Aegis faces the bumpy road

After
a raft of high-level moves, culminating with the resignation of chief
executive Doug Flynn, the media network faces a changing global media
landscape in which the agency side of the equation is being
concentrated in the hands of a decreasing number of giants. At the same
time, Aegis has remained basically a media shop – albeit a big one –
with a strong research arm but no creative capability.

And while
the agency network has drawn a successor for Flynn from the ranks of
its board, other key appointments remain to be made in its UK operation.

The
announcement that Flynn was swapping media for killing vermin – he is
taking over as chief executive of Rentokil Initial – was not unexpected
in many quarters of the industry.

Raising eyebrows

Replacing Flynn is Robert Lerwill, an Aegis non-executive director
and a man with a strong financial background with Cable & Wireless
and WPP – and someone who might be better suited to the job of
pacifying difficult shareholders than Flynn, who had the odd run-in
with the City.

Flynn's exit hit the headlines just days after Colin Mills, managing
director of Aegis owned Carat, left that agency – six months after
privately deciding he was leaving the company.

And, within only a
few days of Flynn's departure, the president of Carat USA, Charlie
Rutman, left the company to join MPG as CEO of that agency's North
American operation When top bods start leaving any company, in any
industry, a few eyebrows are bound to rise.

These two leavers may
have affected two very different parts of the business, but the
question has to be asked: "Is this merely a changing of the guard or
has the agency hit a bump in the road?"

Certainly Flynn had a
bumpy ride during the latter part of his reign at Aegis. The network's
Antipodean boss suffered the ignominy of the stockholders rejecting his
remuneration package just months before. They voted against the terms
of Flynn's potential severance pay – two years' salary plus twice his
annual bonus.

In addition to the remuneration debacle, Aegis has
been locked in a court case with KR Media, the company set up by the
two former Aegis Media Europe joint chief executives, Eryck Rebbouh and
Bruno Kemoun. Aegis accused the pair, known as The Twins, of poaching
Carat's clients and the case is still in the French courts.

Whether
Aegis has a legal leg to stand on against KR Media remains to be seen,
but the loss of The Twins had been bad enough for Flynn – the pair are
highly respected in the industry and were rumoured to have left after
clashes with the former chief exec.

KR Media is already operating in France and is backed by a 20% stake from WPP.

Return of The Twins

The Twins – famed for their high levels of client service – have
shown off their prowess by taking the £31m Louis Vuitton account out of
Carat. Now, with offices at Mind Share, under the moniker Team UK
Media, Rebbouh and Kemoun might yet hit the UK scene.

It's interesting to note that when The Twins were Mills' bosses, he took French lessons.

When
Jerry Buhlman was named as chief executive in their place, Mark Craze,
chief executive for UK and Ireland, headed for the door too, unhappy
with the snub. Craze too was quite close to The Twins.

All of
these departures hint at a less than steady vessel and Flynn, the
proverbial captain abandoning ship, does little to demonstrate
otherwise. As the new man at the helm, Lerwill could be the one to
guide the network into calmer waters.

A chief executive with a
strong financial background, feeling from those in the know is that he
could be more adept at dealing with the shareholders than Flynn, a man
with a newspaper background including Murdoch's News International.

According to one insider, Flynn was "not your typical City type" and "Lerwill will be able to handle the City better".

But, likewise, the question of how Lerwill will cope with strategic decisions remains an issue.

Bob
Willott, one of the founders of Willott Kingston Smith and still acting
as a consultant to the chartered accountant, raises this point: "The
question for Robert [Lerwill] is: ‘Is this a job for someone
financially orientated or strategy orientated?'

"We'll have to see how good he is with the strategy of the company."

This
seems a fair point, but Amanda Merron, a current partner at WKS,
perhaps makes an even more pertinent one: that when it comes to
financial men becoming network bosses you have only to look at the
"shining example in his former boss at WPP". Take a bow Sir Martin
Sorrell.

And when it comes to strategy, Lerwill has already said
that he is not going to take any immediate strategic changes so soon
after climbing into the saddle.

"Broadly speaking the benefits of
me joining are... well, I've been part of a team to determine the
strategy. I'm not sure I'm going to come in and make radical changes
when we're growing organically very fast."

The alternative

Lerwill insists Aegis' place is giving clients an "alternative to big companies owned by big marketing services groups".

And at present this alternative means a group where research and digital communications are key ingredients.

Under
Flynn, research arm Synovate received substantial investment and he
also recently oversaw the creation of Isobar, the world's largest
combined digital offering.

Combined with this, Flynn had been
following a strategy of organic growth and small acquisitions. Most
recently, Aegis acquired US search marketing company I prospect for
£25m, which will form part of Isobar.

This is the strategy
decided upon for Aegis and Lerwill says there are "no major changes in
direction anticipated. I would be foolish to be talking about spoiling
a winning recipe."

