By Jim Edwards
Shortly after Foote Cone & Belding's San Francisco office won the massive AT&T Wireless account in 1998, the agency received a curious fax from one of the companies that prepared and printed its billboards and magazine ads.
The fax detailed a vacation itinerary, including its cost, for Judy Brill, FCB's chief buyer of printing services on the AT&T business. In short, a salesman at FCB's print house, In Sync Media, had paid for Brill's honeymoon. The arrangement was unusual because most agencies ban their buyers from receiving large gifts from print vendors. It's a conflict of interest—a buyer's first duty is supposed to be to the client, not to the vendors who court them.
The honeymoon fax was never delivered to Brill. Realizing that its existence might embarrass the buyer in front of her agency bosses, In Sync sent a staffer over to the agency's communications room that same day, where he plucked the fax from an in-box and smuggled it back to In Sync before anyone at FCB learned of its existence.
The tale of the honeymoon fax was told to Brandweek by three separate sources and detailed in a set of court documents. A former In Sync employee said the trip included stops in New York and Mexico City. Another, in legal papers, estimated the value of the trip at about $6,000.
In Sync's San Francisco office won the contract to service the $100 million AT&T assignment for FCB a few weeks later. It was a big payday for the shop; In Sync executives believed the business would bring in $2 million in annual revenue.
The In Sync salesman who sent the fax, Thom Hayward, now confirms that he paid for Brill's trip. "My company did buy a ticket for her honeymoon," Hayward admits. "It was not requested by her, it was something I did for her. I had done a lot of work for her in the past. She was a terrific client, she had always been really, really fair with me. I did it for her wedding gift."
Brill and Hayward were so close that he attended her wedding. But he strongly denies that the honeymoon was a quid pro quo to gain the AT&T account: "It in no way had anything to do with how I got the AT&T business," he says. "The AT&T business had a complete bidding process, she had no control over it."
About a month later, however, when Hayward moved jobs from In Sync to Andresen Digital Imaging, the AT&T account followed him to his new employer.
Hayward stresses that his largesse was not unusual. "This has been going on in this industry as long as I've been in it, which is nearly 30 years," he says. "This is not some big discovery, this stuff has been going on for as long as advertising existed."
He continues, "I could name five or six other agencies that do the exact same stuff. And anybody that wanted to work with them—and I'm not saying everybody in the industry was like that by any stretch—but some buyers had a lot of power and they would exercise that. It was the price of admission."
Executives at FCB, including current and former management, declined to comment on the specifics of this story. "These alleged incidents occurred several years ago and none of the two or three former FCB employees alleged to be involved are currently employed by us," says evp/director of corporate communications Bill Haney. "FCB has very strict policies on business practices and employee behavior, including the acceptance of gifts."
Judy Brill did not return multiple calls for comment. However, in papers filed in a November 2000 lawsuit (in which In Sync accused Andresen of unlawfully luring Hayward away) she asserted that FCB's work was assigned only after a bidding process. "While producers, including myself, often use their personal contacts in the pre-press companies as a basis for assuring ourselves that our clients' work will be done at an acceptable level of quality and in a timely fashion," she wrote, "our purchasing decisions are nevertheless based on price as well."
Brill's honeymoon trip, while memorable as a costly gift, was not an isolated event at FCB. In the late 1990s and early 2000s, the print buyers at FCB accepted dozens of gifts, trips, concert tickets and hotel stays from their vendors, multiple sources said.
That description—of an agency whose buyers were essentially on the take—emerged in dozens of interviews with the print vendors who serviced the agency and financed the gifts, and with employees of FCB. It is also described in four lawsuits, at least one of which is ongoing, between the executives of two print houses that worked for FCB.
Ultimately, FCB's clients ended up paying for it all, one way or another.
The Clock is Ticking
To be sure, FCB is not the only ad agency whose buyers have received gifts from vendors. But the events that played out at FCB at the turn of the century are noteworthy. The level of graft was so extreme that—according to legal documents and former employees—it ended up all but destroying the San Francisco offices of two Los Angeles-area print houses, In Sync and Andresen. In the case of Andresen, the shop was driven into bankruptcy when Hayward refused to scale back the gargantuan spending on his clients and himself, sources agree.
