• by Thomas Bridge , Op-Ed Contributor, August 10, 2016

The Association of National Advertisers and the American Association of Advertising Agencies remain at loggerheads over the issue of how agencies might be padding their compensation with nontransparent business practices, including rebates and other incentives from media sellers—“kickbacks” that could be opaque to the agencies’ brand marketer clients.

Stuck in between are Chief Marketing Officers. They are responsible for proving return on investment from expenditures for things like ads in print and on television, plus in the ever-expanding and complex world of digital media.

By way of recap, in June 2016, the ANA released a provocative 62-page report explaining to brand marketers the many ways media agencies might be profiting from nontransparent practices, including undisclosed rebates or other incentives from media sellers.

The ANA documented (from anonymous sources) “pervasive receipt of nondisclosed rebates, not returned to advertisers, in the forms of cash, free media inventory and service agreements.”

Last month, the ANA followed up with a 35-page guide to media transparency that lays out “prescriptions, principles and processes” for advertisers. However, on July 29, the AAAA rejected the latest ANA guidance on rebates, pointing instead to its own guidelines—which the ANA had already rejected.

The two groups are still going back and forth over what comes next.

But the question remains: What can CMOs do to safeguard their advertising budgets while trying to maintain healthy working relationships with their agency partners?

First, they should read the most recent ANA report, particularly Section 5: Recommendations for Advertisers. There are three key pillars to its framework: advertisers need to establish “overarching” media agency management principles; advertisers should assert “primacy” over the client/agency relationship; and advertisers and agencies should agree to a uniform code of conduct.

Let’s take them one at a time.

The overarching media agency management principles would seem to be common sense to anyone in the business world. The ANA contends that agencies should always act in their clients’ best interests, disclose any conflicts of interest and agree to be audited to ensure transparency and compliance. Who could argue with that?

Well, the ANA would not have spent significant time and money documenting what it believes has been shady practices at agencies if it did not consider this to be a serious problem. So clearly, common sense is in the eye of the beholder, which means marketers can take nothing for granted.

After all, billions of dollars of their stakeholders’ money are at stake.

Pillar #2 advises advertisers to take control over their relationships with agencies. This makes perfect sense, because regardless of how creative their output is, at the end of the day agencies are suppliers (even though they distain the “S” word). In this section, the ANA provides its members what it terms an “optimal media agency contract” template.

It’s a useful tool for marketers to use as a starting point when negotiating with their agencies, particularly its call for any rebates and incentives to be transparent and disclosed to marketers. Tougher still will be this section’s stance that marketers have the right to audit agency activities all the way up to the holding company level.

This will be very tough to do, as evidenced by the extreme pushback that companies like WPP Group and Publicis Groupe have generated to the ANA’s findings.

It is within pillar 3# that the ANA recognizes that its members have major responsibilities when it comes to making sure that its agencies can be successful on their behalf. What some people fail to realize when they see a headline proclaiming that a major brand marketer has decided to replace its creative or media agency is that quite often, the dysfunction was on the marketer side of the partnership.

So the ANA reiterates the importance of marketers clearly articulating relevant business objectives, targets and performance indicators while “rewarding the media agency’s work fairly” and being flexible in renegotiating compensation beyond the original scope of work.

To be fair to agencies, one thing that has emerged as a result of the ANA critique of agency practices is that some advertisers haven’t understood the contracts they have signed. As a result, some of the allegedly shady practices the report uncovered might have been fully allowed under those contracts.

Particularly noteworthy is that according to the ANA, 53% of its members participating in a recent discussion on the transparency recommendations indicated that they were unaware of whether their contracts allowed their agencies to engage in “principal” transactions with media sellers—in other words, the agencies could buy media and then re-sell it to their clients with a markup.

Ferreting out media rebates is no simple task, especially for marketers that use multiple agencies from the same holding company on a global basis. But unless they try, marketers put themselves at a disadvantage when trying to measure the effectiveness of their ad spending.