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He characterized the rebates as “criminal extortion,” and said of the major holding companies, “At least four of them, maybe five, are doing this.” At lunch Mandel changed his estimate of the unit of money involved from millions to “billions,” which did not inspire confidence. The one company he identified by name as guilty was WPP, for whom he worked before moving in 2006 to take a new job at Nielsen. WPP, he continued, “wanted me to actually set up the thing, ironically, that years later I’m now known for condemning: all those kickbacks. I said to Irwin [Gotlieb], who’s a personal friend—though since March ‘personal friend’ is on the back burner . . . He wanted me to set this up, to basically take what was going on in Europe and bring it to the U.S. I said, ‘That’s not right.’ He said, ‘We need it to compete.’” His accusations, he admits, are “hard to prove. It’s like sex crimes: ‘He says, she says.’” Gotlieb flatly denies that he had ever encouraged Mandel to set up a rebate system at GroupM’s MediaCom: “Not true. Find one person or one company who would support that statement!” (Mandel never offered evidence against GroupM.)
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Michael Kassan was not in the audience when Mandel delivered his broadside, but when he saw the March 6 headline in Advertising Age—FORMER MEDIACOM CEO ALLEGES WIDESPREAD U.S. AGENCY “KICKBACKS”—he knew it would ignite a wildfire. Kassan was troubled. “I felt like the ANA had endorsed his position without evidence,” he says. But Kassan knew Mandel’s assertions would “light a fuse,” and the resulting blaze would produce new business firefighting opportunities for his company, MediaLink, for which he was grateful.
As the CEO of MediaLink, the company he founded in 2003, Kassan is arguably the supreme power broker in the advertising and marketing industry. With a staff of 120, MediaLink serves as a hub, linking clients like publishers who seek ad dollars with the agencies and brands that dispense them, and linking brand advertisers to new agencies. MediaLink’s blue-chip client list includes Unilever, AT&T, L’Oréal, Bank of America, Colgate-Palmolive, American Express, NBCUniversal, the New York Times, the Walt Disney Company, Viacom, 21st Century Fox, Verizon, Condé Nast, Hearst, the newspapers of News Corp., including the Wall Street Journal and the New York Post, the Washington Post, Gannett, iHeartMedia, Turner Broadcasting, Bloomberg, Flipboard, and Vox Media, among others.
Anything that provokes clients to seek a new agency is good for Michael Kassan’s business, for MediaLink conducts agency reviews, orchestrating the entire process from helping choose the competing agencies, defining what the client seeks, helping judge the agency’s creative and strategic pitches, to participating as the client reaches a decision. MediaLink also performs a headhunter role, linking executives to vacant agency and client positions. It also introduces start-ups to investor capital, performing as an investment banker. It serves as a sherpa, making introductions between agencies and Silicon Valley and Hollywood, taking clients on tours of Google, Facebook, Twitter, and Microsoft, all companies it has represented. MediaLink also represents agencies, arranging speakers for various advertising conferences, where Kassan induces them to cosponsor MediaLink parties and arranges for their executives to appear on panels. Agency and client executives are regularly invited to record one of Kassan’s one-minute daily radio interviews syndicated on iHeartMedia, which he tapes in bulk once or twice a month.
The ever-affable Kassan, then sixty-four, is a pear-shaped teddy bear of a man with a soft, round, tanned face, the sunny smile of a practiced politician, and the jokey shtick of a stand-up comedian. In an increasingly insecure business assaulted by change and rife with mistrust, “they are a bridge company,” Charlotte Beers, former CEO of Ogilvy & Mather, says of Kassan and MediaLink. “The way we used to talk to each other now needs an interpreter, and that’s MediaLink.” Baffled by the digital revolution, clients seek guidance from what they think of as “a neutral corner.”
If one thought of concentric circles of power within the marketing and advertising world, Michael Kassan belongs in the center, alongside a few others like Martin Sorrell, CEO of WPP, the world’s largest advertising and marketing holding company. Kassan’s influence would place him ahead of most of the CEOs of the other five major holding companies and ahead of their clients. Yet outside of advertising and media industry enclaves, Kassan is virtually unknown. Create a Google Alert for WPP’s Martin Sorrell and up to a dozen stories appear daily; a Google Alert for stories about Kassan generates maybe one mention per month.
After Mandel’s ANA speech, MediaLink’s neutral corner became a destination for the world’s biggest brand advertisers. It was nothing short of a stampede. Starting in the spring of 2015 and running through 2016, advertising clients announced they were putting up for review a total of $50 billion of advertising business, and clients knocked on Kassan’s door asking him to organize agency reviews. In all, MediaLink was hired to orchestrate two thirds of these reviews. Unilever, Procter & Gamble, Coca-Cola, L’Oréal, Kraft Foods, Mondelēz International, Bank of America, General Mills, Sony, 21st Century Fox, Johnson & Johnson, and CVS were just some of the advertisers who put their agency business up for review.
Mandel’s kickbacks speech was a spur for the reviews, but it was hardly the only one. Indeed, its timing was exquisitely awful because advertisers were already being buffeted by change, facing disruptive forces in practically every sector of their business. As Alvin Toffler wrote in Future Shock, any industry bombarded by menacing changes endures “the dizzying disorientation brought on by the premature arrival of the future.”