The events at FCB occurred at the same time as an infamous kickback scheme in New York involving Grey Global Group and its print vendor, Color Wheel, that ended in a string of federal indictments and prison terms for agency and print executives. But while the troubles at Andresen spawned the intervention in 2002 of the Department of Justice's bankruptcy trustee division, which all but accused Hayward of embezzlement, prosecutors apparently never charged anyone involved in the case.
That may be about to change. One former print executive involved—former Andresen CEO Jeremy Smith—said he has received a phone call from a prosecutor in New York interested in finding out about the San Francisco print ad market.
The prosecutor who made the call, Antitrust Division trial attorney Rebecca Meiklejohn, is the lead federal lawyer in the government's ongoing effort against corruption in marketing, and the woman who brought the Grey/Color Wheel indictments. The Antitrust Division has taken the lead on marketing cases because they tend to involve anticompetitive practices like bid rigging, which the division specifically examines.
Meiklejohn has a problem, however. The statute of limitations on most criminal antitrust cases is five years, and although the relationship between In Sync, Hayward and FCB is only three years old, the clock is nonetheless running out.
Meiklejohn's sole consolation, should she choose to pursue her inquiries, is that many of the buyers and sellers still do business together in San Francisco for different agencies and print houses. Other than to say that her 10-year investigation of such advertising industry cases is permanent and ongoing, Meiklejohn declined to comment.
Ex-Andresen CEO Smith, who has worked in print sales to ad agencies for 19 years in multiple cities, believes that the San Francisco situation was by no means unique. "We all know where the bodies are buried," he says, referring to the industry as whole. "What's interesting about this stuff is that I don't think the FBI and the Antitrust crew realizes how big this is. I don't think they even have a clue . . . If they ever look into this thing, I kid you not, this will be our industry's Enron."
Tokens of Appreciation
Thom Hayward's business tactics have passed into legend since Andresen's San Francisco unit went bankrupt at the end of 2001.
During the late 1990s, when the San Francisco ad market was buoyed by dot-com riches, Hayward ruled the print sales business. At In Sync Media, it was Hayward who secured FCB as a client. Between 1996 and its peak in 2000, FCB San Francisco's billings grew from $700 million to $935 million, according to Adweek, and Hayward's fortunes grew accordingly. The more business FCB won, the more it needed the services of Hayward's print houses, and the more sales commissions Hayward earned.
By his own estimation, Hayward believes he brought in 80% of In Sync's sales during 1998-2000. In Sync's revenue at its peak was almost $6 million a year, according to the company's current president, Russ Rothner.
The rotating cast of FCB buyers who gave Hayward the work celebrated his good fortune with him. Among the tokens of appreciation—aside from a honeymoon—that Hayward bestowed on them were trips to Las Vegas' most expensive hotels, designer eyeglasses, rent-free accommodation at one of San Francisco's trendiest addresses, rock concerts and free use of Andresen's Lincoln Town Car account, according to Hayward and his former colleagues—sales people and managers at In Sync and Andresen.
Those who have met Hayward all say he was charming and intelligent, with a healthy ego and a wardrobe to match. "He was all Prada, all the time," said Drew Andresen, his former boss.
But behind the success was a pit of insecurity, those who knew him say. "One minute he's making a brilliant sales presentation, the next minute he's in the corner weeping because he hates himself," says Smith, the former Andresen CEO, who also worked with him at In Sync. "He feels like he's a loser—and the guy's making $465,000 a year!"
Hayward's myth only grew when he disappeared—literally—after his former employers began to sue him. Print sellers in the Bay Area, if they ever glimpse him on the street, still call each other to swap "Hayward sightings."
When Brandweek called his lawyer, James Dawson, it took a couple of days for the attorney to find his own client. "He's dropped out of sight," Dawson says, noting that Hayward would not come out of hiding. After several weeks of prodding, however, Hayward stepped forward and agreed to talk about his career.
Most striking, perhaps, was how far Hayward had fallen: When he was the dominant force at Andresen he lived in the ClockTower luxury apartment building on Second Street, maintained at least one vacation home in Northern California's ski country, and zipped around town in a Porsche and a Range Rover.
