Starcom CEO's Personal Stake In IPO Shows The Ad Industry Doesn't Understand Conflicts Of Interest

Laura DesmondLaura Desmond

It’s one of the central ironies of the ad business: CEOs whose job it is to pay careful attention to the appearance of things, and to the propriety of their corporate images, sometimes behave blindly when it comes to their own potential conflicts of interest.

Starcom Mediavest CEO Laura Desmond just made headlines again for a personally lucrative deal she cut with Tremor Video, the video ad serving company that recently filed for an IPO. She sits on the board of Tremor and has been given nearly $300,000 in options in the company.

Her agency buys a lot of media through Tremor. Her agency is supposed to be buying video ads in a way that best helps her clients. But she has a personal stake in one of the companies her agency buys those ads with.

We’re not saying Desmond is steering business to Tremor.

But it is true to say that Desmond has a vested interest in the success of Tremor.

This does not look good. It may not be a conflict of interest. But it has the appearance of a conflict of interest.

And people in the adbiz ought to care about appearances.

Desmond is recused from all negotiations with Tremor, and as CEO she’s unlikely to be making nuts and bolts buying decisions anyway.  There is no indication that Desmond’s dual role at Tremor — as director and client — have distorted business at SMG. Ad Age notes that Desmond and Tremor have an SEC-enforced quiet period that prevents them from commenting.

A source close to Tremor tells us that he can’t understand what all the fuss is about:

The CEO of American Express is on the [board] of IBM. The CFO of PepsiCo is on the [board] of AOL.

Does anyone really think a CEO would put their life’s work and reputation out there so publicly as to accept a board seat to then act in any nefarious way?

I’m actually curious as to why people think this is an issue.

Well, it’s an issue because it looks bad. And CEOs should care about things that make them or their companies look bad.

This inability to understand how questionable a potential conflict might look to outsiders is very, very common in the ad business. MediaLink CEO Michael Kassan, who advises adtech companies and agencies, told Ad Age that he encourages such close dealing between the clients and vendors: “It would make everyone more comfortable if everyone was aligned,” he said.

Here are a recent examples of other ad world conflicts:

  • General Motors once employed the marketing agency of its CFO’s wife. The company was paid $600,000.
  • Groupon CEO Eric Lefkofsky uses at least three companies as marketing, legal and logistics vendors to Groupon in which he has a stake that may be a conflict of interest, according to his own SEC disclosures.
  • Leo Burnett in Greece was bankrupted in 2012 after it engaged in a media-buying conflict with a TV broadcaster.
  • Salesforce’s Buddy Media was the preferred social media management vendor for WPP Group at the same time that WPP had a stake in Buddy.
  • Interpublic bought a stake in Facebook, giving the agency network an apparent interest in client money buying ads on Facebook.
  • Publicis once had such a close relationship with Google — the former supplied the latter with advertising clients while the latter gave the former the technology for its ad trading desk — that Techcrunch called the arrangement a set of “kickbacks.”

In each of these cases, no wrongdoing has ever been alleged (except for the Leo Burnett case, which is still being litigated). No one is suggesting that client money has been misused to ensure that agency investments come good.

But still. Appearances matter.

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