Photography By Frank Veronsky
In late 1996, when Young & Rubicam Advertising was in the throes of its pitch for the coveted United Airlines account, one member of the agency team worked day and night, never leaving the building. The workaholic: an overweight rabbit who earned his keep by serving as a furry mood lightener for the stressed-out staff. A mascot brought into the New York offices by its newly hired new business chief, Linda Srere, the bunny apparently did the trick. Y&R snagged the $40 million international portion of the United business (Fallon McElligott won the U.S. side), just one of many plum assignments to come into the shop. Joining the roster were Campbell's Soup, Merck, and loads more work from mega-clients Colgate and AT&T. Then came Citibank's stunning move of its entire $800 million global advertising, marketing and PR billings to Y&R Inc., a shift craftily engineered by top agency managers. The bunny, named O'Hare, was gone, but its luck remained. "I'm sure Peter heard about our rabbit, but I don't think he ever believed it," says Srere, now chief executive of Y&R New York, with a laugh.
Not that Peter Georgescu needs to rely on a rabbit's foot for good fortune these days. The 58-year-old chairman and chief executive is a relatively soft-spoken but intense leader, an elegant statesman with a knack for keeping his performers at peak form. In one sense, he is squarely within Y&R's heritage as a fiercely private company, one that prefers to do business over closed-door dinners and in hushed tones. That style had worked--up to a point. In past pitches, "we used be gentlemen, and we were getting hammered," recounts a senior agency executive. "Now we've taken the gloves off."
Later this spring, Y&R Inc. will take off much more than its gloves. In what will be the largest public offering in advertising history, the company is plugging into the Wall Street money machine with a deal expected to raise $350 million or more. After the dust settles on an expected buoyant opening day for the stock, Y&R could sport a market value of as much as $2 billion--no small achievement for a firm that was barely making profits five years ago. The story of Y&R Inc.'s road to a public offering is based on numerous interviews and several months' reporting. Adweek talked extensively to Y&R principals in late 1997 and in January 1998; information also came from sources in agency and client companies, public documents and Y&R's SEC filing in late February.
The rich coming-out is a remarkable change for the company. One of the last great agencies left on fabled Madison Avenue, and the fifth-largest ad concern in the world, Y&R plans to go public in the same year it celebrates its 75th birthday. Most agencies hardly expect to last much longer than the working life of their founders; in the last decade, they have usually sold out to one of the major public holding companies if they wanted to continue.
Y&R was in no danger of vanishing. But in the current global climate of consolidation and expansion, its senior managers figured they had about three years to remake themselves. Y&R had long been known as a clubby, bureaucratic network full of fiefdoms, driven more by its own business units and politics than by its clients. Until the last few years, the network's creative work was boring and predictable. Some far-flung divisions were burning through millions of dollars with little accountability. Georgescu knew that to stay competitive, the self-absorbed, disparate culture had to go. "Our real heritage at Y&R is to recognize that we must transform," he says. "We can't stay the same, or we won't survive."
To that end, he has filled the Y&R hallways and outposts with people who are often unlike himself. In sharp contrast to previous Y&R regimes, Georgescu has not hesitated to go outside for senior managers. In the last several years, he has recruited Ed Vick, Y&R Inc.'s chief operating officer and the architect of the turnaround of its flagship New York office; key executives for Y&R Advertising, including Srere, worldwide creative chief Ted Bell, media director Paul Woolmington and North American chairman Peter Stringham; Michael Dolan, a new chief financial officer plucked from a European PepsiCo venture; and Stephanie Abramson, a new general counsel lured from a partnership position at New York's Morgan, Lewis & Bockius. Similarly, once he started the process of seeking new capital to buy out old Y&R shareholders, Georgescu reshaped Y&R's board, adding bankers and private investors and removing insiders.
Colleagues compare the makeover to someone trying to change the DNA of his own family--without killing them in the process. "I'm contrarian by nature," says Georgescu in a rounded accent that has become lighter over the years. He settles into a floral couch in his pastel-hued, antique-appointed corner office. "I can see patterns across different fields before other people see them. At Y&R, it's time we focus outside of ourselves [and realize] our greatness lies in how we perform."
