Chiat's end game By Greg Farrel

In about two months, the Chiat/Day advertising agency will celebrate its 25th anniversary. And if chairman Jay Chiat remains true to form, the party to mark that occasion will be mo

As the anniversary date approaches, one of the lifelong ambitions of Morton Jay Chiat, who was born in the Bronx in October 1931, is clearly within reach. Several of Chiat’s friends note that, despite a carefully cultivated persona of nonchalance, this intensely competitive man would like to see his accomplishments recognized by his peers and competitors. He wants his place in history.
A physical monument to Chiat already has been built, in the form of his agency’s headquarters in Venice Beach–a whimsical landmark designed by architect Frank Gehry that consists of two wings connected by a huge pair of binoculars. In another architectural statement, Chiat is planning to move his New York agency from its lower Fffth Avenue offices farther downtown, into space that will be uniquely designed to suit his personality and that of his agency. The new digs will be structured around Chiat’s concept of what the ad agency of the future should be.
Moreover, Chiat’s presence has been memorialized by the changes he has wrought within the industry. The work produced by his agency, particularly over the last 10 years, from Apple’s “1984” Super Bowl spot to the ongoing Energizer bunny campaign, has defined creativity in advertising. “One of the things I’m most proud about at Chiat/Day is that we were always followed,” says Bill Hamilton, who worked for the agency through most of the ’80s before taking the top creative job at Ogilvy & Mather in 1989. “I don’t think there was a better ad agency in the world at that time. It’s the most compelling place I’ve ever heard of.” Many of the large agencies that today try to produce breakthrough advertising do so either by hiring top creatives from Chiat/Day or by mimicking its style. And Chiat/Day has spawned a whole generation of shops staffed by former employees; it’s almost impossible to hire an agency in Los Angeles and not work with graduates of the Chiat/Day school of advertising.
Even though Chiat’s attempts to build a global agency have faltered, his fame is secure worldwide. Next May, a group of Latin American agencies will host the World Advertising Congress in Cancun, Mexico. They have invited three speakers to address their assembly: David Ogilvy, Jay Chiat and Michael Ovitz. The idea for the program is that Ogilvy represents the past, Chiat the present, and Ovitz the future.
“Jay’s the Bill Bernbach of the ’80s,” says Andy Berlin, head of DDB Needham/N.Y. and a confessed admirer of Chiat’s. “That’s what he set out to emulate and that’s what he accomplished. Along with (creative director Lee) Clow, the two of them together are the agency. Jay’s a bold, innovative visionary and has remarkable ferocity of character. And Lee fulfilled Jay’s creative goals.”
There is one more goal that lies ahead for Chiat, as he approaches an age when most of his counterparts are planning or living their retirements: how to strike a deal that will enable his agency to carry on successfully without him, on its own terms. Of course, that’s the rub for all the self-made agencies in the industry: how to cash out the founders but remain truly independent, instead of becoming a nominally independent subsidiary of a holding company.
The problem is particularly vexing for Chiat/Day, since so much of its brand value derives from its commitment to the creative product, even at the expense of steady growth. Although the shop’s reputation for a fierce take-it-or-leave-it attitude toward its creative work is exaggerated, Chiat/Day nevertheless tends to show a lot more spine in defense of its product than most agencies its size. It is precisely this commitment to quality that gives the agency its competitive edge while at the same time undermining it as a reliably predictable business venture.
If there’s a way of pulling it off, of saving the culture and cashing in on the value, then Chiat–a man who prides himself on going against conventional wisdom in nearly everything he does–might accomplish it. The odds are long, and although time is not yet running out, it is getting short.
Further dogging Chiat is the specter of what the agency, with approximately $95 million in revenues last year on some $634 million in billings, could become in the twilight of his career. Although he professes enormous admiration for the accomplishments of Bill Bernbach, who rounded Doyle Dane Bernbach in 1949, Chiat also knows the fate that befell that agency. Within a few years of the legendary copywriter’s death, DDB had to be salvaged in the 1986 deal that married it to Needham, Harper & Steers of Chicago under the Omnicom flag. “Everybody in this business is aware that there was once this place called Camelot and it disappeared,” says Bob Kuperman, president of Chiat’s L.A. office and a DDB veteran.” “When you’ve created a Chiat/Day, a special place, you don’t want to see it run that way. I think that’s what Jay’s fighting for, rather than history.”
