January 2007 marks the second anniversary for Michael Roth as Interpublic Group. For most of his tenure, the 61-year-old CPA has grappled with multiple accounting problems and financial restatements. Citing that the company is now in turnaround mode, Roth said he looks forward to the day when the word “beleaguered” is no longer “part of the IPG name.”
In a wide-ranging interview last Wednesday, the former CEO of MONY discussed his management style, his biggest disappointment and how he learned the ad business while “under fire.” Late last week, IPG was dealt another blow when Wal-Mart retracted its selection of DraftFCB, a move Roth described as “disappointing” in an internal staff memo.
Q: I have to start off by addressing the recent Publicis chatter. I’ve read your internal memo in which you say there’s nothing to it and urged your people not to let this be a distraction. But I understand that Maurice [Levy] reached out to you to dispel the rumors as well. Can you discuss what he said to you?
No, I can’t. I meet with all our competitors and everyone has their own thoughts and views on what makes sense for their own companies. But my reaction is very simple. Our board has been very clear that the best way to enhance shareholder value is for us to put our heads down and go to work and that’s what we’re going to do. A lot of people would like to see them acquiring assets of IPG, because we have such great assets. Some people would like to see them acquiring IPG, but right now we’ve been very pleased with the progress we’re making and it’s being reflected in our share price. We’ll deal with outside factors as they come.
How would you characterize IPG’s performance in 2006?
I’m very pleased with our results for 2006. What a difference a year makes. My meetings with our shareholders, with the analysts, and with potential investors have been a lot different now that we’re on the front foot instead of the back. I think this year we’ve made great progress in bringing our revenue back to a positive trajectory. We had to make up some client losses of 2005, and our commitment and our hope was for 2006 to have organic growth slightly up and I think we’re on track to do that. Certainly the third quarter was indicative of that. We had to stabilize our client relationships and some of our networks. I think we’ve made great progress in that. We’ve committed to being Sarbanes-Oxley compliant at the end of 2007 and we’re on track to do that. And we’re winning new business. But we still have work to do.
Regarding new business, I understand the selection of DraftFCB by Wal-Mart (your biggest win this year) is likely to be overturned following the abrupt departure of Julie Roehm. What can you say about that?
I don’t know anything about that. I can say that we are working with the client. We’re having meetings. They’re not commenting and I’m certainly not commenting beyond saying we have not been notified of anything like that. [Editor’s note: IPG was informed the following morning that DraftFCB was out and Wal-Mart would hold a new review.]
I realize you’re putting new financial controls in place, but I have to ask, why did we see so many restatements?
Because, first of all, the world changed. The reporting process changed. Sarbanes-Oxley changed. The whole game changed. What was normal in the old days is not acceptable now. And unfortunately we were leading the pack in terms of going through this. And look, just pick up the newspaper today, you see these restatements every day. It’s sort of become normal.
Wait a minute, it’s generally one restatement for those companies you’re referring to. You guys broke some sort of record. Why couldn’t you get this right earlier?
When you pick up a rock and something crawls out, you pick up another rock and something else crawls out. When you have material control weaknesses, this is what happens.
There are still two areas of concern that the analysts talk about. One is the professional cost associated with cleaning up the financial issues. The other is what some would consider exorbitant severance packages, like the one for [FCB’s Steve] Blamer. How do you address the concern that those costs are draining the bottom line?
I think those are costs of doing business. They’re not recurring costs and whenever you’re in a turnaround, you’re going to have non-recurring costs. Obviously, I’m looking forward to the day when we’re on a more normalized plane, both with respect to our financial controls and with respect to our earnings. I want to make this a normal company. That’s my main goal.
But some of those costs, like that particular severance package, were extraordinary.
Severance is part of this business. We make decisions in real time and I hope we get credit for the fact that we are making decisions from a strategic point of view, whether it be with people or with respect to structure. We’re not afraid to admit when something isn’t going right and to change it. We’re going to make those hard decisions and it may cost us some money. It may not.
