DOJ investigation deepens into agencies' alleged contract rigging

Dive Brief:

  • WPP confirmed Monday that three of its agency holdings have been subpoenaed by the Department of Justice, as reported in Ad Age. WPP joins Publicis Groupe, Interpublic Group and Omnicom Group in being probed for the potential rigging of commercial contract bids in favor of in-house agency teams over third parties.
  • "The problem lies not so much with the practice itself, but with a lack of transparency," Adonis Hoffman, the chairman of Business in the Public Interest, told Ad Age in a separate report. "Thus, if agencies disclose to clients what their intentions are and discuss their business practices to those clients, we would not have this investigation or discussion."
  • Heading the DOJ investigation is Rebecca Mieklejohn. As Ad Age points out, Meiklejohn is known for heading the Grey/Color Wheel bid-rigging scandal from the early aughts, which ultimately sent six agency executives to prison. The current investigation could similarly lead to fines or even prison sentences.

Dive Insight:

Following major public controversies that eroded client trust in 2016, agencies might’ve been hoping to lay the groundwork for a clean slate starting early next year. The reportedly months-long Department of Justice investigation into how agencies assign contracts for commercial production is sure to stymie any of those fence-mending efforts, however, as it’s now engulfed all four of the world’s largest agency conglomerates: WPP, Omnicom, Publicis and Interpublic.   

The crux of the investigation, as Hoffman pointed out to Ad Age, pertains to transparency with marketers, which agencies have been widely accused of lacking this year, especially after the ANA released a report over the summer exposing agency rebates clients weren't party to. The ANA report ultimately led to a wave of agency audits from major brands like JPMorgan Chase & Co., GE, Sears Holdings and Nationwide. 

"Transparency" was indeed recently named the ANA’s marketing word of the year, beating out buzzier terms like "influencer" and "programmatic" and reflecting the currently "broken agency/client model," per an ANA statement.

Allegations of bid-rigging also arrive at a time when a record number of agencies are being put under review or dropped altogether by their clients, with brands like Pepsi abandoning their AORs to move digital and social production in-house. Outside of cloudy business practices, agencies have also come under fire for failing to adjust to digital disruption, with some marketers believing shifting operations in-house will increase efficiency and effectiveness. 

While that may be true in specific cases, recent Forrester research suggests just 9% of B2C marketers actually have plans in place to move content development in-house. The same report noted that digital agencies, social agencies and user-generated content are all expected to win bigger budgets in 2017, as brands continue to look for outside help with content marketing strategies.

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Filed Under: Corporate News