Is Michael Roth the Right Leader for IPG?

Shares of IPG reached their lowest point in a year on Monday, trading at just $7.25 per share. Investors took notice. Some 5.8 million IPG shares were traded in one day alone; in an average month, about 14 million shares of the company change hands.

This most recent financial calamity does not bode well for the future of the company, and it might spell trouble for CEO Michael Roth. He may have been the right man to lead IPG's turnaround efforts a few years ago, but Roth is now dealing with issues outside of his area of expertise, and could ultimately have to deal with investor wrath—or worse.

"If I were a gambling man, I would bet this is pretty much the end of Interpublic. It will be busted up in pieces and sold off . . . It can't recover from this," a former top executive of an IPG agency said.

The downturn began in July, when IPG reported weak second-quarter earnings but claimed the company could make up the loss in the second half of the year. The next day, however, IPG announced the loss of its agency Draftfcb's second largest account, S.C. Johnson. "Somebody on Wall Street woke up and said, 'This isn't going to go the way Michael Roth wants it to go,' and that's when the stock [dropped]," the former executive said.

The loss of S.C. Johnson, which had been a Draftfcb client for 60 years, is hardly the only problem IPG agencies have encountered as of late. McCann Erickson, part of IPG's McCann Worldgroup, which represents some 30 percent of IPG's total revenue, has won few accounts this year—it picked up catalog business from Ikea and kept its business with the U.S. Army. In early August, McCann's New York office completed a round of layoffs. "The only reason McCann and Draftfcb are on the radar is because they're in free fall," said the former executive.

"Ad sector stocks have been hit disproportionately by the recent downturn, and IPG shares remain more leveraged to market moves than those of our peers," an IPG company spokesman said in a statement provided to Adweek. "Both factors are evident in the degree to which a slight Q2 miss was followed by our recent price drop, which contrasts markedly with our significant outperformance in 2009 and 2010.  What is more, despite the economic turmoil, we've been upgraded to investment grade and continue to affirm 2011 financial targets that build on the great top and bottom line progress made in recent years.  Speculation about IPG on the part of ex-employees with personal agendas, who have not been part of the solution, are baseless and without merit."

The man who stands to take the fall if the ship isn't righted, and soon, is Roth, who was named chairman and CEO of IPG in 2005 after having served three years on the company's board. At that time, he had spent eight years as CEO of The MONY Group, a financial services holding company. In July 2004, MONY was acquired, its stock delisted. Six months later, Roth was chosen to take over IPG, which was experiencing a management crisis after having gone through two CEOs in four years. Thanks to extensive business experience and a law degree, Roth was able to bring a strong corporate background to IPG's turnaround, an effort which involved tackling the company's sizeable debt as well as dealing with an SEC investigation that had been launched in 2002 after McCann Erickson reported accounting imbalances, not to mention improving its lagging position behind competitors—and, of course, increasing shareholder wealth.

Continue Reading