I would imagine that another one of those hard decisions was dismantling IPG Media. Why was that structure a mistake?
I don’t call it a mistake. When we formed IPG Media, we were being slow followers. At the time, we thought that was what the marketplace needed. We had pulled Universal McCann out of the Worldgroup and we were forming IPG Media, and as we delved into it-and I give Mark Rosenthal a lot of credit for this-what became clear to us is that the clients were not looking for a separate IPG Media. They wanted to see our media offerings working closer with the networks.
Didn’t you discuss it with your clients beforehand?
Well, yes, of course you discuss it with your clients, but they are not going to tell us how to run our business. And frankly, you run your business and you do what you have to do.
So they spoke up later with a different point of view?
Let’s talk a little bit about the individual agencies and their performances. Earlier this year, you said that some observers wonder why you just don’t “put a bullet” in Lowe.
Yes, I said that at Investor’s Day, but I also made it clear at the time that that was not my intention. [CEO] Steve [Gatfield] and the talent he’s brought in is quite impressive. Mark Wnek and Nancy Hill in New York, Amanda Walsh in London and Kitty Lun in China. It’s stabilized. I think that was my goal and Steve’s goal, and there’s no question that it’s stabilized. We’re shutting down businesses that they don’t need. We’re in locations that they don’t belong in and we’re getting rid of those. And we’re focusing on the eight hubs that we said we were going to do. It’s still a work in progress, but I’m very pleased with the progress that they’re making.
What about Deutsch? They went through a pretty bumpy period, and I understand their numbers are not going to be anywhere near what they should be this year. What’s going on there?
I think they started the year off very strong. They won Ikea. They won DirectTV. And then, the one thing I’ve learned in this business is that it runs in cycles and you’re hot and then you’re not. To Linda [Sawyer’s] credit, she’s making changes and I think that’s a good thing. I support her 100 percent. I think the L.A. office is doing great. GM swears by them and hopefully we’ll see some more business as a result of that. I think Eric [Hirshberg] and Mike [Sheldon] are terrific. I think there’s work to be done at Deutsch, but I think Linda is on top of it.
We still hear about the possibility of a Deutsch/Lowe merger.
That’s a rumor.
Well, actually it’s more than a rumor because it’s been discussed among people who can make it happen.
Look, we’re always looking at ways of maximizing our efficiency and our go-to-market strategy, and sure, you look at everything. Right now it’s not on the table.
What about McCann? Is the industry perception that the agency doesn’t seem to be firing on all cylinders like it used to. Accurate?
I don’t know where that comes from. They’re firing on all cylinders. They’re revved up. I think they’re such a formidable force. They have a great client base. They recently picked up Nortel, and the work that they’re doing on Microsoft and Intel is great stuff. Everybody would love to have a Worldgroup in their company.
How would you distinguish IPG from its competitors? As you know, some holding companies are extremely involved with their agencies and some try to be more hands off. Is IPG somewhere in the middle?
Yes, I would say we’re in the middle. We are customer and client focused. If the client wants a holding company, we can do that. If the client wants a very strong brand like the Worldgroup, we obviously have the best in class. So we’ve been doing it all.
And you feel that’s different from, say, Omnicom?
I’m not sure. Certainly, historically I would say it is. Obviously they’re very competitive in the marketplace and they do whatever needs to be done to win business. But the mantra we have right now is that we owe it to our clients to bring them the best in class that we have to offer. And that’s what we do.
Let’s talk a little bit more about you. How would you describe your management style?
My style is very direct. I tell it like it is. I expect people to perform and they expect me to support them.
I understand you are also pretty hands on.
That’s right. When the board of directors asked me to take on this responsibility, I said to them, “Look, you know me. If I’m going to do this, I’m going to do it right and I’m going to be involved in it.” And they said, “That’s exactly what we want you to do.” And so that’s what I’m doing. This is what I do, I get in people’s faces. I’m involved. I’m part of the process. And I like to think of myself as helpful in the process. I always tell [my agency heads], if you need help, raise your hand and that’s what I’m here for.
