Crises in the digital era leave city PRs in a spin
The M&A work has dried up and clients are facing new online challenges
Wednesday 09 January 2013
The spinmasters are "taking over the world", according to the cover story in the latest issue of Management Today, which notes that the Prime Minister, Pearson's new chief executive John Fallon and other bosses are former PR men.
Smart public relations matter more than ever in the Twitter age, when crises can blow up and reputations can get trashed in double-quick time. BP, Goldman Sachs, News International and Starbucks are among the companies which have been pilloried on social media in recent times.
But financial PR agencies – the highly paid external spinners who advise big-name City clients – are not finding it as easy to cash in as some might assume.
The digital world requires new skills; there is pressure from clients to keep a lid on costs; and, crucially, lucrative advisory work on mergers and acquisitions has slowed to a trickle compared with the go-go years before 2007.
Getting a clear picture is difficult because most agencies are subsidiaries of big holding groups or are privately held.
Brunswick, the City's biggest PR agency, founded by Alan Parker, publishes few details as it is based in the US state of Delaware for tax purposes.
However, there are clues elsewhere. Tulchan has just reported a big drop in profit. Its founder Andrew Grant saw his pay plunge to £700,000 from £1.6m a year before. Average profit among the 10 partners, on top of their salaries, slumped to £80,000 a head from £226,000.
A change in accounting dates slightly skewed Tulchan's results. Revenues in the 11 months to March 2012 were £8.3m against £10.1m for the prior 13 months. "The M&A fees are well down," Mr Grant admitted, but regular retainer fees from clients such as Marks & Spencer and Lloyds Banking Group grew slightly.
Tulchan is far from alone. Citigate Dewe Rogerson, a subsidiary of the marketing group Huntsworth, reported a 17 per cent slide in its last quarter, which it blamed on "the continuing lack of activity in the UK financial markets".
Accounts for Finsbury also paint a subdued picture. Sales were flat at £25.1m and pre-tax profits fell 13 per cent to £6.2m. Its founder, Roland Rudd, still earned £2.7m from clients such as BSkyB, Sainsbury's and Starbucks.
Significantly, Finsbury, a subsidiary of WPP, has merged with its US sister company RLM with a view to becoming more international, after seeing several years of little growth in London.
Others are also thinking global. "We need to internationalise our business," said Mr Grant, who has spent £550,000 on launching a Singapore office.
But expansion isn't easy. Matthew Freud's Freud Communications struggled to crack America. He is still doing well, perhaps because his agency is focused on consumer and corporate rather than City PR. Annual revenues were up 8 per cent at £37.6m and have increased by more than half since 2008.
So there remains plenty of opportunity in Britain, but questions persist about whether the business model for some established financial PR agencies needs to change.
Tim Burt, a former Brunswick partner who co-founded StockWell Group in 2010, said part of the reason for launching his agency was that he could see clients' needs had changed in the wake of scandals such as BP's Gulf of Mexico oil spill.
"We didn't start out on the basis that you build a clutch of retainers and then build on very handsome returns from M&A," Mr Burt said, referring to the classic model for some of the older PR agencies.
Instead he said clients now expected agencies to be more strategic, nimble and digitally prepared. "Companies have realised their reputation has become their most valuable intangible asset, yet very few of them have communications strategies ready for a digital world in which stories can jump the tracks – whether it be an industrial accident or a rogue trader – to be an existential threat to the whole company."
There is another reason agencies need to offer more value in this climate. Companies are increasingly investing in in-house PR because reputation management is too important to the brand to out-source. A key trend since the downturn has been for some of the best talent in the agency world to move "client-side".
What is certain, according to Mr Grant, is that there is a greater need to communicate with capital markets. "The quid pro quo for capital is disclosure and transparency," he said.
The need for transparency is something that some PR firms must learn about, as Bell Pottinger knows to its cost. Critics blasted its co-founder Lord Bell for working with foreign regimes such as Egypt and Bahrain in the wake of the Arab Spring, and The Independent exposed how staff had boasted about their lobbying access in Whitehall. Some clients got the jitters and its parent company, Chime Communications, sold it in a management buy-out.
If even a PR agency can have a PR problem, it shows that every company has a reputation that needs protecting in the digital age. But it also underlines that the old ways don't always work so well now.
Top City PR founded his agency in 1987 and rode the boom, building a global business in 21 cities. Cameron and Brown came to his wedding.
Ex-Financial Times journalist founded Finsbury in 1994 and made a fortune when he sold to WPP in 2001. Firm recently merged with US-based RLM.
Corporate and consumer, rather than City PR, he founded the agency in his early 20s in 1983. Married to Rupert Murdoch's daughter Elisabeth.
Former Brunswick partner who set up on his own in 2000. Has 14 FTSE 100 clients, third behind Brunswick and RLM Finsbury.
Bell Pottinger Private
Veteran former Thatcher adviser who built Chime group, but did management buyout of PR agency last year after lobbying row.
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