The perils of going public for global marketing consultancies

When someone told me that Ruud Gullit had pulled out of Chelsea, I thought there had been a particularly unpleasant development in the Clinton family story. Once the awful truth had been explained, I realised it was much worse than that – thousands of workers in the dreadlock wig industry of south-west London were to be put out of work as a result of the Dutch player-manager quitting Chelsea football club.

The news also had its effect on shareholders in Chelsea Village, the publicly listed company that controls the club. Gullit has guided talent such as Roberto di Matteo to domestic honours and into highly lucrative European competition, so the shares dropped 7p to 91p on his abrupt departure.

Football shares, of course, are widely reckoned to be as fragile as England’s defence against Chile. A single bad result can send shares into a spin – Manchester United could become a sell stock on the strength of Posh Spice getting out of bed on the wrong side.

It’s not just football clubs that are exposed to devaluation when their stars become disunited. United News & Media, publisher of the Express titles, saw its shares soften 26p to 692p last week on the news that chief operating officer David Arculus is to quit after just a year in the post.

Arculus gave a boost to United’s share price when he arrived from EMAP, so we should hardly be surprised that an equivalent value will disappear with him. What is more of a surprise is how difficult it appears to be to hold down, or to wish to hold down, a job at United.

Stephen Grabiner, who was brought in from the Telegraph group to bring commercial rejuvenation to United’s newspaper business, also wants out to take up a better job at British Digital Broadcasting. United’s chief executive, Lord Hollick, may be proving as hands-on a businessman as Gullit evidently found Chelsea chairman Ken Bates to be.

Football clubs and newspaper groups are notoriously exposed to the departures of their key players. But then, so too are advertising agencies. Any industry that depends on the talent of its performers for its valuation, rather than the value of its fixed assets and stock, will always be vulnerable. Ad agencies have for years been fond of some variant on the rubric that their assets travel up and down in lifts and go home most nights.

The question is really whether star-prone companies, be they football clubs or ad agencies, should have their shares publicly listed at all. Doubtless long-standing shareholders in the likes of Cordiant, the agency group formerly known as Saatchi & Saatchi, may wish they never had been. The question is also worth asking today, not simply because football clubs can demonstrate the dangers of relying on expensive stars, or because it is always worth asking in respect of advertising agencies, but because there is a development of the global consultative function that gives the issue a renewed urgency.

Global communications consultancy, for want of a better phrase, is within the gift of four sorts of professionals as we approach the millennium: the lawyer, the accountant, the banker and the marketer. Let me briefly define each category.

The international law firm is highly intelligent, develops local cultures well and consequently works well in differing local legal regimes. Wall Street has not been as good at developing its legal services on a global scale as it has its investment houses. Consequently, British firms such as Freshfields and Clifford Chance have had an opportunity, eagerly seized, to develop their global networks.

Similarly, accountancy firms have developed a broad range of corporate consultancy services, and transatlantic alliances are delivering what they call global reach – witness Price Waterhouse’s link with Coopers & Lybrand and Ernst & Young’s attempted nuptials with KPMG. Meanwhile, there have been divorce proceedings pending between Arthur Andersen and its consulting wing, but even that is driven by a desire to compete globally in the corporate consultancy business.

The banks need no introduction in any market where capitalism holds sway, and in a few where it doesn’t. The American imperialists – Merrill Lynch, Goldman Sachs and Salomon – line up against the recently united Swiss, the Germans, the Dutch, the British and even sometimes against the Japanese. Again, a broad range of financial services is the order of the day.

In just a few years, there could be a handful of international marketing services groups, including Omnicom and Interpublic from the US and WPP from Britain. Once again, globalisation is forcing the rate of consolidation into groups offering a sophisticated range of communications services.

So that’s the international line-up for corporate consultation. The key difference between the professional practices is their own corporate constitutions. Accountancy firms are invariably partnerships and so are law firms. Many global investment banks are listed (though one of the most successful, Goldman Sachs, is private), but have always discouraged a star system. That leaves the marketing services groups, invariably with public shareholders to answer to.

I’m not saying they shouldn’t be publicly listed. But I am saying that, as the global consultancy game grows apace, the big marketing groups could find themselves increasingly at the mercy of lawyers, accountants and bankers if, like football clubs, they are devalued publicly whenever a star player quits.

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