advice to any partners running an agency today: avoid the temptation, if you can afford it, to take your company public. That way you can build something that endures, or at least plan to exit when you feel like it. And don’t get hung up on size. “If you’re trying to build an agency for the future that could be enduring, you shouldn’t try to be the biggest. You should try to be the best.”

Finally, as to what comes next in the merger dance, where most of the holding companies are publicly traded? “There’s no going back. I think Martin Sorrell was right that this is not the last merger. There’ll be a lot more.”

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