Trouble Ahead for Dentsu Aegis

29 September 2016

Disclaimer: I worked at Aegis for 6 years from 1994 – 2000.

 It has not been a good few weeks, months or even years for Dentsu Aegis Network and its constituent parts. Last week Dentsu in Japan admitted that they have been over-charging a large number of their clients (111 is the current number but that could rise), including Toyota for online advertising. This has reportedly been going on for a number of years. Dentsu are admitting guilt since 2012; one of my ex-client contacts suggests it goes back a good 10 years before then.

This over-charging did not as at first appeared to be the case come to light because Dentsu brought it to their clients’ attention. Rather it seems it was discovered by Toyota, who not unreasonably wondered what the agency was going to do about it.

Everyone knows that Japan is a highly unusual media market, with the huge agencies (Dentsu is the largest by a street) controlling both large chunks of buying, as well as certain aspects of the commercial operations of those from whom they buy.

The large Japanese conglomerates rarely change agency (Toyota’s relationship with Dentsu goes back over 60 years), and the trust between client and agency has always been both personal and absolute.

That may be about to change.

The first step towards peering inside the black-box that is Japanese media agency practices has been taken. A more transparent and less opaque future awaits.

It’s very hard for any Western agency to establish themselves in Japan. The same goes the other way too – Dentsu’s attempts to break into Europe have not until recently been particularly noteworthy, with what many would describe as the destruction of the iconic UK agency CDP being a particular low point.

The acquisition of Aegis in March 2013 was a turning point. In one fell swoop Dentsu acquired a sizeable, global network and a European (or at any rate UK) management team.

The successful sale of Aegis to Dentsu was led by CEO Jerry Buhlmann, whose business, BBJ had originally been bought by Aegis as a second-string UK agency, now called Vizeum.

Buhlmann duly took charge of the new Dentsu Aegis Network, eventually becoming that rare thing, a Western Executive Officer at Dentsu Inc.

Aegis has had a few unfortunate European mishaps stretching back a number of years, at least one of which may be about to become expensive. Whilst Buhlmann and his team have likely had nothing to do with these latest shenanigans in Japan (the issues there predate the Aegis takeover anyway), the network has not had a smooth time – either internally or in media trading.

One major issue dates back over 8 years. In 2008 a German court case brought by Aegis against the agency’s Head of Central and Eastern Europe and Africa, Aleksander Ruzicka opened after several years of preparation. Jerry Buhlmann testified in court, hardly surprising given that in his view Aegis was the victim in this affair.

The case ended with Ruzicka being sent to prison for allegedly defrauding the agency (not their clients, please note) out of certain rebates from media owners.

However, the German courts subsequently reviewed that decision and duly released Ruzicka ahead of time in 2015. This followed a finding in the Civil Court that Aegis had failed to prove any damage caused by Ruzicka to the company, despite their claims to the contrary.

A group of experienced lawyers and investors has taken ownership of the case and is now pursuing Aegis for the fulfilment of existing contracts, settlement agreements and damages said to run into the hundreds of millions of Euros.

Ruzicka himself, meanwhile has emerged as something of a hero in Germany where he enjoys the status of a whistle-blower and has had no problem winning business for his new consultancy advising clients on the appropriateness of their agency contracts, as well as in handling pitches.

Meantime, Aegis in Germany has fallen from its once unchallenged position under Ruzicka on top of the billings league, to mid-table at around number 4.

Furthermore, one set of digital management has quit en masse; a succession of top managers has come and gone (in one case bringing a legal case against Aegis); and the agency has had to defend itself against client accusations of alleged improper dealings (which might explain the fall down the rankings).

If every case of a failure to account for rebates had followed the approach Aegis chose to go down in Germany with (don’t let’s forget) an internal charge involving no clients.…well, Europe’s courts would have been busy.

Then there was a case that came before the UK High Court where Aegis was alleged to have over-inflated profits at its research business, Synovate prior to an eventual sale to IPSOS – a matter eventually settled out-of-court. To quote from the IPSOS presentation to their shareholders dated 28^th April 2016: “In total IPSOS will have received from Aegis repayments, both in cash and asset transfers, an estimated total of £44million. This…testifies to the appropriateness of the actions undertaken since 2012 by IPSOS in order to protect its interests.”

Post the sale to Dentsu, and the further elevation of Buhlmann and team the fun has continued on the media trading front. Last year, in Australia Aegis seemed to own up to the practice of value pots, having previously denied their existence.

Aegis then (along with some others, but excluding, to their credit WPP) reverted to a policy of silence when questioned on the topic in June this year.

This year, ‘Campaign’ in the UK reported on a trading dispute between Aegis and ITV that industry gossip suggested went far beyond the usual arguments over terms and was even rumoured to have come close to going legal.

Now, you might say that much of this is par for the course in media agency land. Actually it isn’t. On the staffing front, the major holding companies have enjoyed some management stability at the heads of their media organisations. Naturally people come and go but major disruptions such as endured by Aegis in Germany are rare.

On the trading side, there is a dawning realisation post the findings of the ANA report that clients want and expect change. Quite aside from pitches, contract reviews are rumoured to be underway in a number of cases. Holding companies have started to react: when Mediacom was engulfed in a scandal over audience reporting practices in Australia, GroupM moved fast to identify and remove those responsible.

To Dentsu Aegis though the ANA investigation and subsequent report appears to be of minor significance, as Jerry Buhlmann pointed out in an interview earlier this month with Adexchanger.

Jerry said: “Most clients are much more sophisticated than they’ve been given credit for. You establish a working relationship with clients in a contract [that] formalises exactly how you operate in a very transparent way. A lot of the issues raised by the ANA are marginal to the business. They’re not a reflection of modern contractual relations. Following that report, we didn’t get any feedback from clients. I’m not sure it’s a particularly big deal in the real market.”

‘Very transparent’? ‘Marginal’? ‘…(not) a particularly big deal in the real market’?

The words sound both hollow and self-serving given the events of the last couple of weeks, and that’s not even to mention the broader questions over corporate behaviours covering the last few years.

Meantime Dentsu Aegis watchers will be interested to see just how ‘marginal’ the agency’s Japanese clients consider recent events to have been.