Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (12 page)

Can a marketing campaign, any marketing campaign, warm the cockles of a consumer's heart toward a bank in the same way? Anne Finucane, like new CMO Meredith Verdone, understands the nature of the challenge. She closed BofA's monthly marketing meeting by stressing her biggest single takeaway: it is mission critical for the bank to gain the trust of more consumers. Their surveys tell them that only 28 percent of the American public trusts the banking industry. Over eight years out from the global financial crisis, banks were still climbing out of the wreckage of their reputations. “We can't lose our ability to sell our strategic message,” she told her marketing team. But for Finucane and BofA, broad brand and product advertising is a relatively small piece of their marketing pie—a $100 million slice out of $2 billion. Even if it were much bigger, no one thinks there's a single magic spell that can be cast to win back all of the trust that has been
lost.

“Seventy-five percent of our revenues comes from things—$15 billion of nearly $20 billion—Don Draper wouldn't recognize.”

—Martin Sorrell

In another restaurant where he's well known, Milos on West Fifty-fifth Street, where the chef emerges from the kitchen to recommend dishes and the maître d' automatically delivers a dry martini, Michael Kassan slipped into his seat on this May night fresh from having seen
Hamilton
a third time. Sipping his martini, Kassan came down from the up the musical inspired as he spoke of the difficult challenges confronting the agency world and its four largest holding companies in mid-2016: the lack of a rising new generation of leadership. “John Wren [CEO] of Omnicom is the youngest at sixty-four or sixty-five, Martin Sorrell of WPP is seventy-one, Maurice Levy of Publicis is going to be seventy-five, and Michael Roth of IPG just turned seventy. There's no clear successor for any of them. You've got no identified next generation of leadership in this business.” He saw
agencies as imperiled. “How does a traditional holding company deal with disruption? I'm not sure. The answer is that they're at real risk. They're not going out of business. But clients are chipping away.” And the more they chip away, he tells his staff, it is unavoidably true that “for MediaLink this is really good news. The opportunities for MediaLink become really robust as people come to rely on their agencies less.” And Jon Mandel's speech, he knows, hurt agencies and helped MediaLink.

One can appreciate why what Kassan considers good news for MediaLink would anger the leaders of these holding companies. In this regard, the agencies are as one. Otherwise, there are certainly plenty of differences among the large agencies. WPP is the Goliath, ranked number one ($18.7 billion) among all world agencies in 2015 revenues, followed, in order, by Omnicom ($15.1 billion), Publicis ($10.6 billion), IPG ($7.6 billion), Horizon ($6.5 billion), Dentsu ($6.3 billion), and Havas ($2.4 billion). Each claims to have a distinct brand identity. Omnicom does not advertise that its CEO, John Wren, spends much of the year at his home in Palm Beach, but it does tout its award-winning creative work, and that by reorganizing its media agency endeavors under a new entity, Hearts & Science, they captured more new business in 2016 than any other holding company. Publicis lost more accounts than its competitors in 2016, but Maurice Levy says that his company is truly global and unlike most competitors, including WPP, doesn't view the world through “Anglo-Saxon eyes.” Publicis was, he says, first to create a beachhead in China. Michael Roth, CEO of IPG, says, “The DNA of our company is entrepreneurial rather than command and control.” He touts the unusual digital work of one of its agencies, Bob Greenberg's R/GA. Roth sees his role as an “allocator of capital,” and as the public face of IPG.

The other companies, though large, do not offer the same full range of services. Japanese-based Dentsu offers strong media agency services, but outside of Japan they usually partner with outside
creative agencies. Bill Koenigsberg, the CEO of Horizon Media, also is focused on media services and partners with outside creative agencies. He says, “We don't try to sell various services,” and because they are “privately held,” they are not preoccupied “with quarterly earnings,” leaving him to be concerned with “only two constituencies, employees and clients.” While France-based Havas is the smallest by revenue of the big marketing companies, Yannick Bolloré, the CEO, matches Koenigsberg's claim that because his firm is family owned “we are not dependent on the market,” and he adds something that is easier to assert than prove: their culture “is more collaborative.”

No one is more vocal about the swarm of new competitors all of these players are combating than Martin Sorrell. Sorrell is less diplomatic and more nakedly competitive than Levy, Wren, or Roth. While the others express warm feelings for Kassan, Sorrell openly looks upon Kassan and MediaLink as a frenemy, as he does Facebook and Google.

