Breakaway agencies bite the hand that fed them

RKCR/Y&R breakaway Adam & Eve appears to have cocked a snoop at its former employer, bagging a slice of Lloyds TSB business. The hotshop has been tasked with a £10m sports sponsorship assignment centered around the bank’s £80m tie-up with the London 2012 Olympics (MW last week).

Its appointment raised more than a few eyebrows because the bank’s main £40m account is held by RKCR, although some suggest this “entirely” new piece of business – apparently initiated by the client – was “fair game”.

Perhaps so, but some industry observers suggest that it oversteps the mark, showing a blatant disregard for the agency that shaped the reputation and careers of its former executives. In short, is this a case of a breakaway biting the hand that fed it? As one observer says: “It does not do to make an enemy of Sir Martin [Sorrell].”

Breakaways are characterisics of the creative industries, where personal relationships are paramount. And big as the most successful agencies are, they have a more fragile business model and do not boast the scale, depth or inexhaustable pots of money of, say, a Coca-Cola or an HSBC. It is more difficult to set up in competition with big brands, where start-up costs are higher and the market leaders more powerful than the big agencies, which exist in a world where three account losses can cripple a business.

Of course, corporate breakaways are not unknown. Former Red Bull UK marketing director Harry Drnek is trying to make waves with his new venture Suso, which launches this year, although the product and proposition is expected to remain as niche as Red Bull itself. Then again, Hutchison Whampoa, the company behind the launch of mobile operator Orange sold the business for £30bn to France Telecom and set up the 3G network 3.

In 1985, entrepreneur Peter Wood founded the telephone insurance company Direct Line, now wholly owned by RBS Insurance, before leaving in 1997. Three years later he founded the insurer Esure as a joint venture with HBOS.

And Martin Glenn, the erstwhile marketer and president of Walkers Snack Foods, left the industry before leading a successful bid for Birds Eye Igloo Group.

But these are notable exceptions. As an agency founder says: “It is a totally different principle for clients: they aren’t selling services, they are selling consumer brands. Someone leaving a client tends to either move to another client company or set up a strategic consultancy.” Breakaway ad shops, he suggests, are not just accepted, they positively drive the industry by forcing well-paid, experienced executives “back to the coal face”.

Adam & Eve opened its doors in January this year after the senior RKCR management team of James Murphy, Ben Priest and David Golding departed in June last year. They were joined by Naked head of strategy Jon Forsyth as a fourth founding partner.

The atmosphere within the agency and at WPP is said to be charged. There is a feeling that, as much as possible, the start-up was tacitly “supported”, and the Lloyds win therefore constitutes a “betrayal of trust”. “This was an audacious bid to take some of their former clients,” a network insider suggests.

Murphy defends himsef by saying that change can be good for an agency, allowing the next level of management to move up and demonstrate their skill. He says many people wrote RKCR off when the founders, including Jim Kelly and MT Rainey, moved on but the agency actually increased its billings over the following years.

Yet the contractual restrictions attached to any senior executive departure, such as gardening leave and non-compete clauses, amount to a legal minefield that few are brazen enough to push. Another agency executive who recently exited a holding company says that he would “not attempt” to take former clients without “at least 18 months grace”.

Few were surprised when – exactly a year after leaving TBWA/London – the founders of Beattie McGuinness Bungay were named McCain Foods new agency. The £15m of business had been mooted to move with the TBWA executives when they formed BMB in May 2005, but non-compete clauses prevented them from talking to the former client until May 2006. Tellingly, TBWA declined to pitch for the business. BMB also walked off with the French Connection (FCUK) business Trevor Beattie was credited with creating, but the relationship floundered and broke down after a short period.

And BMB was not the first TBWA breakaway that boosted its business with wins from its former employers. Johnny Hornby and Simon Clemmow of CHI & Partners set up the agency, the story goes, when Carphone Warehouse founder Charles Dunstone committed his business to the duo if they decided to launch a new outfit.

Similarly, Sir Frank Lowe stuck two fingers up at his former agency Lowe. now owned by Interpublic Group, by seducing its flagship Tesco account into his start-up The Red Brick Road.

Other start-ups have travelled a less adversarial route. Miles Calcraft Briginshaw Duffy (MCBD), a breakaway from AMV.BBDO, prides itself on its big agency past, but more often acknowledges the superior power of the network’s influence than squares up to pitch against it.

Perhaps the clearest effect a breakaway can have on a business can be seen at M&C Saatchi. After Charles and Maurice Saatchi were ousted from Saatchi & Saatchi, in 1995 the brothers founded M&C. Now, the M&C Saatchi is the UK’s third biggest shop in terms of billings, while the Publicis-owned Saatchi & Saatchi languishes in 14th place, according to Nielsen figures.

M&C Saatchi co-founder and group chief executive David Kershaw called the split – and the ensuing legal actions – “emotional”. “I think for the first two or three years it was quite an important obsession [to beat Saatchi & Saatchi]. But then it dilutes. The heat of the divorce dies down,” he admits.

“Nowadays holding companies, WPP in particular, really play hard ball,” he adds.

Sir Martin Sorrell, chief executive of RKCR owner WPP is said to be “furious” at Adam & Eve’s Lloyds TSB win and investigating whether it contravenes Adam & Eve’s non-compete clause. However, as Glazer suggests, Adam & Eve need not rely on old favours and older contacts to win business. The £10m Lloyds business, albeit something of a coup for the agency, comes alongside account wins including The Telegraph (£8m), Westfield Shopping Centre (£5m) and the £3m Burton’s Food business for Cadbury’s Biscuits.