Advertisers should require their agencies to disclose “all potential conflicts of interest” and comply with thorough audits covering the agency, its parent company, affiliates and subsidiaries to ensure full transparency. That’s the core recommendation made as part of a series of “Guidelines for Achieving Media Transparency,” released today by the Association of National Advertisers.
The full report, which can be downloaded here, also calls for the creation of a new chief media officer role inside big marketing organizations to oversee and ensure full transparency from its agencies and the media supply chain.
The recommendations, which are part of a new report -- “Media Transparency: Prescriptions, Principles and Processes for Marketers” -- conducted by Ebiquity’s FirmDecisions subsidiary for the ANA, includes a detailed contract “template” for agencies.
The report comes a month after the ANA released a controversial reported conducted by K2 Intelligence, which found non-transparent business practices, including cash rebates to media agencies, to be pervasive in a sample of sources representing the “U.S. media ad-buying ecosystem.”
In particular, the K2 report found evidence that agencies routinely act as the principle, purchasing media on their own behalf and reselling it to their clients after a “markup.”
“The purpose of these guidelines is to provide marketers with prescriptions for addressing transparency issues specific to the K2 Intelligence study,” ANA President-CEO Bob Liodice said in a statement issued with the new guidelines. “We outlined actions marketers should consider to diminish or eliminate non-transparent and non-disclosed agency activities and to ensure that their media management processes are optimized.”
The contract template being issued along with the guidelines was first created by the Incorporated Society of British Advertisers and was adapted for the U.S. marketplace by ANA general counsel ReedSmith LLP. It includes provisions such as a requirement that revenue earned by the media agency and agency-related parties should solely be the fees and commissions set out in the contract, unless otherwise expressly agreed upon by the advertiser. All financial and other benefits should be returned to the advertiser unless expressly agreed otherwise by the advertiser, the template stipulates.
Other key recommendations issued in the report include three “pillars” and seven “strategic recommendations.”
The pillars are:
Establish overarching agency management principles that can be easily understood and executed. These include requiring media agencies to ensure complete transparency in all transactions with parent companies, subsidiaries, affiliates, and third parties. Agencies should err on the side of communicating everything to marketers, the report said.
Establish primacy over the client/agency relationship, and regularly re-evaluate and upgrade internal processes and practices. The report said it is essential that marketers have a thorough understanding of the existing client/agency relationship and know when the agency is acting as an agent on behalf of the client or as a principal representing itself.
Create a uniform code of conduct between the advertisers and agencies. The code of conduct between advertiser and its AOR would be mutually agreed to, signed by both parties, and serve as an addendum to the master services agreement.
The strategic recommendations are:
Where the agency is acting as a principal versus an agent, the advertiser should have a disciplined and reliable process for managing conflicts of interest.
Advertisers should ensure contracts with media agencies include robust language to deliver full transparency.
Advertisers should insist on thorough and far-reaching audit rights that include tracking contract compliance and measuring the media value delivered.
Marketers must implement disciplined internal processes to deliver contracts designed to ensure strict accountability, rigorous process governance, and senior management oversight.
"It's a top priority of the 4A's to review this report thoroughly as it could affect many of our member agencies," 4As President-CEO Nancy Hill said in a statement responding to the ANA report.
"We plan to share specific steps and insights in the near term. As we stated in an earlier letter, we will propose sitting down with the ANA to explore common ground and try to address important questions and concerns regarding media buying practices for both agencies and marketers."