Public contrition frees IPG to rebuild its reputation
With firefighting at Interpublic Group (IPG) seemingly over, perhaps growth can begin again. An investigation into years of financial irregularity has revealed incompetence and fraud. But, on the stroke of a deadline which, if breached, would have meant a delisting from the stock exchange, IPG managed to report its financial results last week.
The US-based group posted a net loss for the first half of 2005 of $139.4m (£79.4m), compared with a net loss of $182m (£104m) for the same period last year. In addition, IPG issued an earnings restatement that cut shareholders’ equity by more than $500m (£285m) between 2000 and 2004.
The eyes of the industry are on the world’s third-largest marketing services group – owner of McCann Erickson, Lowe and FCB – to see how it moves on from the financial scandals that have haunted its new management team since 2003.
Whether the network can return to business as usual and claw back the confidence of truly global clients remains to be seen. In March, McCann Erickson and Universal McCann beat off competition from within the WPP and Omnicom networks to win Intel’s £160m global advertising and media account, but there have been few recent successes of the same magnitude. IPG’s networks have lost Unilever, General Motors, Bank of America, BSkyB, Nestlé and L’Oréal accounts in 2005 so far.
A Merrill Lynch analyst applauds IPG’s attempts at transparency, but admits revenues remain under pressure owing to client losses. She says/ "While the past has been cleared up, the future remains murky. IPG continues to win some business, but is still in the net loss category. A big client win or a series of visible smaller wins would be helpful."
Speculation that the group may sell off assets has been rife but Michael Roth, chairman and chief executive since January, has stated there is currently "no need to sell strategic assets in the midst of a turnaround".
But no long-term statement has been made, and though the threat of the group being broken up remains distant, it was debated by shareholders at the recent annual general meeting. One minority shareholder called for a "prompt sale". Roth will reveal no more than an intention to disclose IPG’s strategic plan and revenue targets early next year.
Backed by a share price that rose five per cent following the announcement, IPG bosses are positive. Rupert Howell, chairman of McCann Erickson UK, describes "relief and elation" that a veil can be drawn over the scandal. Howell says he is confident IPG can progress. Pointing to a 1.3 per cent organic increase in revenue for the first half of 2005 compared with a year ago, Howell admits that growth is small.
Client losses, Howell says, have had more to do with advertising reviews than ongoing investigations. But he admits that rival holding companies using IPG’s financial troubles to destabilise client relationships have not helped. "I’m sure we’ll see others stirring the pot, but let me say we are forensically clean and will set new standards of transparency that others must follow," Howell says. "Let he who is without sin cast the first stone."
David Wethey, founder and chairman of Agency Assessments International, adds: "What Interpublic has been through should not just be its concern; it was merely in the firing line. In any organisation that big, you can’t police everything."
Another current IPG executive agrees that although the future is far from certain, it can only herald an improvement on the past few years. He says: "Our results have been well received by the stock market, but the devil is in the detail – all this corporate governance has cost a fortune. We’ve all been praying for it to be over so we can start focusing on the business again."
