Conflicts of interest

19 Sep 2018  |  Bob Wootton 
Conflicts of interest

As long as fees for consultancy far outweigh those for audit, the consulting tail will wag the auditing dog - and pimped audits and subsequent casualties will endure, writes Bob Wootton

Before the wonderful endless summer drew in, there was an interesting piece buried amongst the usual silly season stuff in The Sunday Times on 19 August.

Referencing how inadequate governance and separation measures helped the late Robert Maxwell plunder the Mirror Group’s pension fund and more recently failed to head off the BHS debacle, it focused on the big four auditing companies and the inherent conflicts of interest with their other - and more lucrative - consulting and advisory activities.

At a time when the ad industry is worried about these firms’ encroachment, it resonated and made me think of parallels with our industry.

Debate has long raged as to whether media auditors should also advise on marketing strategy or agency choice.

The question “who audits the auditors” has never been far from people's lips, and reached its own low water mark with litigation between WPP’s GroupM and Ebiquity in 2016.

Media (and compliance) auditing is a downstream service, claiming to compare apples with apples to see who bought best. Or sometimes who planned best, at implementation level at least.

The wheels started to rattle when assignable media began to take off. Can advertising contacts with two different (albeit anonymised) individuals be price-compared? Or two impacts with the same individual for different products or services?

Eyeing the far-upstream client relationships, emphasis on strategy over implementation and fees which characterise management consultancies, media auditors sought to diversify.

All the ‘big four’ (Deloitte, PwC, EY & KPMG) have origins as accountancy practices but grew to offer consulting services across the whole business piece, including some or all of digital transformation, customer experience and marketing ‘science’. (They’re very good with names too).

Although not one of the ‘big four’, nor an accounting firm but a ‘global management consulting and professional services’ business, Accenture is a crossover brand which also comprises a well-developed marketing sciences practice which acquired Media Audits in 2005.

(Accenture’s disappointment on realising the going rate for media auditing would not allow it to extract its usual high margins from the acquisition was noticed amongst advertiser clients. Its resultant soft-pedalling of the Media Audits service enabled Ebiquity to become the leading media auditor and is probably a main reason why there hasn’t been yet more noise about conflict of interest).

Accenture also houses Accenture Interactive, which now styles itself ‘the world’s largest digital agency’ and is the lightning rod for agency concerns. It’s getting airtime at ISBA and the WFA, so perhaps these are well-placed.

And we haven’t even mentioned Google, Adobe or IBM, though Sir Martin Sorrel’s S4 Capital’s stock market prospectus does.

The Times puts a robust case for the separation of auditing from advisory services to avoid contamination.

It suggests promoting more effective competition and choice by breaking the big four up into eight smaller competitors, probably regulated - and perhaps even scored like schools or banks.

Incumbents dismiss this on two grounds:

- they have effective Chinese walls in place

- the resultant erosion of scale would also erode broad sector expertise

The first claim is clearly discredited, and the second dissimulates as businesses half the size could easily still offer necessary breadth.

No, as long as fees for consultancy far outweigh those for audit, the consulting tail will wag the auditing dog and pimped audits and subsequent casualties will endure.

The Times again: “Nobody wants to do audit. Rather tax or insolvency”. This is evidenced by the visitors most businesses entertain each year for the annual audit – seldom the sharpest pencils in the box as they pore over files and printouts.

Remind you of anything?

Could the same hold for ad media?

What are the implications for assignable and programmatic stacks and value chains? (It’s always good to find someone you respect thinking along similar lines).

As usual it’s all down to what the customer - in this case the advertiser - wants.

But do they know? To be fair to them, the game is now moving so quickly it’s hard to follow even when you’re on the field.

And where there’s a vacuum, there is opportunity. A group of companies has emerged to meet the demand for independent, neutral help and advice on media management, deployment and implementation; effectiveness and return on investment; agency search and selection; optimising contracts and scope of work and so on.

ID Comms, MediaSense and Aperto One spring to mind but there are others.

I see the game playing (if perhaps still slowly) away from legacy auditors and towards consultancies (small for advice, large for media buying).


Also this summer...

- The Advertising Standards Authority yielded to pressure from a law firm acting for the disgruntled and once-famous Lloyds Bank customer Noel Edmonds. Could this signal the end of hyperbole in advertising, already getting duller and seeing its popularity wane without having its wings clipped thus?

- That said, 20-second commercials usually look like squashed/clipped/mashed 30’s for the false economy of lower media cost. Not Mother’s for Ikea, which looks like it was designed as a 20 and actually manages to convey brand and product messages and values. Superb.

- Amazon’s coverage of the US Open tennis drew criticism. Shame to buy something and then f***it up. The viewer is the loser, but Amazon has deep pockets and will surely return in better form.

- WPP’s new CEO is welcomed by most. Only surprise is the pay packet, likely less than some of his reports. Obviously taking the long view and seeking distance from SMS’ humongous pay.

- Good to see Mediacom release a report which chimes with common sense and not metropolitan bubble noise and shows cash-strapped young people value price and quality over ethics.

- Meanwhile, this amusing post demonstrates the complete lack of differentiation amongst companies that profess its necessity to their clients.

- Finally, the silliest story I’ve seen for a while. Do people really have nothing better to do than trade and breed digital cartoon cats? Nearly broke the Etherium platform, apparently. Get a life!


Disclosure: Bob Wootton was previously an advisor to MediaSense

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