Leaving aside whether or not Publicis is in discussions with Matthew Freud about selling back his public relations empire, the speculation brings into focus again the thorny issue of how acquisitive companies can preserve, or even enhance, the heart and soul of the businesses they acquire, not to mention the commitment of key personnel.
It’s a statement of the blindingly obvious that people are the only significant asset in the marcoms sector and it seems at best naive for acquiring companies to believe they can continue to build the value of the companies they acquire without preserving the cultural characteristics and motivation of the current and future leaders of those businesses.
Many acquirers will claim that they achieve this by offering the acquired company’s management the opportunity to acquire shares in the parent company that are geared to the performance of the acquired subsidiary.
But in reality such incentive schemes may have the opposite effect. They replace loyalty to the entity by loyalty to the parent. They drive financial performance of the subsidiary without regard to the longer-term interests of that subsidiary. In essence, the cultural cohesion of the agency is undermined.
Cultural cohesion is not a fluffy concept without implications for financial performance. Eminent commentators have already acknowledged this (see )
Incentive schemes, earnout arrangements and the like may act as a deterrent to early departure, but they reinforce the expectation that the acquiring company expects many of the participants to want to leave. The incentives create handcuffs when magnets would be far more beneficial.
So why is there a reported rift between Freud and Publicis? Hasn’t Freud himself retained a large minority shareholding? The answer is "yes", but who else among the leadership of Freud still feels a partner in the business? No one. Freud is the founder and the only management shareholder. So Publicis is the owner and Freud is the culture. That is not a healthy formula for longer-term success. A better example – so far - would be BBH, where a much wider management team shares ownership with Publicis.
It is perfectly possible to preserve the cultural cohesion that every people business needs. It is perfectly possible for senior personnel to continue to be partners with, rather than just employees of, a remote conglomerate.
The most commonly cited reason why this does not happen is that the acquiring company is loathe to dilute any of the income stream that would otherwise accrue to its shareholders. But in reality that is shortsighted greed. It overlooks the fact that a well-structured, well motivated people business will generate bigger profits than one that is less well structured – profits that would be wisely shared with their creators.
Bob Willott is editor of Marketing Services Financial Intelligence at