MediaLink brands itself as a neutral Switzerland, positioned comfortably in the middle, which is an odd definition of neutrality since MediaLink often represents all sides at a negotiating table. Kassan has been strategically shrewd. “He doesn’t do agency reviews because they are wildly profitable,” his friend Irwin Gotlieb says. “He does reviews to gain information and because it gives him influence in the business. He has a small headhunting operation. That makes money. But it also gives him influence because key people in the business know that if they’re going to make a career move they should talk to him. The reason he is able to galvanize people in the industry is that everybody knows he is going to be conducting a review, so they don’t want to piss him off.”
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The agencies were indeed pissed off about Mandel’s speech and agonized about the subsequent tsunami of reviews, which were akin to an audition to keep your job, knowing that your competition would be auditioning to take it from you. Clients putting individual agencies up for review was common; the torrent of reviews was not. The “pitchapapalooza” reviews meant a cruel summer of long hours and canceled vacations in order to create new pitches to clients. Top agency executives frantically tried to reassure and soothe clients. Laura Desmond, then the global CEO of Starcom MediaVest, the media agency arm of Publicis, estimated that over the summer of 2015 the reviews consumed eighteen thousand hours of her agency employees’ time. Agencies had to prepare creative and strategic presentations for current as well as prospective clients. Presentations are time consuming and expensive—about $1.5 million for each, Bob Greenberg, the founder and CEO of R/GA says—and the expense is shouldered by the agencies, not the clients.
The advertising agency community reacted angrily to Mandel’s speech, no one more so than Irwin Gotlieb. He had had a paternal relationship with Mandel, once recommending him as his successor as chairman of a prestigious industry committee. He denied Mandel’s assertions, saying that he had removed Mandel from a trading role at the firm because they had a trading head and “you can only have one head of trading.” So, he continued, “Why would I have a conversation about rebates with someone not involved in trading?”
The day after Mandel’s speech, Gotlieb had GroupM’s lawyers deliver a letter to Mandel accusing him of violating his separation agreement and the “significant compensation” received in return for agreei
ng not to disparage GroupM. The law firm warned that it was “considering its options,” and urged him to keep his mouth shut. Martin Sorrell suggests that when Mandel left WPP’s employ he did not do so voluntarily; instead of saying he was terminated, Sorrell said, “He was exited.”
The near universal complaint from agencies was that in his speech Mandel named not a single transgressor, and thus was making a blanket condemnation of all agencies. It was not uncommon to hear agency executives accuse Mandel of McCarthyism. “It was irresponsible,” charged Bill Koenigsberg, founder and CEO of Horizon Media, the largest privately held advertising and marketing agency, and the chairman of the American Association of Advertising Agencies (the 4A’s). “It should not have been allowed in a public forum to paint an entire industry with a broad brush without any evidence.”
Yet there is certainly smoke here, if not fire. Rebates are common outside the United States, and media buying is an increasingly global process. And as more and more advertising is being done by machines (called programmatic advertising) across a large number of media platforms, the opportunities to conduct speculative price arbitrage to bank lower prices for ads for later use arguably becomes reasonable business practice. The clients want to share the rewards. The agencies say clients are unwilling to share the risks, so why shouldn’t agencies be rewarded for taking risks?
Of course, the issues raised by this controversy were broader than just rebates. Is advertising a relationship business, where accounts are won and lost on the golf course and over three-martini lunches, as had been caricatured for decades? Or is it a creative business, where consumers’ hearts and minds are captured by big, original ideas articulated with aesthetic brilliance, as the doyens of the Creative Revolution claimed? Or is it, increasingly, a science, in which leadership will gravitate to those who can capture and analyze the most data, as Silicon Valley and its digital gurus claim?
Did Gotlieb’s WPP, which is headquartered in the UK, hide U.S. rebates?
“We don’t do rebates in the U.S.,” Gotlieb firmly answered, leaving a clear impression that maybe others partook in the United States. Dave Morgan, the CEO of Simulmedia, a marketing technology company that uses data to target TV ad buys, believes most do it. “Mandel is telling the absolute truth,” he says. “Kickbacks are massive in the U.S. I’ve been shaken down constantly. They tell us that if I get fifty million dollars, I have to pay them five million.”
In a public conversation with Liodice weeks after Mandel’s speech, Gotlieb made a larger point, one that illustrates how the relationship between agencies and clients has changed. He challenged the ancient assumption that agencies had an obligation to “put your clients’ interests before your own.” The client is under increased pressure to produce profits, and so are the agency’s public holding companies, he said. Clients insist that the agency be paid based on the clients’ sales performance. “I don’t control the result, so I’m taking a business risk. It renders the term ‘agent’ redundant. You cease to be an ‘agent’ the moment someone puts a gun to your head and says, ‘These are the CPMs [cost per thousand viewers] you need to deliver over X period of time.” If GroupM’s contracts with clients specify that its costs or the amount of rebates received overseas are to be disclosed, GroupM complies. But if the contract is silent, so is GroupM.
