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The Interpublic Group of Companies, Inc.

 


Address:
1271 Avenue of the Americas
New York, New York 10020
U.S.A.

Telephone: (212) 399-8000
Fax: (212) 399-8130


Statistics:
Public Company
Incorporated: 1961
Employees: 21,700
Gross Billings: $2.53 billion (1996)
Stock Exchanges: New York
SICs: 7311 Advertising Agencies; 8741 Management Services 6719 Holding Companies, Not Elsewhere Classified; 4841 Cable & Other Pay Television Services


Company Perspectives:


It is always useful to reflect on how our Company has succeeded in posting such strong and consistent gains over the past 20 years. Interpublic pioneered the concept of complementary but competing networks back in the '60s. Our mission is the same now as it was then: Our agencies concentrate on developing their unique positioning, philosophy and communication skills and then bring that fully to bear in working with their clients and growing their business, while we at the parent company develop overall strategy, provide management oversight and assume any and all functions that economically can best be performed centrally.


Company History:

The second-largest advertising company in the world, The Interpublic Group of Companies, Inc. operates as a holding company for a group of advertising agencies and media firms that include McCann-Erickson Worldwide, Ammirati Puris Lintas, the Lowe Group, and Western International Media. Through its subsidiaries, Interpublic serves more than 4,000 clients in more than 110 countries, providing advertising programs, direct marketing, market research, and other marketing services. Interpublic's advertising agencies compete against one another for clients, yet all benefit from the resources and connections of their parent company, Interpublic.

Origins

In 1956 Marion Harper, then 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 Company 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 that if Marshalk and McCann were separately run, 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.

That was only the beginning. In January 1961 Interpublic was established as a holding company, and McCann-Erickson became 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 1967 Interpublic was billing at over $700 million, yet still insolvent. 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. Harper was therefore not able to personally direct his "dream-agency" to fruition. Doing so was left to others.

Although Interpublic was not officially incorporated until 1961, its history dates back 50 years earlier. 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.

When Marion Harper began working at the McCann-Erickson agency in the 1930s, he was employed neither as a copywriter nor as an account executive; he was 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. In the short span of nine years Harper rose through the ranks of the agency to become president of the company.

During the period of Harper's mercurial ascendancy, McCann-Erickson was experiencing the most lucrative decade of its history. In 1954 the agency surpassed $100 million in billings for the first time. Then, between 1955 and 1956, the agency added over $45 million worth of new business to its balance sheet. Among the new clients were the Westinghouse appliance division, Chesterfield tobacco, and Mennen personal hygiene products. However, these accounts were overshadowed by the fourth new customer gained by McCann at this time, namely, Coca-Cola. Though Coke was a large $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." Today it remains the most coveted and guarded member of McCann-Erickson's client roster.

Also at this time McCann-Erickson 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 the Orient. By 1960 McCann-Erickson had billings of $100 million outside the U.S., with a substantial portion coming from the Asia-Pacific area.

Interpublic Formed in 1961

When Marion Harper became president of McCann-Erickson the agency was considered a research-oriented firm that took a methodical approach to its advertising. It was the "organization man's" agency. Like Stanley Resor at the rival J. Walter Thompson company, Harper was a firm believer in the use of social science techniques in advertising. He was always looking for a way to accurately predict consumer response and had a bureaucrat's love for statistics. In fact, he had such reverence for facts and figures that he would occasionally sacrifice loyalty for the prospect of future earnings. In one instance he voluntarily resigned the large and longstanding Chrysler account to take on the smaller but potentially more lucrative business of General Motor's Buick division. A tireless worker, Harper would often labor at his desk for 48 hours at a stretch. He once confided in a friend, "I have been captured by what I chased." In 1960 he took his first vacation since being hired by McCann. A year later Interpublic was established, and Harper was forced to work more feverishly than ever.

