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The breach-of-contract lawsuit Saatchi &

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The breach-of-contract lawsuit Saatchi & Saatchi filed against Mike Burns, its former worldwide account director on General Mills, was the first salvo in what could be a nasty mudslinging battle that has as much to do with the animosity between two men as with wrangling over the Minneapolis packaged-goods company.

Given the sensitivity of dragging clients' business secrets into a courtroom, it is unclear if the dispute will proceed to trial or settle out of court. But the suit, filed in state Supreme Court in New York on March 11, is said to have surprised Burns, the 25-year General Mills veteran, who was banking on Saatchi's reluctance to involve a key client. Its filing, just hours after Interpublic Group confirmed that it set up 17 ex-Saatchi staffers in a new agency, sent a strong signal that Saatchi intends to prevent Burns from joining that group anytime soon and thus keep the General Mills business at Saatchi.

The September hire of Mary Baglivo as Saatchi's new CEO in New York may have been the catalyst for Burns' Feb. 11 resignation and the subsequent walkout of the so-called Saatchi 17—those General Mills account staffers loyal to their boss but not the agency. But for Burns, who had been co-CEO and who expected—perhaps unrealistically, given years under a managing partnership—to assume the CEO role, his anger at worldwide CEO Kevin Roberts had long been simmering. In an agency long known for its account fiefdoms, the General Mills group had become even more of a separate agency within an agency. After work, Burns could often be found in his office, the wine flowing, as he and his staff complained openly about Roberts, whom they blamed for their low morale, say sources. While the $500 million-plus General Mills account was the most profitable in the New York office, generating $50 million in annual revenue for Saatchi, those working on it felt like second-class citizens, with Roberts showing preferential treatment and offering promotions to staffers on Procter & Gamble, the client with whom he is closest, sources say.

Burns and Roberts declined to comment for this article.

"What Mike Burns is trying to do is disgusting, but on the other hand, he has been treated so badly," says one source. "He and his team don't see this [walkout] as being disloyal to Saatchi but rather, being loyal to General Mills. What's driving Mike right now is primarily emotional and, secondarily, financial."

Those emotions began spilling out after Baglivo joined in October—a hire Burns was not told of until the eve of the official announcement.

"He would say, 'I'm leaving and taking the [General Mills] business,' but I never believed him," says a source.

Those threats became more serious in the fourth quarter. Saatchi's lawsuit against Burns charges that during that time he began telling his staffers that they should move to another shop or set up an entity to work on General Mills. The suit further claims that in October he approached "one or more senior members" of General Mills' executive team and suggested the marketer move its business to another agency after he resigned from Saatchi. After client executives told him they "had no intention of moving to another agency," Burns resorted to putting "pressure" on the client to leave by encouraging his staff to follow his lead and resign, according to the suit.

Also in the fourth quarter, Burns reached out to holding companies such as IPG, WPP Group and MDC Partners about backing his General Mills team, sources say. Burns and his 17 colleagues oversaw assignments that accounted for nearly 85 percent of Saatchi's General Mills billings, estimated to represent about two-thirds of the $50 million in annual revenue. The brands included Cheerios, Total and Wheaties cereals, Fruit Roll-Ups snacks and Yoplait yogurt, which ring up some $460 million in billings.

"Burns was very aggravated with Roberts and was trying to shop a deal. He said he could bring the whole [General Mills] account and 20 people," says a source. "He had no non-compete, no non-solicitation clause [in his contract], and he was betting on the fact that the rest [of the Saatchi 17] had no contracts and that Saatchi wouldn't want to drag a client into a court case."

It was IPG that took the bait, with then CEO David Bell leading the charge in November, sources say. By December, Bell, a Minneapolis native, went before the IPG board to tell them that his hometown client would be sending business IPG's way. Another General Mills agency, Campbell Mithun, owned by IPG, was rumored to be a possible new home for the Saatchi team. But sources say the 17 preferred to have their own shingle.

"We couldn't know about this. We needed to have plausible deniability in case the situation should implode," says a Campbell Mithun source. "So when the news first went out [about IPG and the Saatchi 17], we said, 'Let's just keep our heads down and keep on working.' We don't want to be seen as taking advantage of the situation or ambulance chasing."

IPG declined to comment. A General Mills rep offered no comment beyond one the company has issued numerous times in recent weeks: "We can confirm that we continue to be very pleased with Saatchi's work on our behalf, and we are looking forward to continuing our 80-year relationship."

(If not outright plausible deniability, IPG's current CEO and co-chairman, Michael Roth, was also said to have kept some distance from Bell's negotiations.)

One IPG exec who did find out about Bell's pursuit of General Mills and was not happy about it was McCann Worldgroup CEO John Dooner. The former IPG CEO, who gave up that role to Bell, counts Campbell Mithun among the companies reporting to him.

"Dooner was displeased that David Bell was rattling around General Mills, especially since this has unfolded in the most ham-fisted way," says a source. "It's unimaginable—you don't need to spend much time at the Mills to know this is a client that doesn't like the negative publicity about people trying to trade off the value of their assets."

Bell, now IPG co-chairman, planned a celebratory dinner for Feb. 18, the Friday following the Valentine's Day walkout of the Saatchi 17, at Manhattan's '21' Club, sources say. But the week brought nasty accusations and unflattering headlines. Sources say that within days of the walkout, and as news of IPG's negotiations with the 17 leaked out, Maurice Lévy, CEO of Saatchi parent Publicis Groupe, exchanged e-mails with Roth, who was forced to defend the ethics of his company, even as he seemed vague about the details of what was transpiring. Lévy declined comment. At the request of the client, IPG backed off to allow Saatchi an opportunity to rehire some of the 17. Bell's party was canceled.

