14103: Divertsity At Holding Companies.

Adweek published a perspective from Brian Sheehan, former adman and current professor of advertising at Syracuse University, who presented common-knowledge views on the state of affairs at holding companies. Sheehan predicted that the transformations happening in recent years could lead to “less diverse portfolios” for the global corporations. Duh. Actually, it can be declared without hesitation or reservation that the changes will lead to less diverse workforces at the already-too-White holding companies—especially as shrinking budgets and assignments compel the existing exclusive staffers to hang on tightly to their privileged positions.

Holding Companies Are in Flux, Which May Lead to Less Diverse Portfolios

They are developing into core agencies as the ad industry transforms

By Brian Sheehan

What is a holding company, and where did they come from in the advertising space? I saw the development of holding companies firsthand as a young advertising executive working for Dancer Fitzgerald Sample (DFS) in New York in the mid-1980s.

At that time, DFS was New York’s largest agency and one of the most prestigious agencies in America, fresh off its Wendy’s “Where’s the Beef?” triumph and “Agency of the Year” honors. In 1986, DFS was bought by Saatchi & Saatchi. Saatchi had emerged as a new type of advertising agency, one bent on global domination like none before. Interestingly, their initial acquisition spree was undertaken by their dynamic group finance director, Martin Sorrell, who left the company just prior to the DFS purchase.

Saatchi & Saatchi’s strategy for global growth and dominance was underpinned by buying big, powerful agencies around the world (sometimes at inflated prices—think Ted Bates). Saatchi & Saatchi was, in essence, the proto-holding company.

The first modern advertising holding company was WPP, which was founded by Mr. Sorrell soon after he left Saatchi. He refined the idea of being a giant master branded agency. He morphed it into being a portfolio of brands and companies under one financial roof. This was investment and business school thinking, and it was being applied, for the first time, to the advertising world on a mass scale.

Holding companies were essentially “shell” companies. WPP, for example, stood for Wire and Plastic Products plc. It was a U.K. manufacturer of wire baskets. Its future purpose in life would be to hold within it a group of communications companies. It was a financial tool, pure and simple.

At this stage, the holding company had one main job: to serve as a repository for a diversified investment portfolio. Later, it would develop a second function: to look for efficiencies that would help cut costs in the back room while in no way undermining the integrity of the brands in the portfolio.

This was a classic investment approach of pulling together a diversified investment portfolio to avoid having all your eggs in one basket. This helps balance risk and reward. When some brands are up, others are down. The portfolio grows steadily with the market and the economy over time. You have good years and bad years, but you avoid disastrous years.

These portfolios, held by the big holding companies (e.g., WPP, Interpublic, Publicis, Omnicom, Dentsu), have been increasingly diversified since the late ‘80s with the inclusion of media agencies, digital agencies, research companies, PR agencies, data agencies, etc. In fact, the emergence of media agencies in the 1990s was in itself a holding company-driven strategy—and a good one at that (financially, anyway).

But the worm has turned. As exemplified by Arthur Sadoun’s emerging vision for Publicis, the portfolio approach is being diminished. The differences between brands like Saatchi & Saatchi and Leo Burnett, for example, or even between these brands and SapientRazorfish, are disappearing as those brands are subsumed into the Publicis master brand.

In other words, the holding company is emerging as the core agency itself. It is a big, powerful, integrated agency to be sure, but it is destroying the diversity of their portfolio. And it is not just a Publicis issue. All of the major holding companies are winning their biggest pieces of business by merging their brands together to create holding company-level teams (e.g., Nissan United and the McDonald’s-focused We Are Unlimited).

Now to be fair, the industry is changing rapidly; it is now up against powerful consultancies like Accenture. Procter & Gamble’s chief brand officer Marc Pritchard recently said, “What’s impressive is how quickly Publicis and its management team came together to change.” That’s a fine endorsement.

I just want to sound a note of caution. Holding companies should not forget what a holding company is and why it exists in the first place. Should holding companies continue wholesale merging of their brands and offerings, they may find in the next three to five years that all of their eggs are no longer in a diversified holding company basket but instead in a single branded-agency basket. And they may, as a result, have some very bad financial years, which may be impossible for some of them to withstand.