Interpublic was envisioned by Harper as a family of rival sons. The various affiliates and subsidiaries would compete against each other for accounts and would operate separately. The one thing binding them together would be their mutual membership in the holding company and their ties to the parent agency's financial and informational resources. It was intended to be a "horizontal" system: the different Interpublic divisions could produce campaigns for competing products. The structure, though an ingenious way of getting around the conflict of interest problem that can make agency growth difficult, did not always work. For instance, Nestle's chocolate, a longtime McCann client, left Interpublic in 1963 after the purchase of the Erwin Wasey firm brought Carnation onto the Interpublic roster. In addition, the cost of buying so many small and medium-sized ad shops, not to mention the occasional acquisition of a large agency, was prohibitive. The overhead involved in keeping the entire business operational was staggering. The rapid expansion of Interpublic required the one thing that Marion Harper's intellect could not provide, namely, adequate management. In 1966 Harper's sprawling conglomerate included 24 divisions, 8,300 employees, a fleet of five airplanes, and billings of $711 million. Yet it rarely broke even. The following year Interpublic and Harper reached their collective nadir. The company 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.

With the danger of receivership imminent, Interpublic needed to take drastic measures to save itself. The man responsible for instituting the changes was Robert Healy. Healy had been an executive at the firm for a number of years but went into voluntary exile in Switzerland over managerial differences with Marion Harper. In the autumn of 1967 the board brought Healy back from Geneva to reverse the mismanaged expansion that was hurting Interpublic. After Marion Harper was ousted as the chief executive officer and chairman, Healy was put in charge. Given a short time allowance by Interpublic's creditors, Healy 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. Then, with the help of an additional $10 million in loans, the company went public in 1971.

When Marion Harper walked out of the Interpublic office he left behind the prototype of the "mega-agencies" which emerged in the late 1970s and 1980s. He also left behind a personal mystique. After being forced out of Interpublic he opened up his own small "boutique" agency, but this venture only lasted a year or two. He then kept himself out of public view for over a decade. In 1980 he was discovered living at his mother's house in Oklahoma City--penniless.

By selling public stock and reducing its comparatively high payroll costs (59 percent of gross income), Interpublic stabilized its finances. It began operating again at a profit. In 1973 Paul Foley succeeded Robert Healy as chief executive officer and chairman and ushered 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.

New Management for 1980s, 1990s

Throughout Interpublic's history its largest and most important clients have been Exxon and Coca-Cola. Then in the mid-1970s Lever Brothers came to Interpublic with SSC&B and Chevrolet with Campbell-Ewald. By 1979 Miller Beer would also come to rank near the top four. Miller came to McCann-Erickson as a struggling $20 million client in 1970. Bill Backer (who had coined the phrases "Things Go Better with Coke" and "It's the Real Thing") and Carl Spielvogel went to work on Miller's market share. They came up with the "Miller Time" slogan and were responsible for the Miller Lite commercials which feature famous athletes. Between 1970 and 1979 Miller Beer prospered. Spielvogel thought that his success, not only with Miller but also with Coca-Cola and various other accounts, would gain him the position of chairman at Interpublic when Foley retired. The job went to Spielvogel's rival Philip Geier. Both Backer and Spielvogel resigned and formed their own agency, taking the Miller business away from McCann-Erickson in the process. Miller was no longer a $20 million account; it was now worth over $100 million. News of the defection dropped Interpublic's stock price five points.

Coca-Cola, feeling pressure from Pepsi and upset with the departure of Backer and Spielvogel, issued an ultimatum to McCann-Erickson: "90 days to come up with a new campaign or we take our $750 million account somewhere else." Fortunately, the account was saved by the phrase "Have a Coke and a smile," and a commercial which featured Pittsburgh Steeler football player "Mean" Joe Green giving a young fan the uniform off his back.

