Bullet-proof corporate governance is a mantra of modern business: companies must not only do the right thing, they must be seen to be doing the right thing. The thought of auditors rummaging through their accounts does not fill advertising and marketing executives with joy. However, it could prove the wisest thing in the long run.
The case of New York-based Ogilvy & Mather executives Thomas Early and Shona Seifert brings this point into focus for the advertising industry. The duo are charged with conspiracy for allegedly overcharging for a US government campaign aimed at keeping kids off drugs, leading to a claimed overcharge of $3m on a $1bn contract. Another recent audit involving a big agency working on a top account displayed similar symptoms of malpractice, including over-recording of hours. Firmdecisions has uncovered similar issues while auditing agencies in more than 40 countries.
While advertising agencies may initially feel it is intrusive for accounts to be investigated or methods questioned, it is ultimately to their own commercial advantage to prove the way they do business is open and above board.
Most contractual compliance audits do uncover problems between advertisers and agencies, although not necessarily on the scale of the above scandals. But the trust that can be developed through these audits should be reason enough for agencies to be more receptive to the idea.
The required trust for a healthy business relationship should be built on strong business foundations. Offering or agreeing to undergo a contractual compliance audit demonstrates willingness to work together. Advertisers just want to understand their agencies methods so they know exactly what their money is being spent on.
Good auditors should be happy to sign non-disclosure agreements with both clients and their agencies so there is no danger of compromising confidentiality; and the process should always be conducted under a flat-fee arrangement, thereby allowing the auditor to be objective and not influenced by the recovery the audit will generate.
Agencies worry that the relationship with clients is unsettled by audits, when actually audits allow the client-agency relationship to be built on trust. Ogilvy ∓ Mather founding father David Ogilvy famously said that every ad is part of the longterm investment in the personality of the brand. It is now true to say that contract compliance auditing is part of the long-term investment in the personality of the ad agency.
Published in FT Creative Business, 8th June 2004