Certainly the outward financial signs of that performance are impressive. Since Georgescu stepped up to chief executive of Y&R Inc. in 1993 and chairman in 1994, the parent company has gone from relatively flat revenue growth to nearly 13 percent annual gains over the last three years. Operating profit margins, once almost nonexistent, reached 10 percent in 1997 (based on EBITDA accounting). That's still well below the real profit margins achieved by Omnicom, Interpublic and WPP, but Y&R is headed in the right direction. With its worldwide revenues of $1.4 billion neatly divided between the U.S. and international, and those revenues likewise split evenly between Y&R Advertising and its other units--most prominently Wunderman Cato Johnson, among the world's largest direct marketing agencies, and Burson-Marsteller, the biggest PR firm--the company appears poised to benefit from growth in any region of the world, via any marketing discipline. The proof, Y&R proponents say, is in the lavish pudding of new business wins the agency has achieved in the last two years.
To some competitors and clients, however, the true test for Y&R is still ahead. Flush with cash from an IPO, the agency will have to contend with new demands for public performance and scrutiny--and perhaps even resentment--of its personal fortunes. "For established clients like us, an agency IPO isn't seen as beneficial," cautions a senior manager at a large, longtime Y&R client. "We just hope it does not affect the level of service the agency provides to us. Usually a public offering is a distraction to senior management, and in our case, we are accustomed to a lot of attention from Y&R's top managers."
More ominously, some agency rivals wonder how much Y&R gave away to get its results in shape for the public offering. "There's a price to be paid down the road," suggests a top executive at a major global network. "They've unsettled the entire industry by taking business at low costs to build top-line revenue. I think it's going to be as damaging to the agency business in the late '90s as the manic excesses of the Saatchi brothers were in the late '80s. These guys have been buying business left, right and center."
Georgescu is not permitted to comment on Y&R's prospects since the initial SEC filing. But he has made clear his stand on Y&R's strategy for reshaping itself and going public. With clients, he vows his agency units will match his own personal focus on their needs. "The minority of my time," he points out, "I spend handling Y&R as a business [the administrative duties]. The majority of my time I spend seeing clients. I have to do it more than say it. If I am a bureaucrat, then all my credibility is lost. I need to be in the trenches."
As for Y&R's competitors among the biggest global networks, Georgescu is confident his company's transformation has given it a head start. "The ways in which Y&R is different from its rivals are going to be irrelevant in four or five years," he says. "Not because they will be less important, but I guarantee that Interpublic and WPP are right now disdaining everything we stand for, while privately they are going to do exactly what we are doing." That is, organizing their welter of advertising and marketing shops around their clients, with a truly integrated approach to the business. "By the time they get to be where we are," Georgescu muses, "hopefully, we will be in another place."
Georgescu's place at Y&R is in the roomy sixth-floor office once inhabited by such agency legends as Ray Rubicam and Ed Ney. He exudes the elite air of a man accustomed to exclusive apartments and penthouse clubs. In fact, Georgescu and Ney both live at the same fashionable eastside Manhattan address, River House. The retired Y&R chairman greets his protƒgƒ some days as the younger man heads out for his morning run. Georgescu's current life is a world away from his Romanian childhood, when he spent seven years in a Cold War labor camp. (See story, page 37.) Perhaps as a result, his courtly style is tempered by self-effacing asides, which make him charming rather than cocky. In an industry of charismatic stars, Georgescu prefers to dodge the spotlight. He presides over an agency empire headquartered in a nondescript midtown high-rise that is well past its prime. Staffers around the world have dubbed it the Kremlin, as much for its looks as for its Byzantine politics.
But the Kremlin era is figuratively gone. (The literal change may take place next year, as Y&R scouts new office sites to consolidate many of its New York operations.) The management team Georgescu has put in place has caught the spirit of his vision. Creative work is improving and attracting client, if not yet critical, attention. Morale as well as margins are climbing. The investment community is warming to the IPO. (See story, right.) Ask around the industry, and Y&R is seen as a focused and aggressive player. Inside the agency, a new sense of confidence, urgency and optimism fills the air. Unlike earlier years, managers talk about the chemistry and cooperation among the company's top leaders, instead of complaining about aloofness and power struggles.
