Incorporated: 1961
NAIC: 541810 Advertising Agencies
Once the world's largest advertising company, The Interpublic Group of Companies, Inc. fell on hard times in the early 2000s, dropping to third in worldwide standing behind rivals Omnicom Group and WPP Group. Set to rebound in 2006 and 2007, Interpublic through its numerous subsidiaries still ranks among the world's top advertising and marketing firms, with offices in 120 countries and employees numbering more than 43,000. Through its independently operating agencies, Interpublic provides advertising programs, direct marketing, market research, and other media services. Although Interpublic's advertising agencies compete against one another for clients, all benefit from the resources and connections of their parent company. With worldwide billings of $6.39 billion, Interpublic remains a force to be reckoned with in the advertising world.
The history of Interpublic began 50 years before its incorporation in 1961. In 1911 the U.S. Supreme Court dismantled the Rockefeller Standard Oil Trust and divided it into 37 different companies. The largest of these was Standard Oil of New Jersey (now Exxon). Harrison McCann, who had been advertising manager at the Rockefeller Trust for a number of years, opened up his own ad agency and took on Jersey Standard as his first client. The age of the automobile was soon to come and with it an increase in the demand for refined petroleum products. As the advertising man for the world's largest oil company, McCann was poised for success.
In 1930 McCann merged his agency with that of Alfred Erickson to form the McCann-Erickson Company. Despite the Depression and World War II, the newly conjoined firm managed to grow in billings and importance; by 1945 McCann-Erickson was doing close to $40 million in business, making it the fifth largest advertising firm in the United States.
Marion Harper began working at the McCann-Erickson agency in the 1930s as a clerk in the mailroom. After delivering the day's mail he would visit the research department and learn what he could. He proved a remarkable student; he was made manager of copy research at the age of 26 and then promoted to director of research at 30. Two years later, Harrison McCann promoted Harper again, this time to president of McCann-Erickson Advertising.
During Harper's rise from mail clerk to president, McCann-Erickson experienced the most lucrative decade of its history. In 1954 the agency surpassed $100 million in billings for the first time. Between 1955 and 1956 the agency added over $45 million worth of new business, including the Westinghouse appliance division, Chesterfield tobacco, and Mennen personal hygiene products. These accounts, however, were overshadowed by the fourth new customer gained by McCann at this time, Coca-Cola. Though Coke was a $15 million account in 1956, it was the soft drink company's potential for future growth that made it such an attractive customer. For McCann-Erickson, Coca-Cola was an investment in the coming era of "recreation and refreshment."
During this heady era, Harper, as chief executive officer and chairman of McCann-Erickson, began to implement his vision of fashioning an advertising company modeled after General Motors, a vigorous conglomerate consisting of equally vigorous but largely autonomous divisions. He arranged for McCann-Erickson to buy the Marshalk advertising firm of New York. The move was unprecedented because Harper declared that the two agencies (McCann-Erickson and Marshalk) would be operated as competing companies. Harper's intention was to avoid the conflict of interest problem that plagued all agencies attempting to procure accounts from competing clients. He felt if Marshalk and McCann were run separately, a camera manufacturer looking to hire McCann would not care that Marshalk did the advertising for another camera manufacturer. Most people within the industry viewed the idea with skepticism, but Harper proved them wrong. Both agencies continued to grow while often servicing rival clients.
McCann-Erickson had also moved to establish itself in a variety of less conventional foreign advertising markets. Long the leading agency in Latin America and Europe, the company purchased the third largest ad firm in Australia and began to actively pursue business in Asia. By 1960 McCann-Erickson had billings of $100 million outside the United States, with a substantial portion coming from the Asia-Pacific area.
In January 1961 Interpublic was established as a holding company with McCann-Erickson becoming its largest subsidiary. What followed was a rapid, occasionally reckless, six-year period of expansion and acquisition. Harper purchased majority interests in a variety of advertising firms all over the world. The network of affiliates was global, but it was also chaotic, mismanaged, and unprofitable. In 1966 Harper's sprawling conglomerate included 24 divisions, 8,300 employees, a fleet of five airplanes, and billings of $711 million. The following year Interpublic incurred a $3 million deficit and defaulted on agreements with two New York banks. At one point in 1967 a group of investment bankers offered to buy Interpublic in its entirety for the small sum of $5 million, but the deal was never finalized.
