Agency Transparency Issues, Audits and Reviews Projected to Increase Sharply in 2017

Adding fuel to the fire

The gap in client-agency relationships widened when, in March 2015, allegations by former Mediacom CEO Jon Mandel of widespread U.S. media agency kickbacks during the Association of National Advertisers Media Leadership Conference led to an eight-month investigation conducted by K2 Intelligence for the ANA. The resulting K2 report, issued in early 2016, generated criticism on the reports validity by the agency community but got the attention of U.S. marketing and procurement professionals alike.

While no one will say whether this issue drove the spate of high profile media agency reviews over the past year, the timing is certainly hard to ignore. And it was definitely the reason behind some assignments

we received from clients this year, which included compliance reviews of media agency contracts, SOWs and general processes as well as clients agency rosters.

Now, according to recent articles in AdAge and the Wall St Journal, the U.S. Department of Justice is investigating allegations of rigged production and post-production bidding practices at major advertising agencies.

From our experience, national clients will often cut bait and go to an agency search rather than a lengthy and costly financial audit – it’s typically the global advertisers with a global AORs that have potentially more to gain from a thorough audit when contractual breaches are suspected.

Heading for divorce

Findings from such investigations and the emergence of new allegations, coupled with constant dismissal from major agency leaders as either not widespread or flawed reporting, seem to have many marketers ready to find new agency partners.

According to a recent study by Advertiser Perceptions, a firm that measures what 90% of the top 100 U.S. advertisers think on a variety of marketing and media topics, 48% of those respondents claim their agencies are not transparent when it comes to costs, and one-third do not trust their agencies at all.

So it’s no wonder that nearly two-thirds of those surveyed plan to review their agencies across the board – creative (66%), search (65%), media (64%), and digital (61%).

Saving the relationship

For agencies, here are a few suggestions:

  • Internal Audit + Review – review your business practices against your client contracts and the standards as set jointly by the 4A’s and ANA. Better to know what’s what before you’re clients launch an audit or a review. Immediately make any necessary corrections and be open with your clients regarding your findings.
  • Establish / Update Transparency Guidelines + Procedures – create or update your written processes to close any gaps revealed by your audit. And review against your client contracts for compliance, which by the way are a good resource to determine what you need to cover.
  • Staff Training – make sure your staff know the standards, processes and contractual obligations of the clients they serve. All too often, no one outside of the agency’s executive team ever sees the contract (or on the client side too).
  • Periodic Standards Review – don’t assume that once you’ve done the above you’re set for life. You should conduct spot audits on processes and billings every now and then. And update your operating procedures on a recurring basis. Create an Action Plan that includes criteria for types and frequency of internal audits, and don’t neglect your smaller accounts.
  • 360 Evaluations – everyone hates doing tasks that aren’t related to a specific work assignment, but conducting evaluations should be taken seriously and happen on more than an annual basis. The agency should also evaluate the client too and get this important measurement tool incorporated into your client contracts. Better yet, evaluations should also require each party to perform a self evaluation – its really the best indicator on where gaps in the relationship exist. We know from managing and assessing client-agency relationships that the real complaining about the other partner takes place when the two parties are apart – this benefits no one and big issues that aren’t addressed early on are what eventually erode the relationship.

For marketers, you can’t lay the full blame of client-agency trust erosion at the agency’s feet. We manage a lot of client-agency relationship evaluations and process studies, so we hear the unvarnished perceptions of how marketers frustrate the agencies – and there is a consistent pattern there too. Consider doing the following:

  • Internal Audit + Review – conduct spot audits across your marketing team to ensure processes and procedures are being followed. We’ve seen instances where a rogue person frequently required the agency to break contractual procedures, whether they knew they were asking the agency to violate the contract or not, and the agency was to afraid to say anything. Get your own house in order.
  • Create Written Policies + Procedures – all too often we find clients don’t have written operating standards when it comes to engaging agencies on projects. They’re not that difficult to do and they can live on your department intranet. Without them, your team is more likely to create needless friction between your team and those at your agencies.
  • Staff Training – policies and procedures are useless unless everyone knows and understands them. And while you don’t want copies of your confidential agency contracts floating around, your contractual obligations as well as those of your agencies should be incorporated into your written operating standards. Ideally, you should have a Marketing Operations team that creates and manages your operating standards, agency contracts, client-agency evaluations, and staff training. If you can’t staff this function in-house, turn to any of a number of outside resources to take on these duties for you.
  • 360 Evaluations – to add to the last bullet under what agencies should do, marketers need to move beyond the 90-degree or one-way evaluation and at minimum conduct a 180-evaluation where you are also assessed by your agencies. Better yet is the 360-evaluation as noted above. Agencies rarely tell you about how your team is creating problems – and we’re not talking about the need for more time or more information which are always a given – unless something egregious has happened. Some people on your team are really the cause of or a major contributor to relationship and work product issues with your agencies. In terms of frequency, move beyond the annual evaluation period to conducting evaluations every six months on the overall relationship, and consider having a project evaluation form to be used when you and your agency have completed a major project or initiative. Also, pick one key issue where the agency and the client are failing in the eyes of the other, and develop and implement an action plan to improve on that matter. And don’t forget to measure your progress.
Lead the way

We can’t stress enough how important it is for the marketer to drive open client-agency partnership dialogs rather than waiting until the evaluation period roles around. If you can’t manage this in-house, hire a third party “marriage” counselor to facilitate these dialogs if need be. Otherwise we may be seeing your account in a review that might have otherwise been avoided.

 

Bajkowski + Partners LLC is a leading consultancy providing services to marketing and procurement teams in the areas of agency relationship management, agency search, process audits, contract and SOW development and audits, and a number of other marketing resource and marketing operations related areas. For more information, please visit our website.

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