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On whichever side of the argument one falls, it is inarguable that Mandel’s assault came at a fraught moment and struck a raw nerve. Taken aback by the irate agency reactions, the ANA quickly did damage control, issuing this statement: “We regret any impression that agencies in general are engaged in questionable activities and apologize to those who were offended.” A few days later it appointed a joint task force with the 4A’s to study the issue.
The ANA issued an open, competitive RFP (request for proposal) to locate a firm to conduct the study, ultimately choosing K2 Intelligence, an investigative cyber defense and compliance firm owned by Jules B. Kroll and his son, Jeremy, which employs former prosecutors and law enforcement professionals like former New York City police commissioner Ray Kelly. The ANA also chose Ebiquity, an auditing firm that has a history of challenging agency spending practices on behalf of brand clients. Seething that the ANA made this decision on its own and chose a prosecutorial firm and, in Ebiquity, what he perceived as a business adversary, Martin Sorrell declared, “They went unilateral.” Koenigsberg was equally livid, saying of K2 Intelligence and cofounder Jules Kroll, who helped build his estimable reputation by tracking down the illicit activities of dictators: “Bringing in a spy agency didn’t send the right message. It kind of sounds like a witch hunt.” The rupture between the ANA and the 4A’s ended their joint task force. By the winter of 2016, K2 and Ebiquity were deep into interviews and jittery agencies feared the worst.
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Michael Kassan was not nervous; he comfortably settled into his friend-of-all-sides stance. On the one hand, he said, Mandel “painted the industry with too broad a brush. . . . I’m a firm believer that this industry is made up of good people.” The ANA wrongly “staked out a position” they should not have by embracing Mandel, Kassan says he told Bob Liodice. On the other hand, “If you’re a CMO and your CEO sees an allegation in the press that agencies are getting rebates and undisclosed kickbacks, you’re going to insist on knowing whether your agencies are doing this.” He encouraged clients to do so. Agencies, he agreed, were not sufficiently transparent, particularly about digital ad purchases. “Media agencies began to create trading desks for online purchases of media. And they were doing it without fully disclosing the amount of online media they bought. They did this because they were buying in bulk and reselling and taking a principal position. They were not wrong. If I’m an agency and I say to you, ‘This particular inventory is being bought on a nondisclosed basis, meaning I am not going to tell you what I paid but I am telling you I will get you a really good price, and I’m telling you I will make money on the spread but I’m not going to tell you how much’”—as long as this was stipulated in the agency contract, he thought it was OK. It would fail the transparency test, he says, if it was not part of the contract.
To conduct MediaLink’s agency reviews, Kassan leaned on Bernhard Glock, who for twenty-five years as a senior executive at Procter & Gamble orchestrated more than one hundred agency reviews, and fellow senior vice president Lesley Klein. The process they shaped began with an in-depth discussion with the client as to what was expected of an agency, after which MediaLink would help narrow the choices of prospective agencies to a handful, who were invited to meet with the client for what MediaLink vice chairman Wenda Millard calls “a chemistry meeting. It’s like a first date. If I don’t like you, no second date.”
MediaLink then prepared a dozen-or-so-page single-spaced RFP to send to the contending agencies. The RFP took time to answer, for it sketched a timeline for the review process and imposed upon the agencies a number of key requirements: specify who would staff the account; specify the fee structure the agency would employ and the methodology to be followed to arrive at a fee; delineate the proposed marketing strategy; sketch the agency’s digital, technology, and e-commerce prowess; share the agency’s media-buying capabilities and data strategy; specify the transparency guidelines to be followed to assure, for instance, that the client shares in any rebates; give a detailed account of the agency’s work on other accounts and its approach to innovation; and it stipulates the return on investment, or ROI, targets the agency expects in return for a bonus and, if the target was not met, the size of the agency penalty. After the client digested these answers, agencies were then invited to offer their proposed creative presentations and marketing plans. The RFP always specified that the agency alone is totally responsible for any costs they incurred during this process.
The process MediaLink followed was explored in the fall of 2015 during the weekly Monday afternoon sta
ff meeting at their 1155 Avenue of the Americas office, with employees from the Los Angeles and Chicago offices joining via videoconference. On this Monday, Wenda Millard devoted the meeting to a presentation by Bernhard Glock of the agency reviews MediaLink was coordinating. Standing in the middle of an eighth-floor conference room crowded with staffers, Glock spoke of what the process taught about the changing dynamics between client and agencies. “There are six key components we hear every time from advertisers,” he said. “The first question the advertiser asks is, What are the cost savings the agency promises? Increasingly, they ask a fresh question: Will the agency agree to peg its pay to how the marketing campaign performs? More and more I see performance sneak in as part of the compensation.” Why? “Because there are more and more procurement people in the reviews.” The difference between the chief marketing officer and the procurement people, he said, is that the CMO tends to focus on building the brand and the procurement officer on cost savings.
The agency’s marketing strategy is a second key component; increasingly, he observed, the client is mistrustful of agencies, and he no doubt exaggerated when he added, “They rely on us” to help shape the strategy.