Today, he is a homeless recovering alcoholic.
"It's destroyed me," Hayward says. "I lost my sobriety. I lost my fiancee. I lost my houses. I lost the respect of my peers. I've become a joke in the advertising world."
Back in 1998, however, Hayward was taken very seriously. Winning FCB's AT&T business at In Sync gave him career options, and he became restless. At the same time, Jeremy Smith had left his position as general manager at In Sync to join Andresen as CEO.
Smith's strategy was to hire Hayward, bring on his clients and hope that Hayward could be kept on a short leash. According to Smith, both he and Drew Andresen were well aware of Hayward's reputation for lavishly entertaining clients. "I felt that if we could just manage and control him . . . we would make a lot of money from him," says Smith.
At the time, that must have sounded like a plausible notion. Between them, Smith and Drew Andresen had about five decades of experience in the business.
Drew Andresen—who remains furious at Hayward for destroying his San Francisco office—is something of a legend himself in the print world. In the 1970s and 1980s, he was the king of specialty print typefaces. At its height, his former company, Andresen Typography, produced the lettering on almost every record album released by Warner Bros. and Motown Records. Older art directors still regard him as a rock star.
Once Hayward agreed to join Andresen's San Francisco office as president—bringing FCB's account and the AT&T plum along —his entire sales team soon followed him. In Sync's San Francisco office collapsed shortly thereafter, according to the company. (In Sync, which has headquarters in Los Angeles, is currently rebuilding the Bay Area outpost.)
All along, Hayward continued to spend his expense account on FCB's print buyers. AT&T was a huge account and there were as many as 12 buyers working on the account at times, a former Andresen executive said.
Hayward provided Lincoln Town Cars to buyers traveling to and from the airport, he said. Lincolns also rolled up at FCB's Front Street offices in the evenings to take buyers to concerts, according to his former colleagues, who detailed two memorable jaunts to see shows by Kiss and Madonna.
On another occasion, Hayward allowed an FCB buyer to stay in his ClockTower loft, rent free. The converted warehouse has a palm-filled courtyard, panoramic views of the city, industrial-height ceilings, massive open living spaces, and even "handmade" mailboxes in the lobby from a local designer, Paco Prieto.
The buyer has since left the city, according to her former vendors, and could not be located for comment. Hayward says he only let her stay there because "she was in a very dangerous situation in her personal life and I let her stay there for a while because she was in harm's way."
Bankruptcy records, however, indicate that Hayward had Andresen Digital pay the rent for the apartment while the FCB buyer was there, as a business expense. The loft was also used at different times as Andresen's service center for FCB and as Hayward's personal residence, with Andresen paying the tab.
Hayward is unapologetic. He rescued the buyer during a crisis, he says: "I would do it again in a New York minute."
Bill-Shifting: A Primer
To pay for the gifts and favors, Hayward used another business strategy: bill-shifting.
When an agency's print costs go over budget, and the printer loses money on the job, agency executives and their vendors often agree to make up the loss incrementally on future jobs. As long as the total for each job stays under budget—and as long as the print shop eventually gets its money—everyone gets paid. The only downside is for the client, whose bills get inflated to pay for it all. Several print sellers in San Francisco said that bill-shifting is common.
Smith and Hayward agreed that this was a common practice at both In Sync and Andresen, although they disagreed on its extent. "There's all kinds of chess matches that go on with this kind of thing. Yes, things like that happen and I don't recall if that ever happened particularly at Foote Cone & Belding, but I know stuff like that goes on," Hayward says.
Hayward would routinely bill his expenses into jobs, including those for AT&T, according to Smith and other sales executives who worked with Hayward. When those bills began to exceed the budgets his agency clients had set, the excess would be shifted onto future work, Smith says. On occasion, Smith notes, bills would be shifted across clients.
Hayward denies he pumped up his bills to pay for his extravagances, although he admits that his bills included routine expenses. "As long as it's within reason, it's OK because it's something that's taken into consideration with the pricing of your business," he says.
