A Bid for New Business Raises Old Questions
A New York lawyer tells a story about trying to get an agency client to enact noncompete contracts for employees who could someday walk away with business: “How the hell do you think I got started in this industry?” the agency client responded, refusing to even consider the restriction.
As the story well shows, leaving to start a new agency with a client nabbed from your previous employer is an old–if arguably underhanded–tradition in the ad business. But recently, there emerged a new twist on this not-so-uncommon practice. According to sources, two Wieden & Kennedy staffers–Nike account executive Chris Mendola and account planner Alex Melvin–quietly began to draw up plans to work for the athletic wear company’s archrival, Adidas, while still on the Wieden payroll. After Dan Wieden was alerted to their under-the-table efforts, he flew in August to Amsterdam–where Mendola, Melvin and Adidas global ad director Neil Simpson are based–and reportedly fired the two employees. Mendola and Melvin were trying to enlist Wieden’s son-in-law, Stacy Wall, creative director of the agency’s New York office, at the time, sources say. Upon winning the Adidas pitch late last month, the ex-Wieden duo, along with former Tokyo-based Wieden creative director Larry Frey, opened the doors to their new agency, 180, in Amsterdam.
For Wieden, the betrayal couldn’t have come at a worse time. While Nike is taking a beating from shareholders, Adidas is grabbing footwear marketshare at Nike’s expense.
Equally troublesome, Adidas has stolen Nike’s flash in the industry’s image wars. Its suc-cess led to Simpson’s decision last summer to look for a second agency to assist on global assignments behind Leagas Delaney, London, Adidas’ lead agency of six years.
“This betrayal thing is even more unconscionable when you think about how these guys worked at Wieden & Kennedy and knew the unbelievable pressure Dan is under right now because of Adidas,” says one Nike insider.
“This is an ugly situation,” observes Pat Fallon, chairman of Fallon McElligott in Minneapolis. “You have an agency that trusted people and a brand with a lot of integrity. It’s astonishing to me that Adidas has allowed it to happen. This can be a funny, fickle business, but something like this is perilous.”
Fallon and all of those outside of 180 who were interviewed for this article stress that they have no direct knowledge of the matter and base their opinions on what they have read in the press.
Although many agency observers in the U.S. voice outrage at the ex-Wieden staffers’ actions, the situation has garnered little notice in Europe. The principals of 180 see no wrongdoing on their part.
“We approached Adidas, but that was when we were three unemployed ad guys,” insists Melvin. “To say we were working on a pitch while still working at Wieden is factually incorrect. We didn’t present creative ideas until September.”
In the next breath, however, Melvin displays a Clintonesque facility with language: “I’m not saying we didn’t have discussions while we were there, or that we didn’t plan to have our own agency or discuss what ideas we have for Adidas. We just never worked on them.”
Melvin denies that he and Mendola were fired, saying it was a mutual parting: “We had a difference in direction with Dan.” Frey, who according to sources participated in the Adidas pitch, quit Wieden earlier this summer to become a director at radical.media. The deal fell through after Frey informed his new associates of the creation of 180 and the Adidas win. “We decided not to take him on,” says radical’s president Jon Kamen. “I was not aware of this other scheming that was going on. When I heard the Adidas rumors and confronted him, he kept denying it, saying, ‘No. It’s nothing.'”
Wieden executives declined comment on 180 and would not say whether they intend to pursue legal recourse against the former employees. It is not even clear whether the agency has a case against them.
Still, the turn of events in Amsterdam provides a cautionary tale for both employers and employees. In a business where the laws governing intellectual property are fuzzy, few hard-and-fast rules cover the potential misuse of proprietary knowledge.
“If employees take confidential information and misuse it–contract or no contract–the agency has a cause of action against them,” says Stuart Friedel, an attorney with Davis & Gilbert in New York. “If you misappropriate someone else’s property, you’re clearly breaking the law.”
No one has accused the former Wieden staffers of that, but the fallout from this incident highlights the obligations employees owe to their employers. Working on one client by day and moonlighting for its chief competitor at night is taboo for anyone working in advertising. But there are plenty of gray areas as well.
