Agencies, Ad-Tech Vendors And Avoiding Appearance Of Conflict

Laura Desmond SMGNotice how the cover-up of scandal is often worse than the original misdeed? The same is true when it comes to the appearance of a conflict of interest – if it looks like a conflict, you've got a conflict.

That's ultimately what led Starcom MediaVest Group CEO Laura Desmond to resign from the board of Tremor Video on Friday, with her seat taken by former AdMeld CEO Michael Barrett. Conveniently for Tremor, Barrett has not been aligned with a single company since departing as Yahoo's chief revenue officer last year. Does this mean that only investors and individuals with no direct business entanglements can serve on the boards of ad-tech companies like Tremor, which are starting to receive more scrutiny as they enter the public markets?

The short answer is "no," said Brian Wieser, senior research analyst at Pivotal Research and a former IPG executive. The longer answer is still simple: "Transparency."

In Wieser's view, where Desmond and Tremor erred was in that the SMG head was personally compensated. According to the S-1 Tremor filed before going public, Desmond received $300,000 in 2012 share options as a member of Tremor’s board at the same time the Publicis Groupe media shop was one of Tremor’s biggest 2012 clients, spending $18 million on behalf of its clients through the video ad network. Desmond's involvement was first noticed by marketing blogger Stuart Smith, who raised it as a conflict of interest and speculated that she stood the possibility of her stock being worth $3 million when Tremor went public.

As AdAge noted before Tremor's release detailing the board changes went out, the issue wasn't that Desmond served on the board, but that her role appeared to serve her personally through her stock ownership as an individual.

"The appearance of the conflict of interest could have been erased if instead of Desmond representing herself, SMG or Publicis had been named instead as either an uncompensated seat or with the money going to charity," Wieser said, adding that he agreed with former VivaKi head David Kenny, now in charge of The Weather Company, that agency executives can learn a great deal about new trends and issues by serving on outside corporate boards. (Kenny told AdExchanger: "Ad-tech companies develop better products when they have publishers, agencies and advertisers advising them in the boardroom. With proper transparency, there is no real risk of conflict of interest.")

The appearance of conflicts are always present when it comes to the agency holding company business, with its various overlapping disciplines and interest in investing in tech startups. But as long as there's no hidden relationship – it was not well-known that Desmond was appointed to Tremor's board in January 2012, for example – companies can avoid the outcry that greeted the two when the connection was revealed this spring.

For example, this summer, Digiday suggested that WPP's GroupM – along with other agencies, perhaps – had taken equity stakes in Tremor rival Videology in exchange for the promise of buying media on its platform. It sounds pretty sketchy, but it's hard to prove a direct quid pro quo. After all, GroupM and other agencies have long maintained investment arms that have put money into startups. Why wouldn't they use it for services, as opposed to just having the startup serve as an investment vehicle?

As Wieser noted, when WPP invested a stake in Omniture (before the analytics firm was bought by Adobe in 2009), it also struck a partnership for research. It was likely the GroupM planners suggested that clients use Omniture over Google's analytics.

"Did that situation constitute a conflict?" Wieser asked rhetorically. "Is it any different when WPP's JWT suggest that its creative services clients use GroupM for their media? Most people would say no, because they understand that there is a clear relationship between those companies."

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