I’m no expert – hell, I’m not even a novice – on corporate law. But this is fascinating stuff. In every jurisdiction in every corner of the world, the law states that those at the head of publicly held companies have a legal duty to maximize profits for their shareholders. Many unethical corporations interpret this as shareholder primacy….placing profit above all else, including any perceived loyalty to their people. If a CFO can reduce payroll – an operational expense on cash flow statements – as a quick-fix back to black, shareholder primacy becomes a nice, tidy legal excuse to lay people off.
For a much better explanation on how shareholder primacy is directly affecting people like you and me, read this entry in PrawfsBlawg.
He also references another idea called the “uncorporation.” This intrigues me as a model for the re-emergence of independent advertising agencies in this country. I honestly can’t see any other way.
11 Comments
Fascinating stuff. As someone striving to set up an independent agency, that works with freelancers on a flexible model I totally agree with the idea of the uncorporation (though I am incorporated). The day of the big behemoth agency is not necessarily drawing nigh but it’s making and less and less sense given the nature of the web and it evolution into a user generated, open source domain. I, think that a lot of us agency vets who just went out in the last bloodletting are done with the old model. We’re bright enough, driven enough and experienced enough to do what we do outside the walls of the big, holding company-dominated-share-holder-beholden organizations currently swirling the toilet. An organization’s biggest assets are the the ones in the seats and they forget that at their peril. There are fewer assets in their seats now, and more and more out here . . . let the games begin.
I don’t think this has as much to do with the structure of the corporation as it does with the short-sighted investment climate we have had in the last decade. Flipping Teldar paper, or Anacott steel, or breaking up blue star airlines (ok I have seen wall street too many times) seemed like a good idea to shareholders, but only because those shareholders wi=ere in the game for the short term.
That’s actually a major hesitance for some owners of companies to take their business public. They believe this shift in priority from their employees to stock-holders can set a negative effect which outweighs the benefit of public investors in their mind.
Interesting stuff. Scary, too. It’s the Gordon Geckos of the world that got us into this mess. Their way of thinking is certainly not what we need now, or in the future.
I haven’t worked for a holding company agency in almost 9 years… and I’m not sure that I would want to again. Yes, it’s an independent that laid me off, but at least I know the decision to do so was made inside our walls, not out.
If publicly held companies have a legal duty to maximize profits for their shareholders, then why do shareholders allow the CEOs and other upper management to have multi-million dollar salaries plus million dollar bonuses? Isn’t that, then against the law?
Surely another CEO at half the price could do just as good of a job.
The problem is, it’s all short term thinking.
Sure, if I lay off 10%, I’m cutting my costs, which increases my profit, which makes my stock price go up.
But next quarter, when the people I kept are doing more work at a poorer quality, then my profits will suffer because my product sucks. And that’s what happens at big agencies. They look at salaries and say “Well, that person makes a lot” or “that person’s salary matches up with how much we have to cut” – but they don’t take into account talent.
So good talent gets cut. The product suffers. And down the road you end up worse off.
well said MattM.
The thing you’re not understanding MattM: product quality doesn’t matter.
People buy shoddy products all the time. Clients buy shoddy (shiddy) ads all the time.
Quality really doesn’t matter. Money still gets made regardless of quality, and that is all that matters: making money.
@Harry:
And the really shiddy part of it is that most compensation models make cheap and cheezy work more profitable for agencies than work that actually works.
As long as you can find employees soulless or desperate enough to produce garbage, and clients dumb enough to buy garbage, it’s a sure-fire way to make a fortune in this business. Look at Zimmerman in Ft. Lauderdale as an example.
Harry,
If the product we produce (advertising) doesn’t matter, why do clients even use agencies? They could save (make) more money by doing it themselves.
Of course product quality matters. It doesn’t matter to every agency. But it matters.
Well said, MattM, twice.
Of course quality matters. It hasn’t mattered at some jobs I’ve had, unfortunately, but it matters at places that matter. It matters at Weiden and Fallon and Goodby and Crispin. It matters at boutiques that put principle above profit like Fort Franklin, David & Goliath or Red Tettemer. A lot of people have never heard of that last one, Tettemer. They’re in Philly and they’re awesome. But the most impressive, I think, are the first one’s I mentioned. The ones able to get huge and hold on to creative principles. Too often financial success is armageddon for creative success. Look at DDB New York. What have they done in the past, say, 15 years?? I’m pretty excited to see how Eric Silver shakes that place up in the coming months and years.
Post a Comment