A more accurate model for Chiat and his agency might be Ogilvy & Mather. Like Ogilvy, Chiat did not start his business in earnest until he was in his late 30s (he merged with Guy Day’s shop to form Chiat/Day in 1968). The only big agency experience Chiat and Ogilvy ever got was when their own agencies grew to that size. And both men inspired fierce devotion among their employees, despite their blistering criticisms that could reduce people to tears. “We’ve had some talk, like why don’t we relaunch the agency, change the name and signal that it’s something else,” Chiat says. “Most people in the agency don’t want to do that. What we’ll do with this new agency environment (the agency of the future concept, dubbed Chrysalis, that Chiat plans to implement) is get people focused on where they’re going. Our people internally have gotten the message. It has to change. Everything has to change. I’m sure Ogilvy isn’t really what Ogilvy was under David.”
Ogilvy, of course, was acquired by WPP Group, and has since lived under the constraints of its beleaguered parent company. Whatever direction he chooses, Chiat will still have a role to play. “With me out of the way, I think a lot of stubbornness will go away about ‘No, let’s do it this way.” But I don’t plan to be out of the way. I can continue to do what I enjoy doing, which is looking at the work and critiquing it, saying, ‘Hey, we slipped here,’ and then have someone listen to it, and not feel that I’m a babbling, senile idiot.”
Three years ago, Chiat divided overall authority between Lee Clow, the brilliant if unpolished creative force behind the agency’s work, and Bob Wolf, an able and ambitious account man hired a decade ago from Wells, Rich, Greene. The results were less than stellar: 1990 turned out to be a devastating year, and the lack of cohesive leadership during Chiat’s frequent absences seemed to prove the agency, without him at the top, was rudderless.
Although Clow and Wolf hold titles that give them equal authority in running the operation, Chiat has continued to exercise a firm hand. Beneath that uppermnost tier of management is Kuperman, one of the few top executives at the agency who, like Chiat, can wear two bats: that of creative and account management. Kuperman, who makes no secret of his desire to be a leader at the agency, could eventually play a pivotal role in any conflict that arises between Clow, representing the interests of the creative department, and Wolf, whose interests are more oriented to the bottom line.
Clow and Wolf both say they want to stay on until the year 2000 or so, but one source, who remains on good terms with the agency’s senior executives, suggests they are interested in cashing out sooner, possibly in the next year or two. “It’s not my understanding” they want to retire, Chiat says. ‘”We’ve had another generation in place pretty much for the past five years. Clow is not 50 yet; Bob just turned 50 last year. I think another 10 years . . . unless they get rich.”
Besides settling the problem of management succession, Chiat has been pursuing the issue of global expansion in fits and starts. He bought Mojo in Australia in 1989, only to see that agency’s business collapse between a bad corporate fit with Chiat/ Day and the implosion of the Australian economy. Last year, Chiat/Day decided to cut its losses by selling what was left of Mojo to Foote, Cone & Belding. Also last fall, Chiat/Day explored the possibility of acquiring the Belgian office of Brindfors, a Swedish agency that is now part of Interpublic’s Lowe Group. The negotiations bogged down over the issue of money, and Chiat walked away. Currently, the agency is on thin ice in London, where its office is down to one main client and its longtime managing director has left. Chiat continues to travel frequently to Europe, seeking partners or acquisition targets so he can once again take the U.S. brand image and build a global network around it.
Ultimately, the question of ownership bears directly on all these challenges. The agency wants to remain independent, but it would reap immediate financial benefits from selling. Already the shop is worth considerably less than what it would have commanded four years ago. Will it recoup its value in another four years, or could more client losses, an inability to go global, or the departure of one or several key executives further devalue the brand to the point where it becomes another Doyle Dane Bernbach?
Chiat’s own force of personality is an incalculable factor. While Clow and his creative teams made the ads that earned Chiat/Day its enfant terrible status, it was Chiat’s dogged insistence on raising the bar that made them stars–or broke them. His agency’s motto of many years has been “Good enough is not enough,” and Chiat always has applied that to the work. “Every time Jay walked into the room, he put the fear of God into everyone,” says Michael Smith, creative director in C/D’s New York office in 1990 and now senior vp/ creative advertising at Warner Bros. Studios. “He has a way of pushing people around him. He was the father everyone wants to please. I had run-ins with Jay, when he was angry or frustrated. But where he’s coming from is, ‘Is this the best we can do?’ It was never abusive, never about you. It was about the work.”
