Interpublic Group Inc.

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Interpublic Group Inc.

1271 Avenue of the Americas
New York, New York 10020
U.S.A.
(212) 399-8000

Public Company
Incorporated: as McCann-Erickson in 1930; as Interpublic in 1961
Employees: 12,200
Billings: $5.5 billion worldwide
Sales: $814 million
Market value: $821 million
Stock’ Index: New York

Interpublic, the advertising holding company that has over $5.5 billion in worldwide billings, was the creation of Marion Harper, one of the most interesting figures in the advertising industry. Harper had long been fascinated with the way General Motors operated its corporation. GM is not one large monolithic corporation, but rather a conglomerate of separate, autonomous divisions tied to the parent company. While Pontiac, Chevrolet, Oldsmobile, and Cadillac are all General Motors cars, they cater to different tastes and different needs. Harper’s desire was to create an advertising company that would mirror this structure and duplicate General Motors’ success. He planned to accomplish this goal by acquiring subsidiary agencies and affiliates that, while being parts of a larger whole, were nonetheless autonomous.

In 1956 Harper, then chief executive officer and chairman of McCann-Erickson, began to implement his vision. 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 of 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 interest 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. Today Interpublic is the third largest advertising company in the world and no longer in danger of insolvency. Of the many advertising agencies selling shares to the public, it is considered by investors to be one of the best risks in the industry. Interpublic is now composed of five separate agencies: McCann-Erickson Worldwide; Marshalk; Campbell-Ewald Worldwide; SSC&B:Lintas Worldwide; and Dailey & Associates. Also included in the Interpublic family are eight diversified marketing organizations. They provide miscellaneous services such as: marketing research; public relations counseling; brochure and annual report publishing; and film and video tape production.

Although Interpublic was not officially incorporated until 1961, its history dates back 50 years. 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 1930’s, 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 ascendency, 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 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.

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 long-standing 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 long-time 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, 8300 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 when Marion Harper began to run the firm with what has been described as reckless authority. In the Autumn of 1967 the board brought 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 1970’s and 1980’s. 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% 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, long-time 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 Inter-public’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.

Throughout Interpublic’s history its largest and most important clients have been Exxon and Coca-Cola. Then in the mid-1970’s 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 1980’s Interpublic has suffered a decline of business in Europe. The offices in Great Britain and France have lost a variety of important clients (e.g., Bass Beer and Gillette), and Campbell-Ewald’s European division has been operating at a loss. These difficulties are particularly troublesome to Interpublic since 65% of its billings are outside of the United States. Geier has fought back, and he has increased Inter-public’s expansion in Asia where Interpublic is presently the number one American based agency.

Today Interpublic has 166 offices in 50 countries. The four company divisions create 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).