Adland (21 page)

11

Consolidation incorporated

‘Almost everyone in advertising works for one of five different companies'

Omnicom: the Big Bang

Orchestrating a mega-merger is a stressful business. Some evenings, Keith Reinhard would stand at his office window, overlooking St Patrick's Cathedral on Madison Avenue, and wonder quietly, ‘What the hell have I done?' Reinhard had just helped to coordinate the pairing of giant agencies DDB and BBDO under a new holding company called Omnicom. At the same time, he'd merged his own agency – Needham Harper – with DDB. What seemed like half of Madison Avenue, and a fair chunk of Chicago, was moving under one roof. No wonder Reinhard's office felt a little stuffy.

He could hardly believe that he was now running Doyle Dane Bernbach, an agency he'd revered since before he got his first job in advertising, when he was fresh out of high school in Berne, Indiana. ‘My fascination with Bill Bernbach and his band of revolutionaries started very early,' he recalls, years later. ‘I was absolutely certain that advertising was the career for me, even though I had no education, no experience and little evidence of any talent. Nonetheless I would look forward eagerly to the weekly issues of
Life
magazine, where the Volkswagen ads were appearing. I would tack them up on my wall.'

Reinhard initially wanted to be an art director, and he spent a long time ‘hanging around art studios and bumping into agency big shots', while never quite snagging the agency job he coveted. Finally he got an interview with a Chicago outfit called Needham Louis & Brorby. ‘They looked at my art book and said, “Would you consider being a
copywriter?” ' He laughs. ‘I said, “Sure, that would be great.” Turned out I'd written a couple of scripts that they liked. So at the age of 29, in 1964, I became the oldest new copywriter at the agency.'

Over the years the agency evolved into Needham Harper Worldwide (in 1965 it merged with a New York agency to create Needham, Harper & Steers – with the incoming agency's chief, Paul Harper, in the top slot). And Reinhard's career evolved too, as he climbed the creative ladder and eventually became president and CEO of the agency. Not bad for a guy who started out as a ‘paste-up boy' in the Midwest. He'd also relocated from Chicago to run the agency from New York, where it was now headquartered.

Reinhard had never lost his admiration for Bernbach. And as it happened, there was a link between Needham Harper and the late DDB co-founder. Bernbach had had several meetings with Paul Harper, whom Reinhard had succeeded as president. ‘Harper had a much lower profile in the industry than Bernbach, but they respected one another. He and Bill got together as early as 1978 to see if there might be a possibility of merging the two companies. Even then, people were beginning to see the emergence of a global advertising industry, and on paper, at least, the merger made sense: geographically we were stronger in different regions around the world, and of course Needham was strong in Chicago, where DDB had little presence.'

They also had similar values: both were committed to creativity as their raison d'être. Yet the two agency bosses couldn't come to terms – Reinhard suspects that there may have been a clash of egos over whose name would go on the door. In any event, the merger never happened and it remained a missed opportunity when Bill Bernbach died in 1982.

That same year, Reinhard took over as the boss of Needham Harper. ‘I gathered everyone together and said, “Look, we have to do something. We're the number 16 agency in the world. It seems clear to me that the advertising industry is going to become a two-tier business. There will always be vitality in the bottom tier, the boutique agencies. And then there will be a top tier of maybe six or seven giants. There will be no middle. Unfortunately, we're in the middle. And we better find a way out.” '

There was no way the agency could climb out of the gap on its own – it would have needed to grow another 40 per cent year on year. Other possibilities were considered, but Reinhard remained convinced that DDB was the solution. Bernbach's agency was past its glory days at that
point, languishing in a similar position to that of Needham Harper, at about 13th in the market.

‘I'd only met Bill in person a couple of times, and perhaps had a handful of telephone conversations with him, but I felt that the two agencies could be right together. It had been reported that Bill felt uncomfortable with international – he liked to have a hand in everything that came out of the agency. My idea was to take his insights about human nature and communications, and apply them to a world which bore almost no resemblance to the one in which he'd created his business. My passion was to take his principles of creativity and apply them to new media and to the global marketplace.'