This bristly, on-guard stance is part of Sorrell's DNA. His Jewish grandparents immigrated to London from Ukraine, Poland, and Romania. In the poorer East End of London, his grandparents and parents felt the lash of anti-Semitism, a reason they changed the family name from Spitzberg to Sorrell. To help support his family, his father, Jack, dropped out of school at thirteen, abandoned his violin and the scholarship offered by the Royal College of Music, and went to work as a salesman for Max and Francis Stone, Russian Jews who owned appliance stores. By the time Martin was born in February 1945, Jack was the general manager of their 750 stores and the Sorrells enjoyed a measure of affluence. They lived first in a comfortable flat in northwest London, then upgraded to a bigger detached house in Mill Hill, a leafy suburb. After a brother died in childbirth, Martin remained an only child and the recipient of the full attention of his parents. His mother, Sally, devoted herself to being a housewife and caring for her son, carefully wrapping his school lunch sandwiches in plastic. His
father was an amateur Shakespeare scholar and could recite entire passages from the Bard's plays.

Jack Sorrell is still a presence in his son's cluttered second-floor London townhouse office, located in a residential mews at 27 Farm Street in Mayfair. The largest photograph in the room, dwarfing all the small framed photographs on the credenza leaning against the bare white wall facing his desk, is of Jack Sorrell. It is unframed and slightly faded. The picture portrays a man of regal mien, his dark, full mustache trimmed, his eyes dark, his black hair combed straight back, his formal dark suit accompanied by a black tie with white polka dots and a white pocket square. There is a hint of a smile on Jack Sorrell's closed mouth, as if he is suppressing it. There is little physical resemblance between father and son. Martin's hair is greyer and shorter, he wears unframed eyeglasses, and he is mustache free. Unlike his father, he thinks of himself as an entrepreneur who is unabashedly proud to say he personally built the WPP from a wire basket company to the world's largest advertising and marketing entity. Like his father, Martin does not suffer fools and carries a chip on his shoulder. “My father,” his son says, “never felt he had the advantages—because he had to leave school at thirteen, he couldn't take the scholarship. He had a very good brain but he was probably upset that he worked like a slave but was not an owner. . . . We were so close because he wanted to give me the advantages he didn't have.”

His dad pushed Martin to go to the right schools, and Martin pushed to make his dad proud. He also relied on his father as his consigliere. Jack Sorrell, he once told a
Forbes
magazine reporter, was “somebody you could talk to who doesn't have an agenda but your interests at heart.” Apart from his wife, Martin said, no one filled that role today.

Esteemed historian Simon Schama, who met Martin when they were eleven-year-old students at the elite Haberdashers' Aske's Boys'
School in northwest London, describes Martin as “exuberantly tough” and “full of a kind of cuddly warmth” that is often camouflaged. They were “brotherly close,” he says, with sterling grades when together they graduated Christ's College in 1963. On Fridays Martin's mother would wrap a roast chicken in silver foil and plastic and put it on the train to Cambridge. “I would pick it up,” recalls Martin. “The chicken was still warm.” Schama would make risotto to accompany the chicken. The chicken was kosher, as was all their food. “We were slightly left-wing Zionists” living a semibohemian lifestyle, Schama says. Together, they edited and published a glossy magazine,
Cambridge Opinion
, which appeared six times a year, each edition devoted to a single subject. In 1964 the subject was America. With the assistance of a professor who was a friend of Daniel Patrick Moynihan, Schama wrote the New York Democrat and arranged to visit when he and Sorrell went to America that summer. Moynihan wangled press credentials for them to attend the Democratic National Convention in Atlantic City. The two nineteen-year-olds fervently supported Lyndon Johnson over Barry Goldwater. The next summer, after their junior year, they traveled together to Vienna, Berlin, and Eastern Europe, seeking to better understand what Schama describes as “the ghosts” of anti-Semitism; their eyes flooded with tears visiting former concentration camps.

Among Cambridge classmates, it was common to aspire to be a writer, professor, or lawyer. Martin was different. An economics major, he had “a steely” determination to be a businessman, Schama says. “Martin always felt that Jack had been mistreated, he had been disadvantaged” by the Stone brothers and by early poverty. “Martin certainly wanted to vindicate his father by succeeding.” He graduated from Harvard Business School with an MBA; he often says the case-study approach taught him to think like a CEO. After working for a consulting firm in Connecticut, he reintroduced himself to Mark
McCormack, founder and chairman of IMG, an international agent for sports figures and celebrities, whom he had met when McCormack spoke at Harvard. McCormack remembered Martin as the brash young man who made it his business to converse after class, and offered him a job opening at an IMG office in London. Some months later, McCormack let him borrow his chauffeur and Rolls-Royce or Bentley, Sorrell can't recall which, to impress a first date, Sandra Finestone, whom he would marry. They had three sons, were married for thirty-five years, and divorced in 2005. (The divorce cost him an estimated £30 million and a four-story townhouse.)

