Arthur Sadoun: 'There will be no consolidation of agency brands'

There will be no further consolidation of the Publicis Groupe agency brands – such as Saatchi & Saatchi and Leo Burnett – and the culture of the individual agencies remains "so important", chairman and chief executive Arthur Sadoun insists in an interview with Campaign to coincide with the announcement of the company’s results for 2019.

Publicis' full results for the year showed a decline in organic growth of 2.3% and net revenue – which included a contribution in the second half from the group's purchase of data specialist Epsilon – up 9.3% to €9.8bn (£8.3bn). Operating margins were up 30 basis points to 17.3%.

Sadoun admitted that 2019 had been "a challenging year", but spoke to Campaign about why he’s optimistic that the worst is now behind the company.

What’s exciting you about the year ahead, both for Publicis Groupe and for the industry at large?

What excites me is the same thing that frightens me and drives me forward. At Publicis Groupe, we are on the other side of our transformation. This is good news, because change is not coming to our industry any more. It is here. We saw latest indicator of that this week, when Amazon became the biggest global advertiser, while also being a media platform and an ecommerce ecosystem. 

Publicis had a strong new-business year in 2019, yet in your last report you lowered your outlook to -2.5% for 2019 and between -2 and 1% for 2020. What does this say about the value of the business you’re winning?

We're very proud to be leading the new-business rankings for the second year in a row, increasing the gap with competition this year. New business requires that we work differently, it teaches us new ways to collaborate and enables us to try new things. Winning becomes even sweeter because it validates our strategy and projects our ideal future state.

The value of the business we win is therefore critical even if the impact on growth does not offset yet the cost our transition is having on organic growth. To draw on the music industry as an example – we have to admit we are focusing more on building our streaming offer than on discounting our CDs.

What have been the key elements of your offering that contributed to your winning streak last year?

Of course, it's about combining data, creativity, media and technology. But it is not just about the offering; it's about how it comes together and is activated. At the centre of that is our people. They are diverse thinkers, makers and creators, from a wider spectrum of capabilities than any other company, and they are driving the offer, not the other way around.

How much will last year’s new-business wins bring in in terms of organic revenue growth in 2020?
We won all of the major pitches of the last year, without losing any significant pieces of business. The wins will clearly offset some of the headwinds we are seeing on our traditional business and the cost of our transition. And the good news about winning transformative pitches is that it also allows current clients to see you in a new light, and organic growth can come through that too.

What areas of the group are you concerned about this year?

In a word, China – not so much from a business point of view but for our people there. Our first priority at the moment is their safety and well-being.

There have been reports that you’re planning to close Saatchi & Saatchi New York; fold Publicis Media into Publicis Communications, bringing brands like Zenith and Starcom under that umbrella; consolidate Leo Burnett and Saatchi & Saatchi. Will there be any further consolidation of your agency brands this year?

I think "reports" is being generous. We're talking about anonymous sources. So take it from this non-anonymous Publicis employee: there will be no consolidation of agency brands. You've got the wrong holding company. But we will continue to encourage collaboration across all of our operations.

How important is it to you that your key people feel part of an agency tribe (ie Leo Burnett) as opposed to an amorphous and fluid Publicis operation?

As a current world champion, let me make a football analogy. At Publicis Groupe, it is important that people are proud to play for their club first, be it Leo Burnett, Saatchi & Saatchi, Starcom or any other agency. Brands are where you build the team culture and the expertise. But sometimes people will get the call to play for their country. This is the Power of One. And the last thing we want in those teams is a uniform type of player. This is also why the culture of the brands is so important. It is the connection between the diverse expertise and experience that makes our offer unique when we play together as one.  

You talk a lot about dynamic creativity and personalisation at scale, but there’s ongoing concern among some of your senior executives that you are undervaluing your legacy creative departments. How do you answer these concerns?

