Commentary

How to Eliminate Conflicts of Interest in Two Simple, Excruciating Steps

When clients look a little more closely at how the ad industry works, it's not very difficult to see why ad agencies have such severe conflicts of interest. The hard part remains to tame them. Fortunately, clients have a very effective tool to do this: the client-agency contract.

In a column last week, I spoke about the prevalence of conflicts of interest between agencies and their clients - those cases where "doing the right thing" was the more expensive policy for the agency. This week, in showing the underlying causes of the conflicts, we might be able to get to a solution.

When clients put some scrutiny on their agency relationships they begin to see several failing points:

Fiduciary Responsibility Agencies find themselves the involuntary media watchdogs for clients, responsible for making sure that the client gets all the media value they paid for in any given deal. But, in point of fact, the agency tends to earn more the greater the cost of the media to the client and the fewer post-buy discrepancies need to be addressed. These opposite forces serve to tempt agencies to disserve the client by agreeing to exorbitant prices and to turn a blind eye when that overpriced media isn't delivered correctly.

Clients have themselves to blame, in good part, because they've been very recalcitrant in funding agency efforts to increase the resources dedicated to media performance tracking. Most marketers put undue pressure on their agencies by complaining that the interactive media discrepancy resolution process should be as cheap to perform as in traditional media. Well, it isn't, and it won't be anytime too soon. Clients that underfund these post-buy efforts are penny wise and pound foolish.

Meanwhile, all the effort going into the tracking of the discrepancy and the subsequent makegood The situation has gotten to the point where many agencies aren't even keeping very good track of discrepancies. Given that they tend to be under-resourced, there's little motivation to conduct strict scrutiny.

Agency Employee Motivations When it comes right down to it, people tend to be greatly influenced by the particular measures their superiors use to measure and compensate them. It would be nice to think that salespeople would work best on a predictable salary, but the reality is that a 40% commission will increase sales much more than the 40% sales premium. Likewise, it would be nice to think that agency media employees work with their clients' interest foremost in their minds. While some agency folks do indeed harbor good thoughts about their clients, the vast majority of people show a consistent tendency to do foremost what's in their own interests.

Agencies don't pay their staff based on the performance they provide to their clients. Agencies pay their staffs based on the performance they provide to the agency. That means that negotiating the media deals of a campaign to spend only half of the budget will not get a media person very far. Being a hero to the client can make one a villain to the agency.

When it comes down to the nitty gritty, people in all departments of an agency find opportunity for advancement when their area of the agency grows - which is almost always tied to growing client budgets. This causes all sorts of intra-agency budget warfare at the very highest levels, with account directors and creative directors fighting over how much money should be recommended for TV versus print, versus that funny little interactive thing.

If agency employees were compensated and advanced based on client results, I believe things might be a bit more rationale in the media markets. I also believe that interactive media would be flooded with demand, but that's a column for another day.

The Fear of Finding Fraud How could agencies possibly design a more conflicted structure? I'm glad you asked. The clients managed to add some exacerbating features that further improve the severity of the conflict.

Time and time again, agencies that discover and report fraudulent media behavior, extreme discrepancies or even new efficiencies that make previous performance appear expensive, all face the "why didn't you prevent this" phenomenon.

Within the last six months I know of multiple agencies that faced the following issues: - Client angry with agency because media site defrauded client, and client believes agency should bear responsibility

- Client angry with agency because media discrepancies are so great, cause untold makegoods and generally play Old Harry with media flighting schedules

- Agency discovers clever new way to get the same effective media weight by spending 25% of the previous cost. Client becomes livid that they paid so much in previous months. (Don't even ask what agency management thought of this.)

It's not surprising that we go through our agency days pretending to be Stalag 13 from Hogan's Heroes. While ostensibly guarding the media inmates, we can be heard parroting Sergeant Schultz's refrain: "I zee nothink! I hear nothink! And I say nothing."

A Solution: Conflict of Interest Policies with Teeth There are conflict of interest policies, and then there are conflict of interest policies. Most agencies have something written up in their human resources manual covering the part where unscrupulous media buyers might - heaven forefend - accept gifts and favors from media sellers.

Generally, these policies will lay out a set of limits. Lunches and dinners are OK, presumably where business is discussed. Minor gifts, like T-shirts, pens, flowers and food are mostly approved. Most times sports and concert tickets get the go-ahead. But gifts involving cash, gift certificates or, more generally, things above a certain value - often about $100 - are verboten. (Unless you're the media director, in which case you just have to accept a couple of those annual boondoggles to Aspen, where a lot of business gets discussed between the slopes and the fireside scotches.)

But those policies cover only the obvious conflicts - the ones where sellers compromise the integrity of the agency. There are other, more important and more common types of conflicts of interest that need reigning in. Agencies need to include another type: the conflicts between the client and the agency itself.

Clients need to offer a policy of "safe haven" to the agency employees working on their accounts. Agency employees need to feel as though they will be rewarded for looking out for the clients best interests, even if that means a temporarily lower budget for a campaign. This isn't so much a policy of whistle blowing as it is a policy of enabling rationale media strategy. It's not realistic to expect agencies to hang themselves on their own petard, so the clients need to protect themselves. It's not very hard. It just takes two key steps:

First, the client needs to publicize to all levels of agency staff working on its account that they are granted a "safe haven" if they wish to report any perceived conflicts of interest. This need not be positioned as an act of back stabbing tattling. Perceived conflicts should be discussed and tossed around in an open environment. A healthy agency-client relationship should be strengthened when lower level staff are allowed to question the ethics of policies. They can then be improved and the client relationship strengthened.

Second, the client needs to force the agency to include a clause in the client-agency contract to make sure that whistle blowers don't get subjected to retribution. If someone comes forward with knowledge of a policy hurting the client's interests, the contract should stipulate that the client should be able to - at its sole discretion - force the agency to compensate an employee for alleged retribution, either by job reinstatement and/or specified compensation.

To be clear, to my knowledge, this is not current agency policy anywhere. Also clear is that agency managers will likely react with laughter, derision and contempt to attempts to institute this type of policy. But I say this is shortsighted. I believe that, in the long-run, the agency industry stands to gain a lot when it can be seen as more of an ally to clients. I believe interactive media, in particular, stands to gain disproportionately.

We agency folks have always talked a good game. We just need to give our stated intent some real backing, with policies that encourage selfless recommendations and protections for the braver employees. Otherwise, we're left with the policy of Sergeant Shultz: "On some occasions, I look the other way, because in war I do not like to take sides..."

- Tig Tillinghast helped found and run several of the largest agencies' interactive groups, including those of Leo Burnett, J. Walter Thompson and Anderson & Lembke. At several Internet startups, he helped design several of the industry's media standards and financial practices. He is currently writing a book on interactive marketing to be published in the fall.

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