Unable to repay its loans, the company nearly went into receivership. Only through a radical restructuring of management practices and sales of subsidiaries was the agency saved. One of the casualties was Marion Harper himself; he was ousted from the chairmanship of the company by the governing board. The man responsible for instituting Interpublic's changes was Robert Healy, an executive at the firm for a number of years, who had gone into voluntary exile in Switzerland over managerial differences with Harper. In the autumn of 1967 the board brought Healy back from Geneva to reverse the company's mismanaged expansion. Healy was put in charge and given a short time by Interpublic's creditors to stabilize the company. He persuaded his employees to loan the company $3.5 million in return for convertible debentures. In addition, a number of clients agreed to pay in advance for future advertising services. These two factors permitted Interpublic to remain in business. With the help of an additional $10 million in loans, the company went public in 1971.
By selling public stock and reducing its high payroll costs, Interpublic stabilized its finances. It began operating again at a profit. In 1973 Paul Foley succeeded Healy as chief executive and chairman, ushering in a new era of growth at the company. Billings topped $1 billion for the first time in 1974 and plans were drawn up for renewed expansion. The Campbell-Ewald company, longtime ad agency for Chevrolet, was acquired in 1973. This move was followed five years later by the $32 million purchase of the SSC&B firm, the largest merger in advertising history at the time. These two acquisitions, along with Interpublic's strong overseas presence at a time when the American dollar was weak, led the company to record profits. At the end of 1978 Interpublic was billing in excess of $2 billion.
In the early 1980s Philip Geier was appointed chief executive and chairman of Interpublic, which angered two of the firm's most distinguished ad men, Bill Backer and Carl Spielvogel. Backer and Spielvogel had worked wonders with such prominent clients as Coke and Miller Beer. When Geier took the reins of Interpublic, Backer and Spielvogel left to start their own agency and took the Miller Beer account with them. News of their departure made Interpublic's stock price fall five points.
Coca-Cola, feeling pressure from Pepsi and upset with the departure of Backer and Spielvogel, issued an ultimatum to McCann-Erickson to come up with a new campaign in three months or the company would take its $750 million account elsewhere. Fortunately, the account was saved by the phrase "Have a Coke and a smile," and a commercial featuring Pittsburgh Steeler football player "Mean" Joe Green giving a young fan the uniform off his back.
After this initial scare Geier became more comfortable in his post as chief executive, though Interpublic's billings had begun to decline in Europe. The offices in Great Britain and France lost a variety of important clients, including Bass Ale and Gillette, and Campbell-Ewald's European division was operating at a loss. These difficulties were particularly troublesome to Interpublic since 65 percent of its billings were outside of the United States. Geier fought back, increasing Interpublic's expansion in Asia where the firm ranked as the number one American-based agency.
By the end of the decade Interpublic had 166 offices in 50 countries. The four company divisions created advertising for such products as: Coca-Cola, Buick, Viceroy cigarettes, Inglenook wine, Exxon, Early Time bourbon, and Kentucky Fried Chicken (McCann-Erickson); Pall Mall and Lucky Strike cigarettes, Johnson & Johnson baby shampoo, Lipton tea, Noxzema, and Bayer aspirin (SSC&B); Chevrolet and Smirnoff vodka (Campbell-Ewald); as well as Minute Maid, Sprite, A-1 Steak Sauce, and Grey Poupon mustard (Marshalk).
As Interpublic entered the 1990s Geier and his chief financial officer, Eugene Beard, had made impressive financial gains after their first decade in control of the company. Revenues had more than tripled between the early 1980s and early 1990s, rising to $1.9 billion in 1992. Interpublic's stock demonstrated a more animated leap, increasing 15-fold between 1982 and 1992. Much of this growth had been achieved during the 1980s, when the advertising industry grew robustly. It was only when the advertising industry's years of vigorous growth came screeching to a halt in 1990, that the full measure of Geier's influence could be gauged.
During the recessive early 1990s, other international advertising conglomerates suffered miserably. Companies such as WPP Group and Saatchi & Saatchi watched their business evaporate and their earnings erode, as an era of corporate cutbacks and wholesale downsizing began. In contrast to the decade before, the early 1990s were years in which advertising agencies were forced to sell not only advertising ideas to corporate America, but the value of advertising itself. For many of Interpublic's ilk, the transition was not a smooth one: business was down on all fronts and advertising agencies floundered. Interpublic, however, distinguished itself from the industry pack and continued to radiate remarkable financial health.
The company's success during the transition in the 1990s was attributed to Geier, whose penchant for cost control maintained the momentum built up during the 1980s. Further, Geier was lauded for his practice of ceding creative authority to Interpublic's four agencies, which by this point served 4,000 clients in 91 countries. As the recession intensified, Interpublic continued to shine. In late 1993 the company registered one of the most prolific growth spurts in the history of the media industry, landing $1 billion worth of business during a three-day period. On a Monday in early December 1993, McCann-Erickson was awarded a $200 million Johnson & Johnson account for national television advertising. Two days later, General Motors handed McCann-Erickson its $300 million national print advertising account and Lintas delivered its $500 million national television advertising account, giving all those at Interpublic, and particularly those at McCann-Erickson, ample cause for celebration.