"Peter can turn this place around because he never fully belonged to this place," says one longtime colleague, surveying the old-fashioned offices. "In many ways, Peter has not been working for Y&R as much as he was working for clients. And that is what he still doing." Says Keith Reinhard, chairman of DDB Needham Worldwide and a Georgescu friend as well as business foe, "It is impossible to overstate how difficult it is to change the culture of a formidable top-level company. It is far easier to start a whole new company."
"I was lucky," says Georgescu of his position in Y&R history. "I was in the right place at the right time with a weird background that makes me comfortable with dramatic change, with being a rebel." Georgescu's spirited attitude has struck a nerve with the rank and file, who can be snowed under the onslaught of new business. The staff seems to revere him, according to observers. Reuben Mark, chairman and chief executive of Colgate-Palmolive, calls Georgescu an unusual business executive--an outstanding strategic thinker "who can ignite the creative process, energizing and motivating people." Says Nancy Wiese, director of advertising at Xerox, "Peter is a different kind of leader, with a human approach to things. As a client, we can see the admiration for him in the organization."
"Georgescu really wants to be the beloved monarch," agrees a former Y&R manager. "He plays [the game] well and says all the right things. He knows when it will be for the good of the organization to let others, such as Ed Vick, lower the ax." But Georgescu can also be frustratingly vague for those seeking concrete answers and specific direction, adds the onetime manager. "Peter is like a Chinese meal: After you have spent time with him, what do you have?"
Other aspects of Georgescu include a love of art, antiques and classical and cabaret music. He leans toward colorful designer shirts and ties instead of standard gray business attire. His passion for the performing arts has led him to the boards of the Chicago Symphony and the New York Philharmonic. Yet despite his affection for art and creativity, the Y&R chief's conversation rarely touches on the creative product of his agency or others.
"Creativity," he says, "is no longer about grabbing attention or raising consumer awareness. Its goal is to remind consumers about what is fundamental and gratifying about a brand." He is often angry at ad industry awards, which he says reward creative work that is "irrelevant" to the brands. With an unusual edge to his voice, he complains that some attention-grabbing ads from agencies such as TBWA Chiat/Day and Fallon McElligott do not always help the client's business. They seem designed "just to get the agency's name out there," he says. The remark may not be politically correct, given Y&R's ties to Fallon on the United account. But it demonstrates Georgescu's emphasis on the needs of the client brand, not the agency trophy shelf. "Peter is not a creative talent," acknowledges one of his close associates. "That is not where his talents lie." Industry veterans say one of Y&R's weaknesses is its lack of a glamorous creative account.
Then again, Y&R Inc. is not going public based on its creative reel. It is raising capital as a global marketing network, one that emphasizes branding, research and multiple disciplines. Georgescu started forming Y&R's current brand vision back in 1990, when his predecessor, Alex Kroll, was still in power. A study of global economic trends and the ad industry's weaknesses prompted Georgescu to hatch a philosophy of integration, in which advertising and marketing networks owned by a single parent company would be aligned to work together for a client, regardless of specialty or geography.
Y&R Inc. already owned sizable advertising, direct response, corporate identity, public relations and promotion agencies. In the 1980s, it had touted its range of services to clients as "the whole egg." But the units often competed for rather than cooperated on business. And clients generally operated separate departments for each discipline, which fostered a piecemeal, multiple-agency approach and discouraged a client from placing advertising and marketing duties with a single partner.
That was then and this now. Since the recession, "companies have cut their way to success," says Vick, with streamlined marketing initiatives. More bluntly, many companies slashed so deeply in their own ranks that they started to look to their agencies to make up shortages. Georgescu and his teams at Y&R's units set out to identify the core clients they could surround with services. Called "key corporate accounts," the agency targeted 42 such clients and assigned a single executive--from the most appropriate unit--to be the conduit for the relationship, nurturing the account and constantly looking for additional assignments. The strategy paid off. By 1997, Y&R Inc.'s top 20 clients were yielding $560 million in revenues, or 41 percent of the company total.
"Our ability to create organizations around a client gives us the intimacy and flexibility to move at the speed of light," says Georgescu, with the depth of resources of a "behemoth." Last March, Georgescu took the next step in the client-centric strategy. He formally linked Y&R's two biggest units--Y&R Advertising and Wunderman Cato Johnson--into a new partnership. The two networks now share a single profit-and-loss accounting system and incentive pool. "This allows people to do what's optimum for the [client's] brand," claims Georgescu, because "now it doesn't make any difference where the dollars go." Critics contend the units were pooled because not enough profitable dollars were generated at Y&R Advertising, pre-IPO.