AT&T Wireless spokesman Mark Siegel declined to address the matter directly. "What you're talking about is the ancient past and an agency we no longer do business with," he says. "Even if this were happening yesterday, we would not have any comment on the specifics of a relationship with an agency." AT&T Wireless, which fired FCB in December 2001, is being merged into a new entity owned by Cingular.
It was not, however, simply Hayward's lavish treatment of his agency clients that brought down Andresen, it was also Hayward's lavish treatment of himself.
Documents from the Andresen bankruptcy indicate that in addition to the ClockTower loft, Hayward reimbursed himself for the lease on a $98,000 Porsche Boxster. And he diverted Andresen's revenue stream—much of which was from FCB—to start a designer eyeglass store in which customers would be able to see images of themselves wearing new frames (shortsighted people often can't see themselves in shop-display frames because the lenses are plain glass). The company, Idoleyez, is no longer in business.
"I knew about his expense problem; his expense problem is just like a drug problem," Smith says. But he remained convinced that Hayward could be dispensed with—and the clients retained—if things got out of hand. "We'd fire Thom at some point if we had to," Smith says.
Attempts were made to rein Hayward in.
"I had a couple of confrontations" with Hayward, Drew Andresen remembers. "He would get real mad and storm out of the office and go home."
The Andresen family trust was the majority owner of the company, so Hayward should have answered to Drew. As president of the San Francisco office, however, Hayward had considerable weight: He was Andresen's top seller and the point man on the FCB account. So Andresen would be reminded that "if Thom leaves he'll take all the clients, so I'd semi-apologize," and Hayward would come back, Andresen recalls.
Because Hayward managed to keep his employers cowed, it was easy for him to crush objections from his underlings, according to three former employees. And he went a step further than that by allowing employees to believe wrongly that he was the owner of Andresen's San Francisco office. Hayward was aided in this impressive bit of fiction because he occupied one of the few closed-door offices in the building, while everyone else shared open space. As a result, many of the employees came to believe that Hayward had a right to do what he liked, Andresen says.
In 2001, Hayward moved completely beyond the control of either Smith or Andresen. He stopped paying his vendors. One of them, Las Vegas billboard production shop Adera, was owed more than $500,000 at the end of the year, according to the bankruptcy file.
Then, in early September, Hayward flew to Paris with his girlfriend, all on the corporate credit card, according to Smith, Andresen and others.
Then came the Sept. 11 attacks, which left Hayward grounded in France. That's when one of Hayward's employees—who had become increasingly frustrated at his cavalier attitude toward billing and expenses—decided to blow the whistle. On Sept. 12, she begged Andresen to come to San Francisco and inspect the books. "She said, 'I don't care if Thom fires me, I gotta tell you this,'" Andresen remembers.
Andresen relates that he booked himself on the next flight from Los Angeles. In a bizarre twist, he arrived to find one of Hayward's financial staffers guarding the books from him because she did not believe Andresen was the company's rightful owner.
That day, Andresen locked himself in Hayward's office with the paperwork while frightened staffers gathered outside, wondering whether the company would survive. "It was staggering, jaw-dropping," Andresen says of the ledgers.
The whole scheme—the billing, the expenses, the apartment, the gifts and the side business in eyeglasses—came spilling out, along with the fact that Hayward was prebilling his clients in hopes of accelerating his revenue flow. The total taken by Hayward, according to the bankruptcy court file, was $400,000 to $500,000.
"He has been systematically misappropriating funds," the bankruptcy documents state. Hayward "ran up extravagant credit card bills on the company credit for personal use, cash draws and other unapproved expenses." The Justice Department's bankruptcy trustee division—which supervises broken companies when there is an indication of mismanagement—wrote, "Poor financial management and possibly embezzlement caused the bankruptcy filing."
Andresen called Hayward in Paris, but Hayward refused to get on a plane, claiming the airports were still frozen by the attacks. So Andresen cut off his company cell phone and his corporate credit cards. On Sept. 23, Hayward was finally forced home.
"I almost got in a fist fight with that motherfucker," Andresen says. Instead, he fired Hayward and commandeered his office. Andre-sen's San Francisco unit filed for bankruptcy three months later.
