Reputational risk is an increasingly high-profile issue for businesses. Increased demands for commercial transparency, corporate due diligence and governance processes are being implemented to minimise mismanagement and fraud. One of the key areas of concern is a conflict of interest for those advising, influencing or making decisions.
A conflict of interest is when a person is in a position of influence and uses that influence for financial gain. It is particularly important when the money involved is from the public purse and is a part of the probity and rigour 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.
Also, with the dominance of social media, the concern is not just the existence of a conflict of interest but the appearance of a conflict.
These decisions are therefore being reviewed by the client’s procurement teams and are often found to be lacking in either rigour 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 a Conflict Of Interest?
Let’s look at some hypothetical examples and see if you think any of these represent a conflict of interest.
- 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 their personal interest.
- A senior agency producer recommends 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.
- A senior creative person singing the praises of a post-production company while disparaging 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, which 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 relatively 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). Still, the fact is that conflicts of interest can occur in any part of the advertising process.
If you need to be told, they all represent a conflict of interest. The telltale 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 participates in this behaviour, but the problem is that, as per the idiom, one rotten apple is more than enough. I remember having a 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:
- Working with people you know means that you are guaranteed to get the job you want and the quality the client needs.
- 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.
- 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 client’s best interest. 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 legal gags bind these arrangements. 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 about 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 lose any influence on the outcome. In some cases, the justification for decoupling production from the agencies is legitimately given 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 straightforward, there are a few ways you can identify if a conflict exists:
- 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.
- 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)
- Say 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. In that case, 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 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.
Suppose 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. In that case, we are open and transparent with our clients, informing them of the potential for conflict and allowing them to decide 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 upfront.