IPG sources contend that Campbell Mithun knew of no General Mills business moving out of Saatchi along with the 17 staff members. (Burns' No. 2, Anne Adriance, has been fronting the 17. Burns, who was under Saatchi contract until March 15, was not among those hired by IPG.) Few observers buy IPG's assertion, as the holding company is thought to be taking on an estimated annual payroll of $3.5 million to underwrite the Saatchi group and has set up a new IPG shop to utilize their expertise in marketing to children and families.

According to some familiar with General Mills, the account at Saatchi will be in play now that the marketer has another viable agency option. "It's a matter of how and when General Mills do it, it's not a matter of if," says a source.

Yet others familiar with the client say the way the situation has played out publicly has been uncomfortable for the conservative Midwestern marketer known for its measured business practices and play-by-the-rules ethos. Some wonder if an exec in General Mills' marketing department gave the nod to Burns, only to be overridden by more senior decision makers.

"Some people at General Mills feel this is a good thing—there was clearly a feeling that the client was being marginalized at Saatchi and this needed to happen," says a source. "But other people at the client felt that it's a bad idea to move the business because it shows that these [Saatchi] people could move the business. You'd need the expressed consent of the CEO [Steve Sanger] to do this, and clearly, at the end of the day, the client was not on board with this."

Sanger has communicated as much to Saatchi execs: "The General Mills vice chairman [Steve Demeritt], CEO [Steve Sanger], CMO [Mark Addicks] all assured us about the relationship," says a source. "Their biggest issue: Don't drop any balls—make sure [the Saatchi 17] don't have any confidential data."

In the lawsuit against Burns, Saatchi accuses him and his staff of copying confidential information and trade secrets and removing them from Saatchi's offices. (The suit does not specify that it was General Mills data.)

Since the walkout, Saatchi execs have been accused of playing hardball to get the goods on Burns and his breakaway crew. (Says a source: "This is an unnecessarily antagonistic situation where you have good people who just want to do a good job and move ahead with the [General Mills] business.")

Adds another: "They've turned Saatchi & Saatchi into a fascist police state, calling lots of junior people into a room with multiple lawyers and stenographers. There is a pervasive atmosphere of intimidation at 375 Hudson Street."

Burns could be expected to air his own grievances in any depositions. He is known to be highly critical of Roberts' personal consulting business and his solicitation of such work from Saatchi clients.

For their part, Saatchi executives are said to label Burns a self-centered co-CEO who did not represent the best interests of the agency as a whole but remained focused on General Mills. (Some Burns defenders point out that maintaining a client power base within Saatchi New York is essential to survival there.) In the lawsuit, Saatchi says Burns was paid "in excess" of $4 million in various forms of compensation, excluding "tens of thousands of dollars" in perks and other expenses, and upon resignation was to be paid an additional $1.5 million. While it is hard to see what bearing that information has on Burns' alleged breach of contract, the disclosure of such amounts may well stick in the craw of a Midwestern brand manager already skeptical about Saatchi ad execs' advancing their careers through the trading of marketing budgets belonging to General Mills.

Saatchi's suit, which asks for at least $3 million in damages, claims to have information to prove that Burns violated the terms of his contract in orchestrating the walkout and soliciting the General Mills business. While none of the other 17 employees are named in the action, they could be in violation of fiduciary duty if they are found to have planned actions while still on the corporate payroll that would have caused harm to Saatchi. It is not clear if Saatchi has evidence of that. (Adriance declined comment.)

But the fact that the group submitted their resignation letters bundled together in two envelopes and left en masse suggests some level of coordination. Burns' own behavior since his Feb. 11 resignation is cited in Saatchi's suit. The agency said he requested his final day be Feb. 15, but Saatchi execs insisted he stay under contract until March 15, so he could assist in management transition on General Mills. On Feb. 13, he went on an "alleged" vacation to St. Barths, according to the lawsuit, and from that time on made himself "unavailable" to help the agency deal with the walkout of his staff members.

Breach of fiduciary duty can apply to staffers without contracts. The exodus from WPP-owned Lord, Geller, Federico, Einstein in 1988, with those staffers seeking to take IBM away from the shop, may be the most well-known parallel to the allegations against Burns and his staffers. But precedent was set in 1954 in Duane Jones v. Burke, where staffers from the Duane Jones agency made an offer to buy their employer and, after being rebuffed, quit on the same day and took nine of the agency's 25 accounts and more than half of the staff with them. The New York State Court of Appeals approved the jury's earlier ruling in favor of the plaintiff, saying employers should expect each person on their payroll to "exercise the utmost good faith and loyalty in the performance of his duties."

In the Lord, Geller case, Sorrell sued the breakaway group and got a New York state judge to bar them from taking any LGFE clients. Despite their countersuit, the defectors, and Young & Rubicam—the agency that was bankrolling them—had to pay WPP $7 million to settle. With an additional $685 million in General Mills billings at Publicis' Zenith Optimedia unit, it is not thought that the French holding company will put that client relationship at risk in a contentious court battle.

Nonetheless, no one comes out of the situation looking particularly good. Either IPG's Bell or Saatchi's Roberts might turned the developments to their advantage had they cultivated better client connections. Burns, now out of his Saatchi contract, will find himself tied up in legal headaches and bills. As for his 17 colleagues, given all the negative press, they might not find themselves working on General Mills as soon as they'd like.

Says a source familiar with General Mills: "It's a comedy of errors and misjudgments all the way around."