Subpoenas Begin to Fly
In addition to the bankruptcy, various executives at Andresen and In Sync filed three other lawsuits, in hopes of recouping lost cash or jobs. (Most of the suits were settled or dismissed, but at least one remains in active litigation in San Francisco Superior Court.) Subpoenas began to fly, and some of them landed at FCB.
It did not go unnoticed by the agency's management. By coincidence, in March 2002, less than three months after Andresen collapsed, Grey Global Group confirmed that its print unit was the subject of an unrelated investigation for receiving kickbacks and gifts from vendors. Following the subpoenas and the events at Grey, an FCB print department manager "sat us all down" in the buying department, according to one ex-buyer, "pointed his finger at us," and generally read the riot act.
"I was at Foote Cone at the time and we were all really pissed, because all of a sudden upper management started accusing us of things," said Kimberly Bahmanyar, the former buyer and a friend of Judy Brill's, the woman whose honeymoon was bankrolled by Hayward. They said, "'Are you guys getting kickbacks? . . . I know you guys fly nothing but first class,'" Bahmanyar says, describing management's attitude. "I'm like, What are you talking about? I think you're stuck in 1982, baby!"
Brill and Bahmanyar eventually left FCB and ended up as buyers at Kane and Finkel Healthcare Communications, a medical specialist agency in San Francisco. There, much of the agency's business is assigned to print salesman Allen Phillips of Cenveo Anderson Lithograph. Phillips was Hayward's deputy at Andresen, but he denies ever working with Brill while she was at FCB. "Thom was a black spot on my life and I'm not interested in getting involved in anything that has to do with him," he says.
Bahmanyar still works at Kane and Finkel.
Brill left in August of this year; a few months after the agency hired a new chief buyer, Sheelagh Ratliff, formerly of The Gap. Brill has been silent about her departure. Two sources familiar with the principle figures in this story said that part of the reason for Brill's exit was Ratliff's discomfort with Brill's relationships with her vendors.
Ratliff and Bahmanyar both vehemently deny that notion. Ratliff declined to comment further; Bahmanyar said only that it might have been a "personality conflict."
K and F's owner, Bill Finkel, said of Brill's exit that "sometimes with change comes discomfort," but he, too, declined to be more specific, beyond describing it as "a choice" Brill made in reaction to new management.
He did say that receiving gifts was a firing offense at his agency and that Ratliff had been hired because she has a reputation for being "very buttoned up" about ethics. He also underlines his agency's policy on gifts: "We have made it very clear to our vendors and our employees that any type of gift would be frowned upon, of any perceived value, for multiple reasons. One, we don't want that to influence our decision-making. Two, it is a question of ethics. And three, the whole thing is just not good business practice."
Finkel, who worked in FCB's creative department 10 years ago, said he left the agency in part to get away from Hayward-style practices. "It was done and nobody bothered to do anything about it," he says.
Andresen and In Sync are trying to put Hayward behind them. Both have re-opened for business in San Francisco with new staff and clients. Both are wary of the taint of Hayward's name. Their businesses are smaller than they were—the print economy is still rebuilding from the crash of 2000—but both are eager to prove themselves to new prospects.
FCB also suffered in the crash. It lost the AT&T Wireless business in July 2001. After reaching nearly $1 billion in billings, the shop is now at the $400 million level. Print sellers today describe the agency as a shadow of its former self in the local market.
But the personal losses have fallen most heavily on Hayward. When Brandweek found him, he was living at a group home for recovering addicts run by the Catholic Church in San Francisco. He declined to name the institution. He says he is still fighting litigation triggered by the collapses.
"I've lost everything I own," he says. "I'm in bankruptcy personally. I can't work in the industry that I love any longer. I've worked hard. I played by the rules. They weren't crafted by me and I don't expect you to cry crocodile tears for me. I'm a big boy.
"It's hard knowing I can't cross the street to get a job because this city is so small. I can't do it. I just want to be left alone to live out the remains of my life . . . I don't care if I never see another one of them again. It brought me to the brink of death," he says, in a reference to his descent into alcoholism.
And finally, just in case the point was lost, Hayward reiterates that everything he did was common in the business: "It was the price of admission."