This article by Gideon Spanier appeared in The London Evening Standard on Monday 15 March, 2010
Who does a CEO call first in crisis? The PR men
The recession has been brutal for most of the marketing industry but few sectors have performed better than public relations.
Last week Tim Bell, chairman of PR and advertising group Chime Communications, unveiled an impressive 15% jump in annual profits at his PR division which includes the firms Bell Pottinger and Good Relations. Lord Bell says Chime is capitalising on a long-term trend — the growing importance of PR for both corporations and high-profile individuals.
A decade ago, the first person a CEO might call when facing a major decision or crisis was his lawyer or financial adviser. Now it’s a top PR.
“The world of communications has changed,” says Bell, a founder of Saatchi & Saatchi and Margaret Thatcher‘s PR guru. “Now communications companies are invited to the top table at the first meeting. Look at the Greek Government [during its current economic crisis]. The first thing they did was tender for a PR company.” He adds dryly: “You could argue they should have started by doing something with the economy rather than find a PR agency.”
Top advisers such as Brunswick‘s Alan Parker, Finsbury’s Roland Rudd, and Matthew Freud of Freud Communications are hardly known outside the City, Whitehall and the media. Indeed they strive to stay in the shadows. But they can earn as much as a FTSE chief executive. Latest accounts show Rudd earned £2.9 million.
These external PRs do more than handle publicity and manage the financial calendar, with crisis management thrown in as required. They have top-level contacts that the client’s in-house PR can rarely hope to match. And increasingly, they are looking beyond PR — to offer strategic direction and political advice in the mould of a management consultancy such as McKinsey.
“PR has certainly moved up the food chain in the last five years,” says Danny Rogers, editor of PR Week. “Reputation is your biggest asset in the modern world.” The internet and 24-hour news have made it more important for a CEO to “know who the custodian of their reputation is”, he adds. “Media and public scrutiny of corporations, brands and individuals has increased. Your reputation can be destroyed so quickly now because it is so global.”
The dramatic safety recall of Toyota cars and the allegations surrounding England footballer John Terry‘s love life are two recent examples of how fast reputations can fall — for a business or an individual.
Many PR firms are privately owned and don’t disclose much financial detail but stock market-listed Chime’s past results give an indication of how demand from clients has grown. Between 2004 and 2009, profits from PR rose in successive years by 24%, 24%, 9%, 30% and 15%. Turnover almost doubled to £67 million — albeit with some help from acquisitions.
Historically, most of Chime’s revenues came from the UK but international clients are becoming more important. Bigger players have also seen growth in global PR. WPP chief executive Sir Martin Sorrell, who controls a string of PR agencies including Hill & Knowlton, Ogilvy, Burson-Marsteller and Finsbury, told the recent FT Digital Media conference that when his team conducted an internal review of the past five years, it found that the PR division was among the best performers and “has shown consistent growth” with annual turnover of £796 million — although profits did slip in 2009.
Sorrell argues that investors should rate PR more highly as a revenue source, particularly as he believes it will have a growing role on social networking websites where “the invasion of that [space] by commercial messages” such as brand advertising “is not necessarily a good thing”.
No PR firm has been immune to the recession, of course, as clients cut budgets. In the City, a dearth of takeover deals has meant lower fees and redundancies. But Rogers, who is about to publish PR Week’s annual survey that tracks spend across the industry, believes that revenues were roughly flat last year. If that proves to be the case, it would be a decent performance considering advertising fell 12%.
Sorrell has suggested that part of the reason that PR has thrived is because it is relatively cheap for clients compared to, say, buying an ad campaign.
A PR firm’s basic retainer looks relatively modest — typically between £5000 and £25,000 a month, depending on the amount of work, with major clients paying £50,000 or more. Crisis management costs extra.
City PRs have tried to follow the same model as bankers and brokers — by offering lower retainers but then charging higher rates and “success fees” during a takeover or fundraising. But despite their growing influence, they do not charge the same as bankers, who might earn 0.5% of a mega-deal.
“One of the big challenges for a lot of PR people is that they still struggle to charge for they value they bring,” argues Rogers.
Surveying the PR industry, it’s notable how at many firms power remains in the hands of the founders, even if they have sold out to bigger conglomerates.
Some insiders complain that it is difficult for lower-ranking staff to join the “partnership” — the handful at the top who share the bulk of the profits.
“We are on the brink of a wave of start-ups,” predicts Rogers. “Good talent is getting ready to break away.” New agencies are likely to focus heavily on digital, handling internet search engines and social networking, as well as PR.
Whatever happens, reputation matters. So we can be sure there will be plenty of work for the PR industry.