In early 1994 Geier exercised his role as chief strategist for all Interpublic agencies by advising the company's subsidiaries to develop interactive media capabilities. Geier was intent on securing a leading position in a burgeoning area of advertising, and McCann-Erickson was the first to respond by forming a business unit called McCann Interactive. Other Interpublic agencies followed suit, until all of Interpublic's interactive operations were organized into one entity in early 1995, an Interpublic subsidiary christened Allied Communications Group.
On the heels of this development, Interpublic suffered its first meaningful setback during the first half of the decade. In mid-1995 McCann-Erickson lost Coca-Cola's advertising contract, an account it had held for 40 years. Although McCann-Erickson retained Coke's media account, the news was devastating. Following the worrisome news, Interpublic proved to be more resilient than some expected. Financially, the company did not miss a beat, registering strong gains in revenues in 1995 and 1996. Interpublic eclipsed the $2 billion in commissions and fees in 1995 and collected more than $2.5 billion in revenues the following year.
Interpublic's continued good fortune was primarily attributable to Geier's worldwide expansion, in particular several key acquisitions over the next three years, including the purchase of DraftDirect Worldwide, the largest independent direct marketing firm in the world; the United Kingdom's International Public Relations, plc; the Atlanta, Georgia-based Austin Kelly Advertising; NFO Worldwide, Inc. of Greenwich, Connecticut; and one of the country's leading Hispanic agencies, Casanova Pendrill Publicidad. By the end of the decade, Geier had masterminded the acquisition of some 400 companies of varying size. Interpublic finished 1999 with 28,000 employees in 120 countries and gross income of $4.5 billion. There was, however, trouble on the horizon.
Interpublic started the new century as it had ended the previous one: with more acquisitions. In January the firm acquired a stake in Suissa Miller, a Los Angeles-based advertising agency, as Geier unveiled plans for his retirement. John Dooner, chief executive of McCann-Erickson Worldgroup, had been handpicked by Geier as Interpublic's new president and chief operating officer and took up the posts in March 2000. As the end of the year neared, Geier went out with a bang, managing to convince Donny Deutsch to join the Interpublic fold and announcing year-end worldwide revenues of $5.6 billion with earnings topping $349 million.
In January 2001 Dooner took over as CEO as Geier left the firm after 20 years at the helm. Interpublic made big news soon after by announcing it would acquire Chicago-based True North Communications and become the world's largest advertising holding company. The acquisition of True North ushered in a new era at Interpublic; it was not, however, one of continued prosperity or worldwide domination of the advertising industry. In the third quarter Interpublic posted its largest loss ever ($477 million) amidst falling revenues and steep restructuring costs; the company's stock, however, surged 20 percent to over $29 a share. The losses were a harbinger of what was to come, as Interpublic ended the year with worldwide revenues of $6.7 billion, down over 6 percent from the previous year's $7.2 billion.
In early 2002 Dooner was replaced as chief executive by David Bell, who had come to Interpublic from True North. Dooner remained chairman but relinquished his Interpublic CEO duties to return to his former stomping grounds, McCann. At McCann, however, a series of billing irregularities had been discovered. As trouble brewed at McCann over years of financial mismanagement, it led to scrutiny of Interpublic as a whole as well as its many independent units. Once the Securities and Exchange Commission (SEC) got wind of the financial irregularities, Interpublic went from worldwide advertising leader to fighting for its very survival.
In 2003 Interpublic was given an ultimatum: provide restated financials by November 2005 or face delisting from the New York Stock Exchange. Bell and Dooner vowed to have the numbers ready and worked hard at not only keeping Interpublic's clients but redeeming its reputation throughout the next year. As 2004 ended with rumors flying about criminal misdeeds and widespread accounting imbalances, Michael Roth, formerly of MONY and a member of Interpublic's board since 2002, was brought in as the company's chairman. In January 2005 Roth added the duties of chief executive as the firm faced the final months before the SEC's deadline.
When Roth presented Interpublic's restated financials, the documents revealed years of unreconciled accounts, liberal "media credits" (i.e., kickbacks), and a string of losses, including a staggering loss of $558 million for the first three quarters of 2004. Roth issued a public mea culpa and Interpublic's annual meeting was held in November (delayed from May). At the meeting, former CEOs and Chairmen David Bell and John Dooner were kicked off the board amid accusations of mismanagement. In addition, shareholders discussed but did not force the issue of breaking up the company and selling it to rivals.