“If you were going to last there, you’d have to be a certain kind of person,” says Mike Shine, who worked at Chiat’s New York office in the late ’80s and spent two years at Goodby, Berlin & Silverstein on the Isuzu account before opening his own shop last month. “You’d need a thick skin, because he wasn’t going to sugar-coat. If you go into this not used to having your work ripped, you won’t feel good about yourself unless you can take the criticism.”
Along with the harshness, Chiat would dole out praise—but usually to a client or another agency staffer, who in turn would pass the good news back to its subject. One former senior executive notes Chiat would try to make up for whatever bruised feelings he caused: “He can be very generous and very motivating with gifts to compensate for all the bad shit.”
“Jay attracts the brightest people and is able to get them to reach substantially higher than they would otherwise,” says Fred Goldberg, who bought Chiat/Day’s San Francisco office from the agency in 1990 and relaunched it as Goldberg, Moser, O’Neill. “This may explain why he has spawned an abundance of creative people doing some of the best work in the industry at competitive agencies. (It’s) a direct result of having done their time at Chiat/Day under Jay’s deity.”
Chiat’s former partner Day puts it another way: “There was an atmosphere that fostered and scared people into doing the best work of their careers. I don’t know anybody who’s gone on to improve their work (elsewhere).”
The descriptions of a raw, demanding workplace are familiar to Chiat. “I expect a level of excellence at the agency and probably don’t react immediately” when it’s presented, he says. At the same time, he contends he’s mellowed: “I think I’m getting better.”
Clow, his longtime confidante and partner, has learned to take Chiat’s barbs and his inability to be satisfied with the work. He knows now when to tell Chiat that enough is enough. “A few years ago, I got to the point where I said, ‘Stop it! Fuck it! Do whatever you want with it. Edit the thing yourself!'” Clow recalls. “I figured, how much longer do I have to continue to prove myself.”
The proof is in the ads that have resulted from their combustible pairing. “I don’t think anybody has been quite the visionaries Jay and Lee have been,” says O&M’s Hamilton. “Jay is a great organization man. He hates smugness and complacency and led the league in forward thinking.
“Jay set the context,” Hamilton continues, “and it was Lee who manifested it day-to-day. We once worked 39 days in a row on a Yamaha project. Nobody but Lee Clow could get everyone to stay up 39 days in a row.” And the moral to this biblical tale of non-stop exertion in the creative department: “Jay came in and threw it all out on the 40th day!”
Such relentless drive by Chiat, to outdo everything and everyone and never to be satisfied, has propelled his agency to the height of the profession. But having led his agency in such a strong-willed, singular manner, the question remains how well Chiat/Day will perform once he’s no longer in charge and different leaders emerge. The stark difference in management style–and the contrast in ambition-between two of the premier West Coast-based agencies is pointed out by one ad executive who used to work for Chiat. “Wieden and Kennedy are not driven to be emperor,” he says. “They are not on a path to control the world. Jay has a big, huge appetite. Jay was always driven to be emperor.”
Now in his late 50s, Guy Day still cuts a dashing figure between his rugged good looks and his David Niven-style mustache. Over a springtime lunch in West Hollywood, he tells the story about what his thoughts were back in 1968 when he realized his partner Tom Faust wanted to leave Faust/Day, their $5-million agency, and the business. He admitted to himself that he did not want go it alone, and so broached the subject of merger with one of his rivals, Jay Chiat, whose shop billed $3 million. They took their kids to a Los Angeles Dodgers baseball game, where they worked out the details and decided to take the plunge. By October of ’68, they were in business together. Day would leave the agency twice, first in 1976, then, after returning in ’82 and helping Chiat shepherd it through an astounding period of growth and creative achievement, again in 1988.
Day doesn’t have mixed emotions about Chiat as much as he seems to have no emotions toward him, which is strange, considering that most people who know Chiat well tend to admire him, worship him, fear him, or some combination of the three. Few loathe him, because nobody loathes a winner, and Chiat is nothing if not a winner in the high-risk game of advertising.
“Jay and I didn’t not get along,” Day says by way of explanation, “but we didn’t get along, either.” Soon after they joined forces, Day recalls, they attended an electronics trade show in Las Vegas. In his free time, Day went to a casino to play the slot machines and, after yanking the lever a few times, decided to leave. On the way out, he saw Chiat at a craps table with a pile of chips high enough to equal his net worth. “Whoah,” Day said to himself, “I’ve got a gambler here.”
