Why advertising agencies can no longer ignore conflicts of interest

This post is by Darren Woolley, Founder of TrinityP3With his background as analytical scientist and creative problem solver, Darren brings unique insights and learnings to the marketing process. He is considered a global thought leader on agency remuneration, search and selection and relationship optimisation.

A conflict of interest is defined as when a person is in a position of influence and uses that influence for their own personal gain, usually financial. It is particularly important when the money involved is from the public purse and is a part of the probity and rigor surrounding the awarding of all Government contracts.

But the same should and can be argued for all contracts, especially in the advertising industry, where the agency has had a huge influence on where and with whom the marketer’s budget is spent. This can be as large and significant as the awarding of a media contract down to the appointment of a storyboard artist to draw up the latest television concept for their client.

Increasingly these decisions are being reviewed by the client’s procurement teams and are often found to be lacking in either rigor or probity. In an industry where deals and appointments are often lauded for being made over a handshake or after a game on the links, is it any wonder that the industry has a reputation for being less than robust in the handling of their clients’ dollars?

But what is Conflict Of Interest?

Lets look at some hypothetical examples and see if you think any of these represent a conflict of interest.

  1. A senior agency manager starts a production company with their domestic partner and uses their influence to have all agency staff actively recommend and propose the company to their clients without declaring the personal interest.
  2. A senior agency producer recommending and appointing a particular supplier to their client’s business in exchange for gifts, gratuities and entertainment from the supplier, none of which is declared or passed on to the advertiser.
  3. A senior creative person singing the praises of a post production company, while being disparaging about the competition, encouraging more client business to the company owned by his brother in-law.

You will notice that all of these examples are related to advertising production and this is deliberate, as it appears to me that this is where many of the examples we hear about arise.

I am not sure if it is because of the relative smaller nature of the spend (compared to say the million dollar deals made in media) or a tradition of appointing and working with those that you know and therefore have a relationship with (production people certainly belong to a very tight community within the larger advertising industry), but the fact is that conflicts of interest can occur in any and all parts of the advertising process.

If you need to be told, they all represent a conflict of interest. The tell tale sign is that the facts are often withheld from the client paying for the service.

How does the industry ignore this?

Of course, it is not everyone in the advertising industry participating in this behaviour, but the problem is that as per the idiom, one rotten apple is more than enough. I remember having the conversation on conflicts of interest with a senior agency player and when I gave them these examples their reaction was that this is simply the way an agency got things done.

They expounded on a wide range of justifications such as:

  1. Working with people you know means that you are guaranteed to get the job you want and the quality the client needs.
  2. Clients rarely allow enough time to do the job properly so there is no time to waste going through some tedious selection process when you know the right company for the job.
  3. Besides, the whole industry has its hand out, if you land a little of the cash going through then good luck to you, because if not you then someone else will.

The problem is that the agency is acting as an adviser to their client and therefore should be working in the best interest of that client. If they are conflicted they should declare the conflict and offer to excuse themselves from the process.

On this point, I have had agencies suggest that the declaration of potential conflict would be a breach of confidentiality or commercial confidence. But the agency and its personnel should never be in a situation where these arrangements are bound by legal gags. We are not talking about the public declaration, but simply informing the client of the situation and allowing them to make an informed decision on the best way forward.

But justifications like these as simply convenient excuses that allow this type of behaviour to flourish. In the process it diminishes the credibility and integrity of the whole industry.

The increasing role of procurement

The issue for agencies is that while their clients, advertiser and marketers, may be too focused on the outcomes of the process to worry or identify these conflicts, this is a core responsibility of the procurement team.

Procurement is charged with not just cost management, but also the need to manage and minimise risk and ensure a robust and diligent supply process. Agencies are very rarely acting as agents for their clients these days. Instead the agency is more likely to be a contractor, without the ability to bind an advertiser to a commercial arrangement without their written permission.

This means that when the agency ‘procures’ services from third parties on behalf of their clients, the procurement team have the right to oversee this process and ensure due diligence. If an agency is found to be conflicted in this process then it is likely that the procurement team may take over the process to minimise risk to the advertiser.

In the process the agency could potentially lose any influence on the outcome. In some cases, the justification of decoupling production from the agencies is legitimately given as not to reduce cost, but to minimise the risk to the advertiser of poorly managed and executed procurement by the agencies.

How do you identify a Conflict of Interest?

While it should be fairly straight forward, there are a few ways you can identify if a conflict exists:

  1. If the person having either direct decision making or influencing the decision has any relationship with anyone who will benefit from the outcome it is potentially a conflict.
  2. If you would not want the relationship or the situation known directly by your client then it is probably a conflict. (Never assume they know as often they do not)
  3. If you are obtaining a benefit directly or indirectly, either financial or otherwise, from the outcome of the decision and this is not known by all parties involved, then it is probably a conflict.

Applying these guidelines to the examples given above, I am sure you can see that they are all conflicts of interest and therefore should be either declared or eliminated in the best interests of the individuals involved, the agencies and companies involved and the industry at large.

Applying this standard to TrinityP3

In our role as an adviser to marketers, we hold ourselves to a standard to avoid all conflicts of interest, either perceived or real. All TrinityP3 consultants sign a contract that has specific provisions on conflicts of interest and processes and requirements on how to manage these should they arise.

If a potential conflict does occur, such as a relative working for an agency participating in a review, or a consultant having worked previously for a competitor of a client, we are open and transparent with our client, informing them of the potential for conflict and allow them to make the decision as to whether the consultant should continue.

We expect this of ourselves, our clients and the agencies and companies involved in our projects. It is always disappointing to find out conflict exists when it can usually be addressed and dealt with effectively up front.