First domino from the ANA ad agency rebate report falls: Chase hired auditors to look at Publicis

Businessman Touching Domino Pieces Arranged in a Line

Steve’s breakdown: This will not be the only account to be checked because of this report.

Let’s keep an eye on every audit that goes down for possible leads.

EVERYWHERE, USA: Chase, the US consumer and commercial banking division of JPMorgan, has called in auditors to examine its relationship with Publicis Groupe media agency ZenithOptimedia, the company that buys advertising on its behalf.

A source told Business Insider the decision to call in auditors around two weeks ago is a direct response to the high-profile report published earlier this month by the Association of National Advertisers (ANA), which alleged that volume discount rebates and other non-transparent business practices are “pervasive” in the US media ad-buying ecosystem.

When companies appoint auditors to look at their media agency relationships, they are looking for reassurance that they are getting what they paid for when it comes to their advertising spend and that the agency has been compliant with the contract. Sometimes, audits result in overpayments being returned to the company, or contracts being renegotiated.

There is no evidence or suggestion that Zenith has engaged in any of the non-transparent business practices outlined in the report. But Business Insider has been told by numerous sources that the publication of the report directly prompted the auditing process. After releasing the report, the ANA advised marketers to reexamine all their existing media agency contracts and to “substantially expand audit rights if necessary.”

JPMorgan Chase confirmed to Business Insider it had hired K2 and Ebiquity’s Firm Decisions, the same two firms appointed by the ANA to conduct its investigation into the media agency business.

A JPMorgan Chase spokesperson told Business Insider: “We have launched an audit of Zenith, and have paused new work with them in the meantime. They’ve been cooperative, and we look forward to completing this quickly.”

A Zenith spokesperson sent Business Insider this statement: “We have a great relationship with JPMorgan Chase, with a strong partnership for more than a decade. Audits are a standard part of the business process. We look forward to a collaborative audit process and a continued relationship.”

Numerous sources told Business Insider that JPMorgan Chase had actually been reviewing how it works with agencies for some months prior to the publication of the ANA report.

One option JPMorgan Chase has been considering is creating a programmatic unit in-house, reducing the need to rely on an outside agency in this particular area, a source told Business Insider. (“Programmatic” advertising involves buying digital ads using automated processes.)

Having an in-house function would presumably give JPMorgan Chase more vision on the ad rates it is being charged by media companies, rather than this cost being bundled with agency fees.

The company has already been in a process of bringing more of the functions that it used to outsource to advertising agencies in-house, such as search and digital production. Chase created its own in-house brand creative agency, InnerCircle, to handle such functions in 2014.

The chief marketing officer at Chase who appointed the auditors is Kristin Lemkau. She has been in that position since 2014, but has been with the bank since 1998. Lemkau is also a director on the ANA board.

The ANA report compiled the findings of an eight-month probe into the US media buying industry by investigations firm K2.

The report did not name names but it outlined “evidence of a fundamental disconnect in the advertising industry regarding the basic nature of the advertiser-agency relationship.”

Some of the alleged non-transparent practices outlined in the report included: agencies taking rebates from media companies for spending pre-negotiated volumes and not disclosing those credits — or returning them – back to clients (despite advertising holding companies persistently saying they do not take rebates in the US); agencies buying media then reselling it back to a client after a markup; and it also claimed to have found evidence of senior employees feeling pressure from senior executives to direct spend towards a media owner in which the holding company held an investment.

Advertising agency holding companies denounced the report. Most agency executives complained that by not naming any names, the report had tarnished the entire industry.

Zenith owner Publicis Groupe released a lengthy statement in reaction to the report’s publication (which you can read in full below) saying the ANA had “failed its members, advertisers, agencies, and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated, and unverifiable assertions.”

Meanwhile, Sir Martin Sorrell, CEO of the world’s largest agency holding group, WPP, said earlier this month that the report was “in no way independent” because it did not include input from all of the six major holding companies (although he later conceded that one executive at a holding company had participated). He also criticized the ANA’s selection process for the firms carrying out the investigation, saying that representatives from Ebiquity were on the selection panel that chose K2, which employees former FBI agents, to carry out the probe.

The implication there is that, for auditing firms like Ebiquity, the more gruesome the report’s findings, the more they stand to win potentially in new business.

For its part, Ebiquity is set to release its own paper, presenting recommendations for marketers in handling their media agency relationships, within the next fortnight.

Publicis Groupe’s full statement in response to the ANA report:

We fully understand that clients need to be certain that their investments are managed in a professional way and according to the contracts they have signed. Mutual trust has been a pillar of our Groupe for decades. Had the ANA been willing to have an open dialogue with our industry we would have been immediately ready to cooperate, as we did last year, and that is reflected in our engagement with the 4A’s. By refusing such a dialogue and choosing a sensational approach, it seems clear that the ANA is not trying to find a solution to the alleged problems, and instead is acting with other goals in mind.

The ANA has failed its members, advertisers, agencies and the entire industry by releasing a report that relies on allegations about situations involving unnamed companies and individuals to make broad, unsubstantiated and unverifiable assertions. Despite repeated urging by Publicis Groupe and others in the industry to include names and sources in its report, the document hides behind suspicions and anonymity rather than encouraging real accountability.

As a result, the report fails to achieve a constructive outcome of encouraging change that can assure advertisers and agencies are well-equipped to work together in a rapidly evolving media environment. The various highlighted practices distort the picture of the marketplace by suggesting that they are pervasive. These allegations are too serious for the ANA to act in such an unhelpful way.

If the report’s authors have evidence of wrongdoing by specific agencies, they should come forward and state their case, so that the appropriate action can be taken.

The unsubstantiated claims are already causing serious damage to the reputation of the industry and endangering the most valuable component of the agency-advertiser relationship: trust.

Trust is a key tenet at Publicis Groupe. We are committed to understanding and respecting our clients’ transparency requirements in all situations, and this is a standard part of our client contract negotiation process. Publicis Groupe has strict internal rules, including a code of conduct that serve as important controls on our practices and public reporting. In addition, we continually examine our processes and procedures to ensure we are following best practices, and our people are expected to meet these high standards.

We are crystal clear: we are committed to full compliance with the terms of the client-agency agreements we sign. We always want to hear from any client that has concerns about the delivery of our services and how we are compensated, so that we can address those directly with them. We also recognize that some alleged practices under question may not be egregious transgressions, but rather outmoded practices that have not kept pace with the fast changes in the media landscape that require more engagement and dialogue between agencies and clients, and better alignment to assure comfort and consensus.

Consistent with our strong advocacy for the industry and our clients’ best interests, we were active participants in discussions last year with the ANA and the 4A’s toward the shared goal of enhancing media transparency. We were on the verge of announcing a broad set of principles when these efforts were unexpectedly abandoned by the ANA. We remain strong advocates of developing industry guidance now.

Our letter sent to the 4A’s on May 30, before the report was released, outlined our concerns about the ANA’s approach, which went unheeded.

Ultimately, the industry has been diminished and maligned by the ANA’s short-sighted and unilateral agenda of casting aspersions on an entire industry, rather than promoting trust and transparency, which should be paramount.

We are continuing to review the ANA’s report, and will comment further as appropriate.

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