But to look at Chiat as nothing but a competent gambler would be an oversimplification. In fact, it’s virtually impossible to capture Chiat’s essence with any one phrase, image or anecdote, since he can be both an extremely complex man, capable of out-thinking and outmaneuvering an opponent, and an extremely simple man, disarmingly honest and bordering on the two-dimensional when it comes to his speed in making difficult decisions.
This latter ability has perhaps served Chiat best throughout the course of his agency’s 25-year history: He has often made a virtue of impulsive behavior. Where others have paused to weigh their options and consider the risks involved before moving in any direction, Chiat often already has decided intuitively what course of action to take and mobilized his entire agency in that direction. Consequently, he has won many battles and races before the starting gun was ever fired.
Chiat “goes totally on instinct,” Clow says. “I’m more thoughtful. My job is to grab his ideas, the ones that seem to be more substantive.” In effect, Chiat is the man in motion, going forward with decisions, searching out new deals, while Clow, Wolf and Kuperman, as his trusted deputies, follow up on whatever it is that will work best for the agency.
Like any good gambler or risk-taker, Chiat understands how to lose as well as how to win. Many competent ad executives know how to win accounts, then work like hell to keep them, but few know as well as Chiat how to lose them and rebound from those losses to win again. The major accounts Chiat/Day has lost–Honda, Apple, Nike, Reebok (since regained), Sara Lee, Royal Caribbean and American Express–would be enough to launch a powerhouse agency. Throw in some of the other losses of the past decade–Arrow Shirts, Pizza Hut, Christian Dior, Quaker Oats, Bissell, Drexel Burnham, Calvin Klein and National Rent-a-Car–and one would have to conclude that the agency is either no longer in business, or that it has run out of real estate.
More than any of his contomporaries, Chiat has shown an amazing capacity to rebound from the adversity, that, ironically, the culture he has created at his agency has helped engender. To those who would suggest that his agency would be on more solid footing by focusing on keeping clients as much as winning them or doing great creative work, he has an answer. “Sometimes I think we have an image of being hard-nosed contrarians who say, ‘Do it our way or not,'” Chiat explains. “I mean, we listen. It’s the client and it’s advertising and nobody here is independently wealthy, so it’s not as though we’re trying to be stupid. It’s that if you’re really going to talk out of only one side of your mouth, then you have to continue to do it, or your people won’t believe it. And then they won’t want to perform anymore. They’ll say, ‘Well, we can do it less good than we should . . . ‘”
One of Chiat’s strongest suits has been the consistency of his message. If current and former employees feel intensely loyal to him, it is because few, if any, have ever been betrayed by him. Shine recalls that during the many new business pitches he accompanied Chiat on in ’90 and ’91, when the agency’s New York office was on a virtual life-support system, Chiat would never try to suck up to a client with the sole purpose of winning business (a common practice in the industry). Jane Newman, the former head of the New York office, says one of Chiat’s strengths in new business pitches is his ability to relate to “senior client contacts in a non-servile way.” In meetings with Reebok chairman Paul Fireman, for instance, Chiat would speak his mind, even if it meant telling Fireman one of his ideas was dead wrong.
It’s unlikely Chiat would take such a stance with Nissan Motor Corp., whose estimated $325 million in billings anchor the agency. Given that the total Nissan business–which includes the Infiniti division it won last year–now accounts for nearly 50% of the agency’s revenues, Chiat/Day seems perilously close to being dominated by one client. In many such cases, an ad agency becomes captive to the account and loses its edge. “It’s enough to make you uneasy, but we’re not quite a house agency yet,” contends Chiat. Earlier this year, it passed a major test with the account when it survived the departure of Nissan president Tom Mignanelli, a personal friend of Chiat’s and an agency loyalist. (Mignanelli was even married to a Chiat/Day account supervisor.) Enough close ties had been established at various levels between client and agency that there was hardly a ripple on the account.
More pressing are issues within the agency, especially in its New York and London offices. Since the loss of American Express last fall–an account held barely a year–several top executives have left New York, and a bunker mentality has crept into some corners of the shop. In February, the brass decided to move creative star Dick Sittig out of his slot as creative director in New York back to Los Angeles. Agency stalwart Jane Newman left in April after 12 years to start her own firm, Merkley Newman Harty, backed by Omnicom. In London, managing director M.T. Rainey left in June after 10 years with the agency. The office is down to one major client, Midland Bank, and Chiat and his cfo, Simon Bax, have gone overseas several times to discuss potential partnerships with London agencies such as Howell Henry Chaldecott Lury.