Reinhard began wooing Bernbach's successors at the top of DDB – to no avail. The issue dragged on into the autumn of 1985, when Reinhard began a series of discreet discussions with Allen Rosenshine, then president and CEO of BBDO. The pair would meet at the Stanhope Hotel, ‘because ad people never went there'. Initial conversations about the state of the industry deepened into talk of a merger. Reinhard says, ‘I admitted to Allen that my real passion was for Doyle Dane Bernbach. And he said, “Wait a minute – we've also had some conversations with DDB.” That's when things got serious. We thought, OK, a three-way merger was such a big idea that the lawyers and the nay-sayers would never be able to stand in our way.'

The pair began a series of secret meetings with Bernbach's son, John, and the president and CEO of DDB, Barry Loughrane. Using the codename ‘Stanhope', they'd change hotel suites with every meeting so financial journalists didn't sniff out the merger. (Two of the three companies were publicly held at the time and the stock price would have been affected if the news had leaked out.) On Friday 25 April 1986, the deal was finally sealed. The announcement would be made the following Monday.

The process took on a vital urgency when, at the last minute, Saatchi & Saatchi arrived at the table with more money. But the DDB board was wary of the swashbuckling British brothers and after an agonizing meeting voted to move ahead with Needham Harper. On that Friday, the palpable air of tension was increased by the fact that
The Wall Street Journal
had heard a rumour about the merger, but couldn't stand it up enough to run a full story. ‘Meanwhile, we had an army of young people poised to ring the clients and managers of three different agencies to tell them what was going on. And we had to do it before Monday morning.'

The following Monday, 28 April,
The New York Times
ran a story headlined: ‘Three-way merger to create largest advertising agency.' Three of the world's top 20 agencies had merged in a deal that gave them combined billings of US $5 billion a year and a workforce of more than 10,000 people. Bearing in mind this was more than 20 years ago, the article was prophetic. It read, ‘Advertising has gained enormous status… because [it is] responsible for adding perceived differences in products where actual differences, because of technological advances, often no longer exist… Another pressure is driving agencies into international expansion to accommodate their clients' multinational marketing goals. Some analysts of the advertising scene are convinced that the agency side will soon consist of just a few giant multinational organizations and a multitude of small local and regional makers of advertising.'

And the merger presaged a further trend – that of global communications groups as providers of vast arsenals of marketing services, far beyond mere advertising. To this end, the fused operation included an entity called Diversified Agency Services (DAS) to take care of ‘below-the-line' activities; such as direct marketing, public relations and sales promotion that did not employ traditional advertising techniques.

No personal fortunes were created by the deal: this was about three creative agencies bonding to safeguard their identities in an increasingly rapacious market. The merger was accomplished through an exchange of stock. Each of the three companies got new shares in the holding company, based on a merger of equals and judged by what each was worth. The press nicknamed the deal ‘The Big Bang'.

Owing to client conflicts, a merger of this size was bound to result in account losses.
Campaign
magazine reported that, altogether, the three agencies had lost clients worth US $250 million a year in billings, including the US $85 million Honda account – which departed due to a conflict with DDB's famous VW account and BBDO's work for Chrysler Dodge. Other losses included RJR Nabisco, IBM and Procter & Gamble (‘What cost the mega-mergers?', 26 September 1986).

As the new chief of DDB Needham, Reinhard had another challenge on his hands: converging the cultures of two giant agencies. Although the DDB staff understood that he was a ‘creative guy' and a Bernbach fan, they remained prickly about the new set-up. ‘You can't imagine the “us versus them” attitude; the number of “we don't do things that way” remarks. It was bad enough in New York, but overseas – where we
couldn't be present to smooth things over – virtual civil wars broke out. The managers of both merging agencies would tell the local press, “Yes, there has been a merger – and I'm in charge.” '

As for the press, it was overwhelmingly critical. ‘I think only
Ad Age
had anything positive to say about us. They commended us for our courage – because we'd done what we thought was right without asking any clients. But everyone else was overwhelmingly negative.'