“If someone freelances while being employed at an agency, you have a fiduciary duty not to do anything that would hurt your employer,” says Rick Kurnit, a lawyer with Frankfurt, Garbus, Klein & Selz in New York. “An agency’s client feels if its employees have a great idea suitable for their category, they should give it to the client first.”
Ironically, some observers say Wieden is reluctant to require its staffers to sign noncompete, nondisclosure agreements.
“Historically, Dan Wieden has not used contracts because he trusts people,” observes one veteran recruiter. “All of this couldn’t have happened to a more honorable guy. That kind of decency is great, but it’s important to realize that contracts not only protect employees, they [also] protect the employer.”
In fact, Melvin says he did have a contract with Wieden, but it did not preclude him from taking on competitive clients after he left the agency. It is not known whether the other two 180 principals had contracts.
Yet pushing staffers to sign on the dotted line is uncomfortable for some agency executives. “It’s a sticky issue for us,” admits Jeff Goodby, co-chairman of Goodby, Silverstein & Partners in San Francisco. “I don’t like the idea of contracts because it’s sort of like saying you anticipate trouble.” Only a handful of Goodby principals have contracts.
Pat Fallon says he doesn’t use contracts either: “If we need to protect ourselves with a contract, I don’t want that person working for us,” he says. “Business on a handshake has served us well, even if it may burn us in the future.”
Even without a legal document, employees may be surprised to learn they have certain obligations to their bosses. “There’s something called ‘duty of loyalty,’ which exists even in the absence of a contract. It involves duty of loyalty, duty of first attention, duty of steadfastness,” says David Versfeld, an attorney for Kirkpatrick & Lockhart in New York. “It’s part of state law that says when you’re working for one person, you shouldn’t help their competitors.”
The problem of employees who allegedly trade upon their proprietary knowledge as they jump from job to job has been drawing increasing attention lately.
On Sept. 30, Procter & Gamble filed suit against Paul Stoneham, a former marketing director for hair-care products in Germany, seeking to prevent him from serving as president of Alberto-Culver International. P&G, citing a noncompete clause in Stoneham’s exercised stock-option plan, says the executive will take on responsibilities covering the exact product categories he handled at P&G. The suit alleges that for weeks after he knew he was leaving for the Alberto-Culver job, Stoneham continued to participate in major global strategic meetings at P&G and had direct access to highly confidential documents.
The 1993 case between General Motors and Volkswagen is even more well-known. After VW hired Jose Ignacio Lopez de Arriortua, GM’s purchasing chief, GM sued the German company, alleging that Lopez took industrial secrets with him. After a lengthy battle VW agreed to give GM $100 million in cash and purchase $1 billion in parts from GM over seven years to settle the suit. Lopez no longer works for VW.
So far, there is no indication that Wieden or Nike intends to file a suit against Adidas. A Nike representative says the company views the matter as an internal one at the agency and will not comment. But one industry lawyer says if a client wanted to sue another client in a situation involving circumstances similar to the Nike-Adidas-180 imbroglio, they might have a case.
“Even without proof of theft of trade secrets, an employer can be held accountable for interference of contract,” one New York agency lawyer contends.
Adidas’ Simpson emphasizes he did not initiate contact with the Wieden staffers, although he had worked with two of the three men in his previous marketing job at Coca-Cola. “They contacted me,” he stresses. “My perspective was: When they are a free unit, away from Wieden & Kennedy, they can present to me. Until then, I’m not interested.”
Simpson’s corporate peers in Germany have a difficult time understanding what the uproar is about. In America, Adidas’ selection of 180 looks like it sanctions the betrayal of Dan Wieden, one of the country’s most esteemed agency founders, from longtime employees whose reputations he helped forge.
That the client was Nike and the agency was Wieden, an agency-client relationship that has championed great advertising and loyalty, is especially unsettling. But in Germany, Adidas representative Peter Csanadi seems surprised at any suggestion of impropriety. “If people don’t like our selection,” he says, “that’s their problem.”