Why it’s so important to get agency relationships right and how to do it

The last month has seen a major controversy around the decisions allegedly taken by the former CEO of one of India’s largest creative agency network and part of one of the most respected advertising networks in the world. Nothing has been on record and decidedly not in public, so we can’t name names. For the moment, it’s being dismissed as a silly rumour.

Be that as it may, last fortnight, we published a comment by Prabhakar Mundkur which was very well-received. Soon after, we also invited Sandeep Khewale, CEO, FirmDecisions India to comment on the issue of transparency and how the marketing business can take measures to ensure transparency.

In India and other major markets around the world, relationships between advertisers and their agency partners are under pressure like never before. This is true for both media agencies of record that plan and buy campaigns as well as creative agencies which develop creative assets to sell and represent the brand. The media and marketing ecosystem is becoming complex day by day and the options available for brands multiply ongoing basis, including into the realm of customer experience.

The increased complexity of media and creative agency relationship demands greater scrutiny, knowledge, and professionalism in advertiser companies. This is necessary to ensure that agency partners deliver optimal value and return on investment. It’s also vital to determine that agencies aren’t cutting any corners that are in their own – but not their clients’ – best interests. It means that marketing, finance, and procurement teams at client-side need to work together to build functional and effective partnerships with their agencies of choice. Get it right, and the benefits on both sides can be transformational. Get it wrong, and brands can find themselves having to embark on the laborious, costly, and time-intensive process of finding a new partner all over again. In essence it all comes down to openness, transparency, and trust.

Contracts are king

In any agency partnership, it’s important that advertisers put in place a contract that enshrines their rights in a simple and clear manner. Contracts should be regularly reviewed – as often as annually in the ever-changing marketing landscape – and amended to include developments in supply chain management, agency ownership structures, and technology. Contracts must also be signed, by both parties. It seems like a trivial issue, but it is not uncommon for both global and national brands to operate with contracts that remain unsigned, months and even years after they’ve been drawn up, putting into question the enforceability of the terms if issues arise.

The right to audit

It is critical that contracts provide advertisers with complete and transparent access to all marketing and financial data related to their business, and this can come in the form of data or platform access, supplier contract ownership, and financial transparency. Contracts with agencies also need to include clauses that stipulate rights to an independent audit.

We have seen contracts which specify that audit partners should be restricted to just one of the Big Four, global auditors. This presents two key challenges. First, the Big Four are not specialists in marketing contract compliance – they’re generalists, and so advertisers working with the Big Four (or anyone else not specialists in the field for that matter) may not be in receipt of the best advice available. But second, advertisers shouldn’t be told by their agencies which audit partner should be used to assess the work of the agency. Advertisers should be free to appoint whoever they choose as their audit partner. If not, it’s like a student grading their own exam paper. Being compelled by contract to choose from a limited pool of non-specialist auditors is little better than having no right to audit at all.

Creative agency focus

The industry focus for the last few years has been on media agency transparency, but it’s not only in media where advertisers need to enshrine transparent ways of working in their contracts. It’s vital in creative, too. It’s well known that media agencies can receive benefits from media vendors (publishers, platforms, and sales houses) for purchasing media inventory in bulk on behalf of multiple clients. Unless they’re explicitly called out in advertiser-agency contracts, these benefits can stay with the media agency and not be returned to the brands who fund the marketing ecosystem.

In exactly the same way, there are issues of transparency and trust that advertisers need to address with their creative agencies. These include: creative agencies’ failure to reconcile project costs or the moving of residual balances into holding accounts, both of which can lead to money not being passed back to advertisers; the over-recovery of staff costs; the outsourcing of studio or production services to affiliates owned by the holding companies, without undertaking competitive bids, circumventing due process; and, bid rigging (making the agency affiliate the most cost efficient option). What’s more, choosing to work with a limited pool of production houses – because they are owned by or affiliated to the creative agency – means that advertisers can end up sourcing talent which is neither the best nor the most relevant for brand campaigns.

In summary

It’s the high-profile agency misdemeanours that make headline news. Yet in reality, advertisers should strive to make all of their agency relationships work hardest for them, in media – of course – but also in creative and production. The chances of being under-served abound when you take your eye off the prize; the opportunities for building a solid partnership in everyone’s best interests only emerge when these critical relationships receive proper attention.

This article was featured in MXM India.