Y&R's emphasis on cross-pollination paid off most dramatically with the Citibank win in 1997. The client's decision to ditch a year-long review, pull the accounts from roster shops Foote, Cone & Belding, Lowe & Partners/SMS and J. Walter Thompson, and gather them under Y&R Inc.'s banner woke up the ad world. The review had begun innocently enough as a corporate branding assignment, which Y&R Advertising declined to pitch due to conflicts with Wunderman's American Express account. Behind the scenes, however, other scenarios were percolating.
Burson-Marsteller, Y&R Inc.'s public relations arm, was working on internal communications projects for Citibank. Its executives heard about heavy pressure from Citibank chief executive John Reed on his evp for the global consumer bank, Bill Campbell, to create an international brand identity, like the AmEx icon, that could be an umbrella for all of the bank's products. Armed with such insight, a team was assembled, led by Y&R Inc. president John McGarry, who is a social friend of Campbell.
Their proposal, according to sources close to the review, questioned the wisdom of a one-off branding assignment and made a tantalizing offer instead. You need a global brand, not a branding ad campaign, said the agency team. Let us handle the entire account, and we will save Citibank managers the headache of trying to coordinate a global image through scores of countries and offices, they said. Their plan called for Y&R units to handle it all: direct marketing, advertising, sales promotions and public relations. Any logistical or resource difficulties would be the agency's problem, not Citibank's.
Y&R had studied the contenders' limitations and knew it was the only roster shop that could offer the full scope of services globally. FCB, JWT and Lowe lacked either geographic or marketing coverage or had conflicts with other pieces. Campbell bit, and he gave the entire $800 million in estimated billings to Y&R--all without requiring the agency to make a creative pitch for any of the business.
The win prompted Wunderman, which was not part of the pitch team, to resign a surprised American Express. The direct shop's work is likely to take a front seat in the Citibank business, with advertising playing a secondary role. "Expect lots of tactical and institutional marketing," advises an agency staffer working on the account. "It's not a traditional ad or direct response account. In a way, we are redefining brand marketing." The global effort will include sponsorships and promotions of events such as Elton John's 1998 world tour. Compensation is performance based, like many of Y&R's accounts, and the first work is due to break by March. Rivals are eager to track how much Y&R has to spend to service the account, while the high-concept global brand identity will be scrutinized as well. "I don't care what the critics say about our [creative] work for Citibank," answers Georgescu. "What matters is how well the work does the job as Y&R defines it."
This Y&R approach of leveraging insights from its subsidiaries to turn one assignment or review into a large, consolidated global win is sure to be repeated. Before Citibank, it had pitched and won most global duties for existing client Colgate; accounts to keep an eye on for similar all-out plays include Sony Electronics, AT&T and Ford.
Another weapon in Y&R's arsenal for client consolidation is its Brand Asset Valuator, a three-year-old research effort Georgescu has staunchly supported. Backed by a lavish $30-40 million investment, the program includes proprietary software, data-mining staff and extensive worldwide consumer studies. Through BAV, information about more than 8,000 brands is gathered from nearly 100,000 panelists in 32 countries. Y&R argues the program is the most advanced analytical tool yet developed to assess a brand's standing with consumers. Like other initiatives, BAV can be used by all Y&R marketing units. It is deployed in most new business pitches and was a critical factor in winning Citibank, AT&T's corporate account, Norwegian Cruise Lines and new assignments from Sears, according to client and agency officials.
Clients have mixed responses to integration Y&R-style. While Citibank and Colgate are obviously sold on a single global communications partner, Dick Helstein, vice president of advertising services at longtime client Kraft Foods, prefers to keep his agency roster varied. "We find that outside specialists offer better focus and more effective execution" of specific marketing assignments, he says.
The jury is still out, advises John Hayes, head of global advertising at American Express and a former executive at Lowe & Partners. "Integration can only work if you can corner the talent," he says, noting that skilled people usually are reluctant to work "in an orphan division of a composite company." While coordination of marketing services is on the rise around the world, "It's not clear whether it will come from agency conglomerates or internally from the client," Hayes concludes.