The new boss also insists that the company is "responding to what clients need now".

Not
everyone is in agreement with this .Merron says: "They seem to be
buying research, direct and digital business with a view to focusing on
the stratification of their target audience and accessing them."

But, she adds: "It's going to have to buy an awful lot to buy up that middle ground."

"With the sort of business it's buying, there aren't any obvious big wins that will take it up to the next tier."

Responsibility

Willott voices a similar opinion: "The amount of money spent on
buying companies has not resulted in return, and Doug Flynn has to take
some responsibility for that."

Merron concurs: "The proof doesn't seem to be there in the results."

Whether
Lerwill does anything to arrest these sorts of opinions remains to be
seen. But what he will have to take on board is Aegis' position against
other global networks.

One of its problems is its lack of a
creative wing. This would have been key for the global pitch last year
for the HSBC business, which went to WPP.

Aegis did not even get on the shortlist.

Also,
the business does not have the same presence in North America that the
other networks have, something that may hold it back as a global
operator.

American foothold

One senior agency boss of a rival network agrees with this
perspective on Aegis: "Carat is still a very powerful European network,
but it hasn't really cracked it outside of Europe. In North America it
is still a minor player. It doesn't have a roster of true worldwide
clients and it won't until it establishes a foothold in North America."

However, another insider offers a different point of view: "You can
never appeal to all clients, but if you've got a differentiation that
appeals to 10% then it's to die for. You don't have to have a
proposition that every client will go for."

On the lack of a
creative wing the insider adds, "That's been overplayed. Aegis'
strategy is well placed – it's all about implementation."

And on
the policy of small acquisition there is a very simple but important
point: "They make small acquisitions because they can't make massive
acquisitions."

Closer to the UK scene, Nigel Sharrocks, Aegis
chief executive in the UK and Ireland, and Neil Jones, the acting MD at
Carat in place o fMills, are concentrating on repositioning the agency.

Jones, who has been at the agency for 13 years, says: "When I joined we were very buying driven."

However,
Jones insists that although some may still see Carat as just a buying
powerhouse: "The reality is very different to the perception. Part of
that is diversifying services."

Sharrocks also explains: "One of the problems of Carat is other agencies had positioned themselves as: ‘We're not Carat'.

"Now we want to get the company back to thought leadership, setting the agenda."

The UK and Ireland boss also adds: "The business is in good shape. We had a record year last year."

And
of course he is right. Last year in a frantic week in October Carat
retained the £31.5m account for Diageo in Britain, won the £20mGE
Consumer Finance Home Lending business and the European Lego account,
worth £35m.

And let's not forget Aegis' second string agency, Vizeum, which picked up the £32mpan- European account for Panasonic.

Turbulent time

Whether these wins for Carat will continue without Mills at the helm
is unclear. But perhaps the situation at its sister agency provides
some clue. Vizeum has been without a full-time MD since January last
year, with operations director Chris Boothby running the agency since
then. But no one can complain about their performance with the likes of
Panasonic in the bag.

The past two weeks have been turbulent for Aegis and Carat, but it
would be wrong to automatically put the departure of Flynn and Mills
together and see signs of a troubled company.

Their roles were unrelated and Mills resigned six months before Flynn left.

Nevertheless,
Lerwill and Sharrocks certainly have some questions to answer when it
comes to how to take the network on – and, sooner rather than later,
the new team will have to come up with the right answer.

Financial
people at the helm: the pros and cons

Over the past month, two global
agency networks have brought in new chief executives with financial
backgrounds: Before Robert Lerwill took over at Aegis Michael Roth took
on the CEO role at Interpublic. Here's what some industry watchers and
insiders say:

Olivier Wolfe, head of media sector corporate finance,
Pricewaterhouse Coopers: "Well there's plenty of them in the
marketplace, starting with Sir Martin Sorrell [at WPP]. The trick is to
bring in a guy who can delegate the right creative talent, harnessing
creative strength and bringing financial discipline. From time to time
it is helpful to change from one sort to another – it can be good for
business."

Steve Allen, chief executive, Mediacom: "I think you
have to distinguish between the holding company and the operating
company. There is no reason why a holding company shouldn't be run by
someone with a financial background. They decide the sales and
acquisitions of the business and these are prerequisite skills for
these positions. Often advertising experts are not qualified for making
these decisions."

Steve Booth, chief executive, BLM: "The scale
of the global networks means they are led by people who have a strong
financial focus rather than creative focus. The challenge for networks
is how they can manage the challenge of meeting their financial needs
and still be creatively led."

Andy Sloan, chief executive, All
Response Media: "There are some very good financial people that have a
fantastic understanding of the creative and media challenges. And there
are some excellent media practitioners who are very financially and
commercially savvy. If agencies can attract this talent, they have the
potential to thrive."