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August 3, 2005
Maybe the Judge was Right: the Advertising Industry Does Need a New Ethics Code After All

Many people in the advertising industry were taken aback by the unusual sentence levied against Shona Seifert, the former Ogilvy & Mather executive convicted of conspiring to defraud the U.S. government in a recent case involving inflated time sheets and the filing of false claims.

Not only did Judge Richard M. Berman sentence Ms. Seifert to 18 months in a minimum-security prison and a $125,000 fine, but he ordered her to write an ethical code for the advertising industry. Burtch Drake, president and CEO of the American Association of Advertising Agencies (AAAA), immediately reacted, remarking to a trade reporter that the Association already had an ethics code—drafted in 1924, and updated in 1990. "I don't see a need for a change or addition to these standards," said Drake.

Was the judge being ironic? Was he sending Ms. Seifert a message? Or was he serious in the belief that the whole advertising industry is suffering from a lack of ethical rigor?

Maybe a little bit of all three. No matter. This case was slippery, in my judgment, for several reasons. It seems obvious that time sheets, especially when you are working for the U.S. government, are legal documents which must be scrupulously kept and anyone failing to fill them out properly—or urging others to falsify them – may be guilty of criminal conduct.

But people in advertising are not lawyers or accountants. Most of them don’t easily compartmentalize their time. They may be working on Y account, when something interrupts their concentration, and they have to switch to doing something for the X account. Then the phone rings, concerning urgent matters for the Z account, and off they go again. So expecting time sheets to reach the level of accuracy demanded of other, less creative, more easily tracked and quantified businesses, is almost asking too much of a trade that requires hourly multi-tasking.

More troubling: How should agencies account for the time and energy they put into the scramble for new business? Agencies are in a constant search for new accounts. An RFP (Request for Proposal) arrives, and suddenly everyone is pulled from work for billable clients to help design a compelling appeal to the new account. This kind of work can go nights and weekends, until the RFP is in the mail.

After the dust settles, people try to allocate charges for their time. In some agencies, the CFO has created a line for each new pitch. In other agencies, those unbillable hours are charged to ongoing business with some justification, because the Y account team which was grabbed for a few minutes or hours to work on the new pitch, still had responsibility for attending to all the work expected of them on the Y account. But any such mis-reporting of time is obviously wrong, even actionable, as the Seifert case shows. This is the post-Enron era, where every agency —not just publicly held ones—should be held to higher standard of conduct.

Some agency heads, mindful of the difficulty of assuring that time sheets are scrupulously kept, are refusing to provide them altogether—proposing instead a more simple, per-job fee. That's one way of attacking the problem. Another is establishing an unwavering standard of accuracy and learning how to police executives to be sure they are meeting it. But even if agencies improve their record keeping on which so much compensation in now based, there are other areas that deserve ethical attention.

One obvious area: better reporting to the press and public an agency’s media billings, revenue and income—the metrics by which we judge an agency's health and well-being. There is no question what revenue and income mean. But the word "billings" is still subject to considerable abuse.

Most agencies don't get paid on the basis of commissions for media they place, but on a fee basis. That is, in part, because much of what they do today is to come up with “ideas”—that is, executions—that take place in the culture and on the street and are not related to making ads "inserted" in broadcast shows and magazines and newspapers. To cure the current tendency to inflate billings, the industry led by the AAAA should adopt a rule that agencies stop reporting actual media placement entirely and instead simply multiply gross revenues by a factor of 7 (or to be more accurate, 6.67, on which the old 15% commission was based) to come up with an comparable “billings” figure. And they should be transparent and uniform about this, and stop being coy about the formula.

If privately-held agencies approached this "bragging" ritual as rigorously as Sarbanes Oxley has forced publicy-held agencies to follow it, there might be a year or two of shock, as some agencies' rankings were hugely deflated, but then everyone would settle down again—sleeping better at night knowing that agency leaders were trying to hew to a higher level of truth about their business.

There are other ethical areas that need a good "sweep." It's not that people in advertising are any better or worse than any other industry—just that if we did a better job setting our own high standard, and educating others about it, we might enjoy a better standing in the business community.

It's good that the AAAA has a set of standards for its members. But they may not be as broad and clear as their executives would have us believe. Seeing senior executives from one of Madison Avenue's best known agencies go to jail is a shocking development by itself. For the judge in the case to order a convicted defendant to spend time thinking about not just the legal ramifications of her behavior, but the ethical implications as well is a reminder that we all may need to revisit the subject. Sometimes new thinking comes from unexpected quarters.

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If you want to know every angle of the agency business, talk with Andrew Jaffe. Client, agency, media, award show, and consultant, he has been on every side of the ad business. The former ADWEEK editor and executive director of The Clio Awards is now president of Compass Consulting. You can also add author to the list of Andrew’s roles, as he releases a new book, "Casting for Big Ideas: A New Manifesto for Agency Managers."
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