Some advertisers and competitors also point to an increase in potentially damaging conflicts, such as American Express and Citibank, in the kind of interconnected company Georgescu envisions. But he's sanguine about the growth inherent in the strategy. "We can double our business simply by getting more [advertising and marketing] business from our key clients. We've done the math. We have a long way to go before we have to worry about going after conflicting business."
More worrying will be how Y&R's key clients see their work handled after it digests all the new business won and adjusts to life following the IPO. "Currently the agency is being judged on new business wins, particularly Citibank. It would be wiser to wait a year and see how these new clients are doing," relates one former client. "Y&R is good at selling, but then they have to deliver the goods. It will be interesting to see how Y&R works its way through these new accounts."
And if Y&R stumbles, many other agencies will be ready to pounce. "Y&R will be our biggest new business target--and that of many other agencies--for the next few years," promises the head of a major agency.
Life after the IPO will be different, indeed, for Y&R. Top executives will be worth millions of dollars; up-and-comers in the various operating units will see how they fare against each other in profits and pay. Georgescu knows that aligning everyone's interests will be a challenge. Then again, he and his top executives have made that sort of team-building a priority since they took over.
"You can talk to many of us and our accents and backgrounds will be different, but scratch us and you'll find something in common," says Georgescu. "That is how our organization can tolerate differences and dissent." His voice rises slightly as he adds a footnote: "But when you find the dissent is based on a personal agenda or a movement counter to the objective, you go out and kill it. With ruthless vigilance."
In a way, the IPO will help Georgescu and his managers continue their reshaping of the company. "The kind of cultural change needed [at Y&R] would be tough or impossible to carry out without a catalyst," says David Greene, Y&R's chief financial officer for 15 years until he left in 1996. The IPO "creates a sense of urgency so the whole operation can compete effectively." Says another former executive, "Peter knows he and the Y&R managers can't turn that company around by themselves. He is asking the public markets to help him manage it. Having to answer to the stock market will give him an excuse to really fix things."
For discipline and "fixing things," Georgescu often turns to John McGarry, a 32-year Y&R Advertising veteran. From his vantage point at the parent company, McGarry is regarded as the premier client handler. Gregarious and loyal, he has a spontaneous, emotional style that is a good foil to Georgescu's intellectual manner. When a client calls Georgescu with the kind of problem that could cost the company the account, Georgescu is known to rely on his 58-year-old colleague. "It's McGarry time," he declares.
If McGarry has proved to be Georgescu's Mr. Inside, Georgescu relied just as much on an outsider to help revive the agency. Ed Vick, 53, is known to collect titles almost as fast as frequent-flier miles. "I was told in 1992 that if you go to Y&R, it could ruin your career," he says wryly. Some wreckage: He was named chief operating officer of Y&R Inc. in November, placed on its board of directors last month and still serves as chairman and chief executive of Y&R Advertising and the Y&R/WCJ Partnership.
Vick and his fellow road warrior, worldwide creative director Ted Bell, are the reasons employees have taken to calling the agency network Ted and Ed's Excellent Adventure. The easy-going banter and cooperation between them began almost immediately, signaling a new open-ended and active management style for the agency. As soon as Vick took the post of president of Y&R Advertising in New York in 1994, he announced he would set up his office in the creative department, rather than on the floor with the corporate offices, as was the custom. Vick immediately hit a wall of resistance from members of the Y&R old guard, who worried, among other things, that Vick would miss out on important meetings. (Vick's expression as he recounts the story suggests that missing some corporate meetings at that time was perfectly all right with him.)
The office soon started to come out on top in reviews, boosting New York's billings by 12 percent in 1995. Agency employees began to feel like winners again. Talented staffers, such as executive creative director Peter Murphy, put job searches on hold; former Y&R achievers who had left for greener pastures, such as Daryl Elliott, now senior vice president of global planning, started coming back. Vick was rewarded with a promotion to his worldwide advertising position in April 1996, and he is widely considered a Georgescu heir apparent.