Still, fixing personnel is not a new problem for Chiat; he’s been able to recruit and replace talent as fast as it leaves. But the financial demands on the agency are unprecedented. In 1988, the agency recapitalized by borrowing more than $50 million to pay off senior executives and other equity holders. At the time, the debt seemed manageable, given the agency’s healthy profit margins and its mid-’80s growth spurt. When the hard times hit in 1990, with significant account losses and the start of the recession, Chiat and Wolf reacted swiftly. Excess staff was laid off, a hiring freeze was instituted, salaries of senior managers were cut and other costs were reined in. By running lean, the agency has been able to maintain profit levels of approximately 25% on its biggest clients in Los Angeles, Nissan and Eveready. And because Chiat/Day continues to enjoy an excellent creative reputation, the agency can employ a large number of creatives at a cost much lower than most of its competitors have to pay.
Nonetheless, Chiat continues to foot the bill for the heavy borrowings made when times were plush. Agency sources say the debt has been reduced to the $25-million range, with annual interest payments of $2-3 million. A major due date looms in 1995, when $11 million in junk bonds that were floated in 1988 will mature. (It’s unlikely such debt can be renegotiated or rolled over; about half is owned by a publicly held LBO fund, and bond traders have much of the rest.) The London office is a cash drain, and New York, once counted on to produce millions in annual profits, is a shell of its former self. Although the agency no longer suffers losses from Mojo–an acquisition financed mostly by bank borrowings in Australia–senior executives still hold notes from that deal that are worthless unless Chiat/Day is sold or recapitalized again.
Ironically, the spur to do the Mojo deal was Chiat’s belief that having a foothold in Australia would help him land the Nissan business there, which it didn’t. Chiat says his continuing interest in Europe stems partly from a desire to pitch and win the Nissan business there. Several years back, C/D lost a shootout for the European portion of the account to TBWA, which itself was acquired by Omnicom earlier this year.
Senior executives at TBWA concede that when they considered possible marriage partners for their agency in the U.S., the shops that interested them the most were Hal Riney & Partners and Chiat/Day. Both had strong California operations and both were known for their creative product; TBWA could bring a European network and a strong New York office to the party. But Riney is a General Motors agency, and now that TBWA is part of the Omnicom family, speculation has continued about discussions between Omnicom chairman Bruce Crawford and Chiat.
Asked about Oranicom, Wolf would only say that discussions with Crawford were not taking place “at the moment.” As for the need to recapitalize, Wolf says the agency is considering a number of options, including going public, although market conditions and the agency’s current financials would seem to make that an unlikely option. More likely would be the arrival of a benign institutional investor such as an investment bank, willing to put money into the company in return for a position.
Chiat sounds open-minded about the idea of selling. “Oh, yeah. I don’t think you ever say no to anything,” he says. “I don’t think it’s a case of the money. It’s really a case of, what’s the strategic advantage? Is there an advantage to doing it? Do we have resource issues we have to deal with? We’ve been banging our heads against Europe for five years now, and we’ve never had the resources to buy anything, and when we did buy something it was a bummer.” Says agency cfo Bax, “There’s no pressing need to do anything at all. We like being private.”
Private or not, Chiat will need the capital resources in a few years to pay down the remaining debt. What’s more, the agency has some $20 million in junior debt outstanding, owed mostly to senior executives and shareholders. Since much of that represents rewards for long-term service, present and past, there is likely to be a faction near the top of the agency that would support the sale of Chiat/Day enthusiastically. Although selling the agency would run contrary to what Chiat has spent his life building, that option would solve all of the short-term financial issues looming over him with the stroke of a pen.
And so, as the agency moves toward the quarter-century mark, and Chiat looks for a way out of the box the agency is now in, the question arises: Can he do it? Can he figure out a way to cheat the ghosts that haunted his mentor, Bernbach?
“Betting against Jay is a fool’s game,” says former partner Day. “He’s very good, he calculates very well and he’s lucky.”
“On the question of where we should be,” says Chiat, “I think I have such a bad memory that I’m not a historian. I deal with today and tomorrow because I can’t remember yesterday. And I think that’s what I can contribute to the agency . . . tomorrow.”
Copyright Adweek L.P. (1993)