Interpublic's stock hit a low of $10 per share in late 2005, but Roth took this in stride, reminding anyone who would listen that Interpublic's troubles were behind it and a number of its agencies were actually gaining ground and making a profit. Though Interpublic's overall financial performance remained weak, Roth firmly believed the venerable behemoth was poised for a turnaround.
Principal Subsidiaries
Campbell-Ewald; Campbell Mithun; Carmichael Lynch; Casanova Pendrill; Dailey & Associates; Deutsch; DeVries Public Relations; Draft Healthcare; Draft Worldwide; DraftDigital; Foote Cone & Belding; FutureBrand; GolinHarris International; Gotham Inc.; Hill Holliday; Hill Holliday Hispanic; Initiative Media; IW Group; Jack Morton Worldwide; Jay Advertising; Kaleidoscope; Lowe Worldwide; MAGNA Global; MRM Worldwide; McCann Erickson Worldwide; McCann WorldGroup; Media Partnership Corporation; MWW Group; Newspaper Services of America; Octagon; R/GA; Siboney USA; The Sloan Group; Springer & Jacoby; Universal Worldwide McCann; Walhstrom Group; Weber Shandwick; Women2Women Communications; Zipatoni.
Principal Competitors
Omnicom Group Inc.; Publicis Groupe S.A., WPP Group, Plc.
Further Reading
Bulik, Beth Snyder, "Dooner, Geier to Reinvent Interpublic," Advertising Age, March 27, 2000, p. 69.
Creamer, Matthew, "IPG's New CEO Must Make the Tough Calls," Advertising Age, January 24, 2004, p. 3.
Davis, Wendy, "Deutsch Now Part of Interpublic Empire," Advertising Age, December 4, 2000, p. 1.
Dougherty, Philip, "Backer and Spielvogel Set the Standard for Growth," New York Times, June 1, 1980.
Feuer, Jack, "Omnicom & IPG: A Continental Divide," ADWEEK, May 26, 2003, p. 18.
Fox, Stephen, The Mirror Makers, New York: Morrow, 1984.
Harrington, John, "Interpublic Looks North for True Growth," Crain's New York Business, March 26, 2001, p. 46.
Hughes, Laura K., "Interpublic Still Faces Hurdles in True North Deal," Advertising Age, March 26, 2001, p. 3.
Khermouch, Gerry, "IPG: Synergy--or Sinkhole?," Business Week, April 21, 2003, p. 76.
"Late News: Bell, Dooner to Exit IPG Board," ADWEEK Eastern Edition, October 24, 2005, p. 1.
MacArthur, Kate, "The Dooner Party: Interpublic's CEO Inherited a Global Giant," Advertising Age, July 30, 2001, p. 1.
Machan, Dyan, "I Will Not Be Denied: Interpublic Group Companies CEO John Dooner, Jr.," Forbes, October 16, 2000, p. 166.
Marshall, Caroline, "Quiet American Stays Mum As Coke Loosens Ties," Campaign, July 14, 1995, p. 10.
McMains, Andrew, "Critics Get Louder on IPG Board," ADWEEK Midwest Edition, January 27, 2003, p. 3.
------, "Interpublic Posts Quarterly Loss of $327 Million," ADWEEK Online, November 11, 2003.
------, "IPG Stock Sinks to 52-Week Low," ADWEEK Online, October 18, 2005.
------, "IPG to Report on Restructuring Plan," ADWEEK, August 11, 2003, p. 7.
Morgenson, Gretchen, "Sibling Rivalry," Forbes, February 15, 1993, p. 119.
O'Leary, Noreen, "Above It All? Can a Confident Michael Roth Save the Faltering IPG?," ADWEEK, October 3, 2005, p. 34.
------, "Damage Control at IPG," ADWEEK, June 28, 2004, p. 8.
------, and Andrew McMains, "Criminal Confessions Rock IPG Shops," ADWEEK Online, September 19, 2005.
Snyder, Beth, "Mating Mania. ... With the Landscape Picked Clean of Independents, the Giants Circle Each Other," Advertising Age, April 5, 1999, p. 3.
Steinberg, Brian, "Interpublic's Troubles Mount As Revenues Fall at Key Units," Wall Street Journal Eastern Edition, November 10, 2005, p. B5.
Wall, Kathleen, "At Interpublic, Family Feud Over Motorola," ADWEEK Eastern Edition, November 13, 1995, p. 5.
Willott, Bob, "IPG Braces for Next Round of Troubles," Campaign, October 7, 2005, p. 6.
------, "The Grapes of Roth: How It All Went Sour at IPG," Campaign, April 1, 2005, p. 19.
— Updates: Jeffrey L. Covell; Nelson Rhodes