Like Georgescu, the intense experiences of Vick's early life--he served as a riverboat lieutenant in Vietnam--made him more worldly than the average ad executive. But Vick and Georgescu are far from alike. While Georgescu loves to discuss broad and abstract issues with a benevolent, academic air, Vick is direct and cuts to the chase. Gifted at inspiring others to work at his own level of drive and passion, Vick is also capable of a cold pragmatism, say some who have worked closely with him. "I've seen him say and do whatever he needed to do to reach his goal, including pitting people against each other," says an agency executive privately. Vick describes himself as an intuitive rather than analytical manager. "My strength is in picking the best people," he says; despite his service background, "the command and control attitude doesn't work."
Glib and effusive, worldwide creative director Ted Bell (no relation to Burson's Tom Bell) can play the creative showman. But beneath the fun-loving surface he is as competitive and driven as Georgescu and Vick. Bell joined Y&R from Leo Burnett in 1993 for the chance to work in London, but soon found himself back in the U.S. helping Vick salvage the New York office. "I was shocked at what I found here," says Bell. "The place was messy and unfocused. The departments were at war with each other. Nine-tenths of the work on the reel embarrassed me." Now, he says, very little on the Y&R reel shames him. Though hardly trend setting, AT&T's corporate image campaign, which features poignant family events set to classic rock songs, is the closest thing to Y&R Advertising's signature work, says Bell.
After 35 years at Y&R, Georgescu has seen enough to discern the false starts from the true initiatives, the talkers from the doers. Originally hired in 1963 in the research department, he advanced rapidly at the agency, moving into account management and then an overseas post in Amsterdam. He forged crucial relationships with such clients as Ford and Danone, reopened Y&R's Chicago office (long a missing link for Y&R) and made his mark at the New York headquarters.
When Ed Ney, the personable leader of Y&R during Georgescu's formative years at the agency, was ready to retire in the mid-1980s, Georgescu, with his European accent and international connections, carried the aura of an outsider. He failed to make the list of possible successors. Ney instead picked one-time creative prodigy Alex Kroll, who had spent his entire Y&R career in New York.
Driven, autocratic and hot-tempered, Kroll struggled to steer the agency through nearly a decade of turmoil. Lawsuits over breakaway shops and bribery tarnished the company; the early '90s recession prompted layoffs and a series of ill-fated reorganizations. More decisive change was needed. The Y&R board turned to Georgescu, who had worked side by side with Kroll since his 1990 promotion to president of Y&R Inc.
"It was clear to Alex and the board the company needed a strong client services executive," says an insider. "The successor was obvious by then," recalls a board member. "Alex had picked Peter to replace him, and the board of directors was in universal support. No one else really had a chance." By then Georgescu's skills with large clients such as Colgate, Ford and Sears were famous throughout Y&R. "Peter is remarkable in his command of our business and industry," remarks Arthur Martinez, Sears chairman and chief executive. "He is one of the few people at his level who have such a clear strategic focus on [a client's] business problems and understands the solution may or may not be advertising."
Typically, Georgescu looks back on his career arc with a mix of humility and achievement. "In my old role, I was a supporting actor, and I did it well," he says. "This job is different than I thought. I didn't envision I would have it--my boss Alex was about my age. I have had to grow into this job. Lots of us here are growing into our jobs and learning to live with risk. I have had to learn when to be patient and let things take their course, and when to be intolerant of mediocre work and fear of risk."
On the verge of perhaps the riskiest period in Y&R's 75 years, Georgescu is nonetheless the informed optimist. He notes that he's seen tremendous change and growth at Y&R since he joined the company in the 1960s, but he feels the years ahead promise even more dramatic shifts. If anything, he is stimulated by the prospect that advertising in general--and Y&R in particular--could be about to shed years of self-doubt and emerge more forcefully than ever.
"We are approaching what I think will be a golden era for marketing," Georgescu concludes. "The business world is seeing a dramatic shift from a world that used to be dominated by excess demand to a world that is now dominated by excess supply. That is the most fundamental revolution, but nobody seems to be talking about it because it has occurred slowly, category by category, industry by industry, over the last 10 years."
In such a world, Georgescu explains, innovation lasts only six weeks or six months instead of six years. The spirited forces of the market and the speed and pervasiveness of the media work to eradicate any differences. "While that is not a friendly environment for business," he says, "it favors marketing people who can build a bond between the consumer and the brand. If we in the ad industry do it right, we'll see the next 10 or maybe 20 years as the era of the marketer." And perhaps Y&R's greatest era yet.