Wal-Mart Debacle Still Casts Shadow

NEW YORK Nearly a year ago, Howard Draft confidently declared he was about to “make history” as he set out to create a new industry model in response to clients’ changing needs. The combination of his CRM company Draft Worldwide with sister agency network Foote, Cone & Belding would offer the kind of accountable integrated marketing clients are demanding in a media-neutral age. Corporate parent Interpublic Group, beset with its own image problems in recent years, trumpeted the merger as symbolic of its new strategic thinking about the holding company’s assets.

Given IPG’s checkered history of combining disparate cultures at companies like Lowe, the merger was met with skepticism. In countering that criticism, IPG repeatedly pointed to DraftFCB’s participation in the $570 million Wal-Mart review as early validation of the pairing. The fledgling agency’s win of the business in late October—before it had even combined Draft and FCB offices—provided it instant credibility and buoyed IPG’s stock price the day it was announced.

But that celebrity quickly imploded into sordid notoriety as DraftFCB was dismissed amid the firing of Wal-Mart’s marketing decision makers. As part of subsequent legal wrangling between one of them, svp, marketing communications Julie Roehm, and Wal-Mart, the retailer went public with unseemly disclosures suggesting her favoritism and acceptance of agency largess rigged the review. Nearly six months later, DraftFCB continues to be tarred by association as the mudslinging between Roehm and Wal-Mart plays out in the press.

It’s been a sobering trial by fire for DraftFCB’s CEO, who is said these days to have lost his early ebullience. Howard Draft is also said to feel burned by Tony Weisman, the former DraftFCB exec who led the shop’s Wal-Mart pitch and whom the retailer singles out for the agency’s inappropriate behavior in its dealings with Roehm and her second-in-command—and alleged adulterous partner—Sean Womack. IPG, in using Wal-Mart as the yardstick by which to judge DraftFCB’s success, perhaps set too high a level of expectation for a company travailing the ups and downs of any merger.

The extraordinary set of circumstances and media glare accompanying the Wal-Mart debacle exacerbates the everyday trials of running any company, not the least of which is navigating change at client marketing organizations: Last week, Qwest Communications, a $95 million FCB client that generates about $15 million in revenue, confirmed it is launching a creative review. Qwest evp, marketing and communications Laura Sankey, who was promoted to the job in October, was on vacation last week. A company rep said as a result of a recent reorganization it might eliminate redundant ad duties among its roster shops. Because of conflicts with Verizon Communications, Qwest was being spun off into a new DraftFCB affiliate, Rivet; it’s not been determined if that agency will be included in the review.

Management turnover at FCB account Applebee’s, with about $3.5 million in revenue, according to sources, and shared client John Deere, which rung up under $1.5 million, have also triggered reviews, searches in which DraftFCB declined to participate. S.C. Johnson, FCB’s largest client, with some $65 million in revenue, also brought in a new CMO last year, David May. DraftFCB is also scrambling to shore up its relationship with Verizon Communications, where Jerri DeVard, svp, marketing and brand management and a longtime fan of the agency, left six weeks ago. DeVard’s duties have been absorbed in part by CMO John Stratton, who came over from Verizon Wireless and is “not as enamored with [the agency],” according to one source. Verizon is estimated to contribute $35 million in revenue. S.C. Johnson did not return calls; neither did Applebee’s, John Deere or Verizon.

Meanwhile, DraftFCB is said to be in discussions with another major retailer, a potential new piece of business that could serve as the vote of confidence that IPG had sought in Wal-Mart. “Everyone knows IPG is committed to the concept [of DraftFCB] and that’s not going to change,” said one source. “[Howard Draft] just needs to get another big win under his belt and that will change the tide.”

There’s no public evidence of DraftFCB client backlash from the Wal-Mart debacle, although some claim the Deere and Applebee’s reviews may be linked to it. IPG and DraftFCB have distanced themselves from the scandal by reminding reporters Weisman left the agency in December to head up Digitas’ Chicago office. Still, Howard Draft appears to be bearing the brunt of blame in the court of public opinion. In a recent Adweek poll asking who had fared worst in recent industry scandals, 29 percent of the 2,400 respondents cited Draft, second to Roehm, with 46 percent. (In contrast, Wal-Mart garnered a 10 percent vote; Weisman, 3 percent; and Womack, 2 percent.)

Howard Draft was unavailable for comment; IPG chief Michael Roth is undeterred.

“Whenever there’s negative press, there’s going to be short-term damage. But I don’t think there’s any fundamental damage to Howard or his agency,” he said, adding he had heard nothing from clients about the bad publicity surrounding the Wal-Mart situation. “In this business, you’re only as good as your last account win. This model of the future, of putting these two companies together and winning Wal-Mart, proves the validity of it.

“I’m still very bullish about this merger,” he continued. “It’s the right model, the right people. The fact that it’s been so well received in this competitive marketplace indicates it’s the right model. It’s a very powerful offering.”

DraftFCB said it has won over 40 new pieces of business globally in the nine months since the merger was announced, including U.S. assignments from marketers like Citibank and Merrill Lynch, although some (including Citibank) were from reviews that began before the merger.

“I don’t think [Wal-Mart] was too much too soon,” said Laurence Boschetto, DraftFCB global president, COO. “When we first went into the Wal-Mart pitch, we didn’t really think we were going to win. It was a way to test drive our go-to-market strategy. It clearly validated that we were looking at things differently.”

Draft’s top managers are grappling with the challenges any new entity faces when combining corporate cultures. One former FCB employee described the mood at FCB’s New York flagship as “grim.” “Everyone knew from the beginning that Draft would take the lead, but still, it’s as if 100 years of FCB heritage is being shredded by Howard Draft.”

Another source noted that top Draft execs face their own learning curve as they try to establish bonds with FCB’s marketers: Draft staffers are more used to dealing with direct-marketing execs. Hence Draft managers are not used to dealing with CEOs. They are “not really good at going up the food chain,” said one exec.

Combining the two companies’ very different creative approaches is going as well as can be expected, given their different orientations to the business. But Chris Becker, DraftFCB N.Y. CCO who hails from the FCB camp, is having each side of the combined entity spend time presenting creative ideas outside their normal disciplines so they can become comfortable with the agency’s new integrated focus.

Despite the recent turmoil, Bear Stearns analyst Alexia Quadrani still feels DraftFCB is a “good brand” with a strong leader in Howard Draft.

So what will it take to turn the page? “Doing some great creative work, pulling in a piece of business or two,” she said. “I don’t think [the Wal-Mart overhang] changes the future of the agency long term.”—With Aaron Baar, Andrew McMains and Kathleen Sampey