He left IMG in the mid-1970s with the idea, he told the
Harvard Business Review
, “to try to start a company with my dad, who was my closest adviser and mentor at that time. We didn't find a business that made sense.” So he joined James Gulliver Associates as a financial adviser. The firm had invested in an ad agency that Saatchi & Saatchi acquired, and when Saatchi was searching in 1976 for a chief financial officer, Sorrell was recruited. For the next nine years he worked for Maurice and Charles Saatchi, often terrifying those sitting across from him as he crunched numbers in his head, stared down opponents, and orchestrated a spree of mergers that would transform Saatchi into a powerful holding company.

The pioneer who launched the “holding company” era was Marion Harper, Jr., president of McCann-Erickson, who acquired a number of agencies and by 1960 had placed them all under a new umbrella, the Interpublic Group. Advertising agencies began to go public, and attracted famed investor Warren Buffett, who in the 1960s took sizable positions in McCann-Erickson and Ogilvy & Mather. “You know the best business to be in?” Kenneth Roman, former chairman of Ogilvy said, recounting Buffett's words. “It's one where you're shaving in the morning and can look in the mirror and say, ‘Today, I'm going to raise
prices.' And you can do it.”
*
As was true in most giant industries, the belief that size conferred advantages was rampant. Size conferred more leverage to raise prices and lower costs, provided a bigger global footprint to pitch clients anywhere, enabled synergies that offered efficiencies, and boosted profits by applying cost-cutting pressure on newly acquired assets to improve the parent company's margins.

The Saatchis realized that the industry was evolving into two tiers, a handful of giants versus Saatchi and everyone else in the middle, where they were prey. Harper understood this. Andrew Cracknell credits—perhaps condemns is a more appropriate word—Harper's push for a giant holding company because it subjected advertising to “the equivalent of its own industrial revolution.” In the future, he wrote, agencies would be measured by “the bottom line,” not the creative “quality of their work.” And by coining the phrase “marketing communications” to describe his agency, and bringing under his IPG umbrella marketing functions and charging clients for their distinct services, Harper had more of an impact than the great Bill Bernbach, in Cracknell's view.
*

Saatchi's first major acquisition came in 1975, when they partnered with the London office of Garland-Communications, whose clients included Procter & Gamble and who owned a piece of Compton Communications, which was much larger than Saatchi. The maneuver, which was a reverse takeover, would over the next decade help propel Saatchi to eclipse IPG as the world's largest ad agency. Sorrell was the financial engineer. “That was the cornerstone deal,” Sorrell says. “The brilliant deal we did”—he invokes the word
brilliant
three times in a single sentence to describe the deal—“was when we squeezed
Compton advertising,” becoming the controlling owner. Under the terms of the deal, Compton would own 20 percent of Saatchi.

However, instead of paying Compton, Sorrell persuaded them to convert their one-fifth ownership into shares in a new subsidiary company Saatchi formed. Compton was a public company, and its market valuation generated a pool of capital for Saatchi to tap to make more acquisitions, including Compton's U.S. business in 1982.

In the nine years he worked there, Sorrell was often referred to as “the third brother,” an identity he rejects because he says the brothers were shrewd strategists unto themselves and he was very clearly their employee. As the person who negotiated Saatchi's deals, Sorrell could be intimidating. Jerry Della Femina, the creative force behind the agency Della Femina, Travisano & Partners, was eager to expand in the 1970s. “I had a reputation as a wild man,” he says. “I realized I would not get good packaged goods accounts, which is where the big dollars were. I decided in the seventies I had to buy an agency in the UK.” He checked out London agencies and was told Saatchi might sell. “I visited the Saatchi brothers and Sorrell. They lacquered me with praise. I was their hero. They talked about how I could buy them. I said to myself, ‘They are smart guys.' After a while I realized, ‘They are smarter than I am. They would eat me for lunch!'” A few years later an
Advertising Age
reporter phoned Della Femina and asked for his reaction to news that Garland-Compton had acquired Saatchi. “‘No,' I said. ‘Saatchi will own them.' They did.”