What’s the biggest mistake they can make when dealing with you?
You came from a completely different industry. How well do you think you know the ad business now?
I know it pretty well. I’ve learned it under fire. What I’m uncomfortable with are the details of the mechanics of creative and stuff like that. Frankly, don’t put me in a room to do creative work. But the rest of the business, I have a pretty good feel for it.
What has been the biggest surprise?
All the different personalities. This company is so big, it has so many different personalities and, you know, either you’re a babysitter, you’re a business adviser, you’re a friend, you’re a boss. You’re all of that wrapped up in one and it’s actually kind of fun, but it’s nerve racking.
Is it like any other job you’ve ever had?
What’s the smartest business decision you’ve made since you’ve been at IPG?
First, moving from an independent board member to being in the trenches. And then getting out and working with our people and our clients rather than sitting in an office.
What’s been the biggest disappointment?
The loss of Bank of America.
Really? Is that because of the sheer size of the business or how or why it happened?
All the drama, the whole thing. That one just stands out.
Let’s talk about 2007. What are your top three priorities for next year?
Obviously achieving our financial targets is a top priority and that means revenue growth and margin improvement; Sarbanes-Oxley compliant; continuing to support our business units in terms of their targets and growth; being on the road more and meeting clients and not dealing with financial issues. And getting our stock price up.
You and I have talked a bit about China before. What is your strategy there and do you feel it’s as promising as some other holding companies do?
I think there’s a real opportunity there. We have a presence. We have to do better. We’re making some talent moves in China and supporting Worldgroup and Lowe there as well as our marketing services companies. And I think India is a great opportunity for us. We’re very well positioned there, we’ve got great resources and I want to see that grow.
I was a bit surprised to learn that you haven’t been to China, but I understand you are going in January. What took so long?
I had some things here that I had to deal with.
You’re always going to have some things here to deal with.
Well, I wanted to do it, but I wanted to do it right. For the last year and a half or so I’ve been spending a lot of time putting out fires. To be candid, I have Frank [Mergenthaler] now and he’s given me a big opportunity to free up a lot of my time. 2007 is a year of growth for us and that means going to China and things like that.
You’ve said you will deliver peer-level growth by the end of 2008. How much of that is going to come from organic growth vs. cost cutting? And how do you do that while restructuring two networks?
You make sure you have the right people and we’re off to a good start in terms of new business. I think our existing client base is solid and, therefore, the opportunity to develop new work is real. I think we have to continue to focus on cost initiatives and staff-cost ratios. You improve staff-cost ratios by either taking costs out or increasing revenue. I much prefer revenue as opposed to taking costs out. We’re not going to grow this business by just taking costs out. But we will do what we have to do to get those margins where they have to be. So if the company is not performing on the revenue side, then it’s appropriate for our investors to assume we’re going to take action on the cut costs.
Do you feel the analysts and press have covered you fairly during the difficult times?
I do think that people tend to go out of their way to bring up the history and emphasize the negative when you’re doing things that are good. But that’s the nature of the beast. But I am looking forward to the day when the word “beleaguered” is totally out of the IPG name and they don’t keep referencing that we’re “plagued” by this or that.
Any missed opportunities over the last couple of years in terms of a client, acquisition or strategic initiative?
I just want to make sure we’re moving fast enough. I think we’ve moved when we had to move and I want to make sure that we continue that. I think everyone in the company feels a sense of urgency for us to get on with it, and what won’t be accepted is just sitting back and letting things happen.
Where do you see IPG in three years?
I think we will be back. I mean, I think we’re back now, but we will be back as the formidable holding company that we were. I think there’s no question that our competitors are now viewing us more as a threat than they did in the past. And I want that to continue. Our goal is that 2008 is the year that I want to make sure that we can raise the flag and say, “We’re there.”