ITL #186 Fears for the future: financial agencies at a crossroads3 years ago
The squeeze is on for London’s Financial and Corporate PR agencies. Is it time for some profound changes? By Andrew Grant.
I am so lucky to have this job. I have lost track of the times that I have sat in a meeting with a client and had that thought. It is a true privilege to be taken into the confidence of a client, to be included in their debates and planning. And to advise leaders of businesses – big and small – on what their next steps might be and how these might be both presented and interpreted.
It is a thought that I hold onto when I look around the room and compare our lives with those of the other advisors who we sit alongside. Most of us in this line of work exist in "nice" firms with collegiate cultures – a mile away from the cut-throat culture of the integrated investment bank.
One banking friend explained that in his life "a high degree of paranoia really helps – and that is just to deal with your colleagues". What kept him awake at night? The fear of waking up and reading that one of his clients, or target clients, had transacted "away". And that his firm was not on the ticket. Then the ferocious inquests from New York would begin. They may be the senior advisors in the room and reap the huge fees but it is a very tough life – truly Darwinian in nature.
At almost all our client meetings we are able to include one or two of our bright young things who are learning their craft. Clients are wonderful about allowing and encouraging this and I think the amount of direct client access at an early stage of a career is almost unrivalled when compared to other advisors. It helps so much with development and building the body of experience they need to become effective advisors.
It also means that I don't have to scramble about with the press list. Joy!
The nature of our work also enables us to be there, in the room with the client, as they deliver the message on conference calls, press briefings, and in presentations. We witness the cut and thrust of the Q&A as the audience decides if the case we have helped prepare deserves their support or criticism.
We watch the performance and, in a small way, are a part of it and responsible for it. It is like being the trainer of a boxer. You can help with the preparation but once the bell goes it is just them in the ring and you have to hope that you have helped prepare them well enough.
Finally, we get to eat for a living. And eat well. For some it is the inner circle in smart restaurants like the Wolseley, for others the latest new opening. The expense account, whilst not up to Mad Men standards, is a real and vital business tool for many in our industry. The Delauney would be half empty if it was not for the doyens of the PR industry hosting their clients and contacts.
Time to worry
For a long time, this industry has had it all. Maybe not to excess but it has led a pretty charmed life and almost all of us who work in it have benefitted. And superficially, nothing has changed. All of the above appears to remain true. So why is it that I have deep sense of foreboding about the future for our industry?
I worry that it has been a long time in the UK at least since a firm in our industry went bust or closed its doors. It is not that there is no competition. There are huge numbers of competing firms yet the natural process of closure and new openings does not seem to apply to our industry. That is unusual and unsustainable.
What I think is happening is that while the firms remain, their major clients are progressively leaving for a smaller group of agencies: our own magic circle. There are now only four firms that act for more than 10 FTSE 100 companies. I am pleased that Tulchan is one of them along with Brunswick, Finsbury and FTI. Competition within that group for retained mandates is intense and it is hard to see what might change within the firms outside the ‘circle’ to allow them to enter it.
Financial capital might be a game changer – Teneo is backed by the deep pockets of private equity – but the barriers to entry in this village are more subtle and higher than might appear at first glance.
Sluggish fee growth
The second cause for concern are fees for regular retained financial communications work. There are two factors at work here. Firstly, due to the high number of competing firms, retained fees have not grown in line with even inflation. They are either at or below the same level they were a decade ago. We should celebrate an effective and competitive market. But the alternate message is that it shows clients have not changed their view of the value of the services we offer in a long time either.
I think there may be two reasons for that. Firstly, the services offered by the industry have not changed materially – and perhaps nor has the value add. I know that is a sweeping statement and does not apply to all work across all firms, but I think there is a truth in it.
Many firms have moved to add corporate and public affairs capabilities to their offer to support their fee levels. This makes commercial sense and if done well can be a compelling offer. However, while it may increase the top line revenue picture, I am not convinced that it is increasing the hourly value that the industry is charging.
Secondly, the capability within clients has been transformed. They are better resourced with better people and greater experience than at any time. It is not the case in every company but as a trend it is undeniable. Could it be that our greatest competition for a seat at the table – and talent – is actually from our clients?
And if these two trends are real, do they combine to pose the question: what is the future for the shape and scale of agencies in this industry?
The best of us
There is no doubt that at critical times this industry shows itself at its best. Whether managing major M&A transactions or significant crises, the experience and expertise that resides in the industry is invaluable and irreplaceable.
However, there are only so many crises and M&A transactions to go around. There is an increasing opportunity for senior figures to be trusted advisors to Boards and Executives on a wide range of issues. That is a hugely interesting and valuable role. But again this is a role that is restricted to only a few practitioners.
During my time in the industry, we have gone from being an industry that based its value on financial media relations. That world has been turned on its head through the digital revolution; the growth of Investor Relations; the increased importance of Corporate Reputation and the substitution of the stakeholder for the shareholder. In this environment the extraordinary is very highly valued, the routine work is appreciated but only modestly valued.
There has been a revolution but I have to ask if the industry has come up with a value proposition that reflects this new world. Can the shape and size of this industry really be sustained?
Andrew Grant is founder of Tulchan Communications LLP.mail the author
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