After this initial scare Philip Geier became more comfortable as chief executive officer and chairman of Interpublic, but not too comfortable. In the 1980s Interpublic suffered a decline of business in Europe. The offices in Great Britain and France lost a variety of important clients (e.g., Bass Beer and Gillette), and Campbell-Ewald's European division operated 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 Interpublic ranked as the number one American-based agency.

By the late 1980s, 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); Minute Maid, Sprite, A-1 Steak Sauce, and Grey Poupon mustard (Marshalk).

1990s Growth

Although the appointment of Geier to Interpublic's top post sparked some resentment, at least in Spielvogel's case, few were dismayed by the results Geier achieved, particularly the company's shareholders, who watched their investments swell under Geier's tenure. As the company entered the 1990s, Geier and his chief financial officer, Eugene Beard, could point to impressive financial gains after their first decade of control over the fortunes of Interpublic. Revenues 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 was achieved during the 1980s, when the advertising industry was growing robustly, but when the advertising industry's years of vigorous growth came screeching to a halt in 1990, the full measure of Geier's influence could be gauged.

When the advertising industry fell on hard times along with other sectors of the nation's economy during the recessive early 1990s, other international agglomerations of advertising agencies 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 1980s, 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 from the fertile 1980s to the sterile 1990s was not a smooth segue. Business was down on all fronts, and inured to the prosperous years of the 1980s, advertising agencies floundered financially. Interpublic, however, distinguished itself from the industry pack and continued to radiate remarkable financial health during the early 1990s.

The company's success during the transition from the 1980s to the 1990s was attributed to Geier, whose penchant for assiduous 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. "It's tricky in any business to balance the need for creative independence in a far-flung enterprise with the need for accountability and controls," noted one industry observer. "Interpublic shows that it can be done even in a particularly volatile business."

As the recession intensified during the early 1990s, Interpublic continued to shine. In late 1993, the company registered one of the most prolific growth spurts in the history of the media business, 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 activities 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 Coca-Cola's media account, the news was devastating, although not unexpected. In late 1992, Coca-Cola had transferred the work on its main brand to Creative Artists Agency, which marked the beginning of a painful, two-year period for McCann-Erickson executives as they awaited further word from Coca-Cola. The 1995 decision by Coca-Cola was expected to damage Interpublic's reputation as much as its financial status, but Geier was not about to let Coca-Cola's departure from Interpublic's portfolio derail his strategy of global expansion.

Following the worrisome news in 1995, 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. These increases were primarily attributable to the continued worldwide expansion of the company's business through strategic acquisitions and investments, the main thrust of Geier's strategy. No acquisition was larger during the mid-1990s than the May 1996 purchase of DraftDirect Worldwide, the largest independent direct marketing firm in the world. As Geier plotted the future course of the Interpublic family of agencies, further acquisitions were expected, acquisitions that would enable Geier to create the best advertising and communications company in the world. With this lofty goal underpinning Interpublic's strategy for the future, the company headed into the late 1990s intent on developing the fullest possible range of communications capabilities.

Principal Subsidiaries: McCann-Erickson Worldwide; Ammirati Puris Lintas; Campbell-Ewald; The Lowe Group; DraftDirect Worldwide; Western International Media; Allied Communications Group.





Further Reading:


Dougherty, Philip, "Backer and Spielvogel Set the Standard for Growth," New York Times, June 1, 1980.
Fox, Stephen, The Mirror Makers, New York: Morrow, 1984.
"Interpublic Group Reports Results for Second Quarter 1997," PR Newswire, July 24, 1997, p. 72.
Marshall, Caroline, "Quiet American Stays Mum As Coke Loosens Ties," Campaign, July 14, 1995, p. 10.
Morgenson, Gretchen, "Sibling Rivalry," Forbes, February 15, 1993, p. 119.
Wall, Kathleen, "At Interpublic, Family Feud Over Motorola," ADWEEK Eastern Edition, November 13, 1995, p. 5.

Source: International Directory of Company Histories, Vol. 22. St. James Press, 1998.




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