Bearing in mind the previously lacklustre status of the three agencies involved, some journalists wondered whether the Omnicom merger really solved anything. One Madison Avenue commentator joked that the name stood for ‘Operations May Not Improve Considering Our Merger'.

To add to the overheated atmosphere, Saatchi & Saatchi – having failed to win control of DDB – paid US $507 million for the Ted Bates agency, creating an operation worth US $7.5 billion and immediately cutting short Omnicom's reign as the world's biggest advertising group. ‘The press felt that mega-mergers were not about serving clients – they were about greed,' says Reinhard.

And so he would stand at his window – in the office that had once belonged to Bill Bernbach – and gaze into the night while wondering if he'd ever be able to straighten things out. His passionate belief in the long-term rightness of the project weighed against any transitory misgivings, however. ‘Allen [Rosenshine] and I were convinced that we could create a holding company dedicated to creativity… There's a perception that size is the natural enemy of creativity; but what's important is not size, it's the culture and philosophy of the network.'

A respected creative in his own right, Allen Rosenshine initially stepped up from his post at BBDO to run Omnicom. In 1999, however, he returned to running the agency – a job he preferred – and Bruce Crawford took over at the helm of Omnicom. A former chairman of BBDO, Crawford was running the New York Metropolitan Opera when Rosenshine invited him, half in jest, to take on the job. Rosenshine worried that BBDO was beginning to lose its identity. Besides, as he explained to
Adweek
shortly before his retirement in 2006, ‘running Omnicom was not right for me. My experience didn't lie in managing and running a public company and dealing with analysts and promoting the stock and all the things you have to do.'

Rosenshine's self-awareness proved critical to the future of Omnicom, which flourished under Crawford. One of his first acts was to revamp
DAS into a streamlined collection of marketing operations. He was helped in that task by John Wren, who took over as chief executive in 1996. DAS is now the biggest earner for the Omnicom group.

At the time of writing, Omnicom serves more than 5,000 clients in 100 countries and has an operating income of US $1.6 billion a year (2011 annual report). As well as BBDO and DDB, its subsidiaries include TBWA and the media specialists OMG and PHD. Surprisingly, given its vast size, it has largely managed to maintain the ‘creative' identity envisaged by Reinhard and Rosenshine. It is praised for its hands-off management policy, which allows outfits like AMV BBDO, TBWA, Goodby Silverstein & Partners and others to carry on doing their creative thing.

For many years Omnicom occupied the top slot in a shifting peloton of holding companies that included WPP, Interpublic, Publicis Groupe and Japan's Dentsu. But in 2011 WPP bustled its way to the top, having snapped up market research company TNS in 2008.

WPP: wired to the world

‘Forty is a dangerous age,' says Sir Martin Sorrell. ‘When male executives turn 40 they should put a red flag on their computers. It's the male menopause, or andropause. There's always a chance they might do something unpredictable.'

Like start a company that grows into one of the biggest marketing communications groups in the world, for instance? After all, that's what Sorrell did. This feisty, energetic man – who is often described as ‘aggressive' by the press, which suggests that journalists rub him up the wrong way – built an empire from a damp basement office. And the male menopause provided the spark. ‘I thought it was my last chance to start a business,' he says. ‘There's an optimum period in your mid-thirties. At 30 you still lack experience. At 40 you look back at what you've achieved and decide what you want to do next.'

Twenty-five years later, the company he started owns four historic advertising agencies – J Walter Thompson, Ogilvy & Mather, Young & Rubicam and Grey – as well as a host of other communications, research and branding operations; around 100 marketing services companies in total. Sorrell dislikes the description ‘conglomerate' because it implies
that these businesses are disconnected, while WPP aims to offer its clients access to any or all of its component parts.
Fortune
magazine once described it as a ‘marketing machine'.