Freedom For Now

When executives from Hilton Hotels arrived at Bates Worldwide headquarters in New York on Sept. 8, it looked as if they were visiting one of their own establishments. In pitching the $50 million global account, the agency had slickly revamped its quarters in the Chrysler Building. A doorman greeted the Hilton team downstairs, escorting them to the eighth floor, where a bellhop awaited. In place of the shop's staid decor, the Bates reception area had been converted into a mock hotel lobby, with a fountain, large, comfortable chairs and potted plants. To complete the illusion, a conference room was remodeled to emulate a pricey hotel suite, down to the king-size bed, armoire, desk and plush window treatments. But the quick makeover for Hilton is minor compared to the revamping Bates is doing to itself. As the network prepares to gain its independence from parent Cordiant PLC and its sister agency Saatchi & Saatchi, Bates executives insist they will be able to write a new, more prosperous chapter in their 57-year history, one free from the conflicts they believe have stifled the agency's growth. "The agency is reinventing itself," says Bill Whitehead, the 51-year-old chief executive officer of Bates North America and a globally-trained veteran from the pre-Saatchi days, when the original Ted Bates agency was a pre-eminent worldwide brand. It remains to be seen, however, whether the demerger will prove to be a real boost for the shop and its clients, or if the sales pitch of a newly liberated and energized Bates is merely Hilton-like window dressing. Despite industry skepticism, Bates managers are bullish on their future as an independent worldwide network. Whitehead points to the creativity of the Hilton presentation as one example of a new operating mentality. "This agency was very cookie cutter," he says. "Historically, management was very cookie cutter. You got what you saw." No longer, he contends. Granted, for a long time the agency didn't have much to cheer about, at least in its flagship New York office, where its new business record was stagnant. While Bates made it to the plate in several pitches over the last few years, it was unable to score any significant new clients. In fact, its win of the creative portion of CVS' estimated $20-30 million account in August was the first sizable new account brought into the New York office in nearly three years. "I'll be the first to say we don't win everything," admits Michael Bungey, chief executive officer of Bates Worldwide since 1994. "You win some, you lose some." Still, the agency's 160 offices in 70 countries throughout the world are gaining entree into more contests then they have in years, which is bound to increase its odds of success. As of September, Bungey notes, Bates was active in 61 new business contests going on in Europe, 25 in the Asia Pacific region and seven in North America. Any wins from those reviews will be added to the $350 million in new billings Bates has already gained in 1997, says Bungey. Even though none of the current pitches is on the scale of the sizable account losses Bates has suffered in the last few years, Bungey emphasizes the positive trend line. "CVS changed morale at this agency," he declares. Bungey recognizes that the agency, especially in the U.S., needs to improve its record. Billings in the U.S. last year were about $1.2 billion, or just 20 percent of the worldwide total of $6 billion; Bungey wants to get the U.S. share up to at least 30 percent. Revenues in the U.S. actually declined through the first half of 1997, to about $62 million, primarily due to the exit of its longtime Miller Brewing account. And the next year won't get easier, since Compaq and Texaco have departed. As a result of the account losses and related staff head-chopping, profits in the U.S. have been slim to non-existent. Worldwide, the earnings picture is rosy only in Britain, where Bates' event marketing group, HP:ICM, is doing well. In Asia-regarded by rivals as the most desirable part of Bates-the agency's revenues are growing at a healthy 16 percent, but the high costs of developing a network there have meant no profits are at hand yet. It's the strength of Bates' overseas offices that the 57-year-old Bungey plays up as the value of the spinoff. He claims that Bates' network differentiates itself from other major advertising companies by having a predominantly local focus. And he challenges what he says is the popular myth that all advertising is going global, explaining that many marketers are dissatisfied with current network models. "Seventy percent of the world's advertising is local and probably always will be," Bungey says. The way to win business, he maintains, is to build the agency's profile on a local, market-by-market basis. That philosophy-expressed in the agency slogan of "Think Global. Act Local," is having some success. Warner-Lambert, a client that left the agency in 1986 and returned in 1994, previously worked with the shop in about 20 countries. Today, Bates has gained Warner-Lambert assignments in more than 50 countries, sharing lead agency status with J. Walter Thompson. Nokia, the Swedish telephone maker, started working with Bates in Hong Kong on a project basis and now uses the agency in 11 countries. In London, Bates Dorland won an assignment in September to relaunch cosmetics and toiletries marketer Cussons; Bates has since leveraged the business in China and is currently pitching for it in Eastern Europe. Even with these improvements, Bungey acknowledges that Bates still has a long way to go to bulk up its global client roster. Its network was shattered by the 1995 loss of the $360 million worldwide Mars account in the wake of the Saatchi brothers' split from Cordiant, and Bungey is still trying to put a big piece back in its place. Compared to the leading agency global networks-McCann, Young & Rubicam, JWT, DDB, Burnett, Grey and so on-Bates has only a handful of clients with extensive worldwide assignments. By its own measure, only 13 percent of Bates revenues come from "global" clients that use the shop in all the countries they operate in. (B.A.T., the tobacco giant, Warner-Lambert, Wendy's and EDS are the principal ones.) Otherwise, Bates counts on getting piecemeal work from clients in a local office, then tries to extend that to other regions. In the road show to investors, Bungey uses a flip chart that shows a number of clients in which Bates has a toehold: Coca-Cola, BMW, Estƒe Lauder and Henkel. The implication is that the agency has fantastic potential to gain more work from them. On the other hand, its slender reed of strictly local assignments could be easily broken by further account consolidation. Bates lost Compaq, for instance, when the PC maker consolidated at Ammirati Puris Lintas, and it failed to get the worldwide Schick account from Warner-Lambert, losing out to a larger rival, JWT. Before the demerger, Bates officials blamed some of its growth pains on conflict with Saatchi & Saatchi bedrock client Procter & Gamble. The P&G relationship at its sister agency, they said, blocked it from as much as 10 percent of the world's advertising spend. "We're certainly open for business-and that's an ad," says Bungey of his post-P&G prospects. The Saatchi link has always been a sore subject around Bates. Because the parent company was Saatchi & Saatchi PLC (until the name change to Cordiant), Bates felt it was forced to take a back seat, even when it was performing better. "Bates historically has always been considered second banana to Saatchi," says Whitehead. "But we are a better-run company, a more financially astute company." For evidence, Whitehead points out that Bates' earnings before interest and taxes are higher than Saatchi's, despite having a lower revenue base, and that its share price is estimated to be higher. Bates will also save money on its real estate costs in New York, as it plans to move from its expensive Chrysler Building digs to a lower-profile location on Seventh Avenue by 1999. (Whether a site in the garment district, near the Port Authority bus terminal, will impress clients or encourage staff is another matter.) Curiously enough, Bates also will inherit the name of the parent, taking on Cordiant Communications Group as the moniker for its holding company. Rather than cut the last ties to its somewhat estranged owner, Bungey and his board decided to forge ahead under the Cordiant banner. The name is registered in more than 100 countries, so it saves time and money from not changing it, notes Bungey, who adds that the stock is more likely to be known by its initials, CCG, than Cordiant. Whatever the name, the test for Bates is to show real growth in the main agency, replenish depleted offices and management ranks, and make sure it keeps pace in such fast-expanding areas as direct marketing, interactive, PR and health care. The crucial players will be Bungey, Whitehead, chief financial officer Art D'Angelo, and regional heads Alex Hamill (Asia Pacific), Jean de Yturbe (Europe) and Peter Sch…ning (Scholz & Friends in Germany). A search for a worldwide creative director is under way. To generate enthusiasm for this team, Bungey has spent much of the last month on tour, making some 50 presentations to hundreds of people. While Bungey declares his independence at every stop, others says the road show is partly meant to showcase the merchandise to potential buyers. "Bates is absolutely ready for auction," claims a Cordiant source. "It would have to carry a premium over cash flow, but it's a good acquisition target." Says David Chermont, an analyst at Merrill Lynch in London: "It seems more than likely Bates will be acquired at some time." Bungey is well aware of the speculation that Bates is on the block. "Agencies are circling their wagons around us because we're such a tasty morsel," he says. "It costs nothing for all of our competitors to say they are interested in us. They're looking to sow fear in the heads of our staff. The agency has been through more turmoil than anyone in this category. We haven't gone through all of that to hand it over to someone else to run. We can't stop people from expressing interest. In a way, it's quite flattering." Despite the attention, Bungey asserts there's no For Sale sign on the door. "I believe the managers of this company are the best people to unlock the potential of the company. The shareholders have been loyal. There's been plenty of time in the past to bail out." His key shareholder, David Herro, whose Oakmark International Fund will own nearly 10 percent of the new CCG stock, gives him a lukewarm endorsement. "Michael Bungey knows we're patient investors. But he also knows we're intolerant of incompetence. I don't think he is incompetent. There's no monkey on his back from me. I think he's capable." For now, Herro says, Bates managers "deserve the chance to go out there and build a business." How do Bates' clients feel about the demerger? Bungey says they are "committed to the agency all over the world. I haven't talked to a single client anywhere that didn't support the move." Bruce Goren, national advertising and promotions manager of Bates USA West client Hyundai Motor America, says the carmaker is not concerned about the pending demerger: "Bates has a lot of resources, a lot of talent and a lot of good thinkers." The same holds true at Warner-Lambert, says Mike Soriano, vice president of marketing services. "From our point of view we don't see any effect on how we operate with the Bates agency," relates Soriano. "We look to Michael Bungey to make sure things are done that are in the best interest of clients." To establish their own interests, Bates executives are investing $5 million in CCG. "Clients are back to dealing with the principals," says Bungey. "The buck stops here. That's a major departure from our current situation." Now if only that doorman would ring with good news about Hilton. -with reporting by Noreen O'Leary

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Freedom For Now

Jennifer Comiteau

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Jennifer Comiteau