Creativity is our raison d’être; it’s what can and will transform and drive our clients’ success. I don't see the division between legacy creativity departments and dynamic creativity and personalisation. For us, creativity will always be about best-in-class storytelling, experience and innovation. But the holy grail in our industry right now is high-quality dynamic creative and true personalisation at scale. No-one is doing that brilliantly at the moment and the only ones who will crack that in the future are creative leaders.

Publicis recently came under attack in the business press, with an Ad Age article suggesting that there is a failure to communicate the group strategy internally and that uncertainty over the direction of the company and the structure has led to a talent exodus and declining morale. What’s your response to those suggestions?

It is normal to be under attack when you change so many things at the same time and it is clear that we can always communicate better internally. But I was really sorry that Ad Age didn't wait for the quiet period imposed on us by the financial market to end, so I could answer their points as I had proposed and confront rumours with facts that we are publishing today.

More importantly, talking [about] an exodus based on the departure of a handful of executives from an 80,000-people company in an industry where turnover is at 20% clearly doesn't make much sense. Now, let's be clear, we have brought on board a new generation of leaders. We have overinvested in talent in 2019, as you can see from our numbers. We promoted 100 leaders internally and hired about 150 top executives, for our brands, our countries and our top clients. So, we are definitely going through a talent uplift and we are seeing some people joining and others leaving. We accept it as it is part of our transition.

Marcel has also been criticised in the press as 'silly', 'fatuous' and 'unrealistic'. What's your response?

I’m not at all surprised. People love to call Marcel out because Marcel has bold ambition. We are attempting to flip the model, from people working for the company to the company working for them, in small, big and new ways. Marcel’s mission is clear: to give our people more chances to grow. It is of course a challenging journey, but we've already learned a lot from the UK test and we're applying that learning as Marcel moves into other regions.

Analysts have observed that Sapient continues to be a drag on your business, despite the $1.7bn write-down in 2017. Why is the offering still not taking off in the US?

Sapient is maybe the most visionary acquisition the group has ever made. You only have to look at the decision taken this week by Accenture to shut down their media auditing arm to focus on traditional media activities to understand why. We are talking about a company whose market cap is bigger than our entire industry and that is making another major move into our competitive field after the acquisition of Droga5.

With Sapient, we are the only ones with the tech and engineering capabilities at scale to strike back. So, yes, we need to bring back growth in the US in this domain and we will. But the convergence between marketing and business transformation is happening and we have the capabilities to compete. 

Investors questioned the impact of Epsilon on your last set of results. You said then that the core business around first-party data management was 'slightly growing' but did not break out figures for its declining creative agency and affiliate businesses. Can you update us on the Epsilon performance, how it’s working with the rest of the business and how you now see its potential?

The integration of Epsilon is already a success. We welcomed 9,000 new talents, built a single data platform for the group and Epsilon is already having a huge impact on our new-business momentum. But, even more importantly, with Google’s decision to progressively deplete third-party cookies, which will have a massive impact on agencies, publishers and also our clients, Epsilon will become one of the only platforms that can help our clients engage directly with their customers in a personalised, fully transparent way, at scale. If our clients want to continue to grow, they will need to take back control of their customer relationships – and we will be there to help.  

When the last results were published, one investor noted that Publicis has spent $11bn on acquisitions in the past decade that have not yet materialised into organic growth. What’s your response to that fact?

I will respond with another fact. In the past decade, Publicis Groupe has grown from a $5bn to a $10bn company, delivering the best financial ratios of the industry every year. That’s once again the case this year, with published growth of +9.3% and the best margin, while investing heavily in talent and training. But, just as importantly, those acquisitions have enabled us to build the capabilities our clients need to win in a digital-first, data-led world, as can be seen in our new-business performance. 

Acquisition or consolidation: what will be the narrative for 2020?

Execution.

You seem to have been under pressure and there has been some pretty negative reporting about Publicis' performance. How would you describe the past 12 months for you personally?

The reports are part of the price to pay when you transform. The only pressure I have is making sure that everyone at Publicis Groupe has a future in our industry. So, clearly, the last 12 months have been a tough fight for transformation, but without a doubt a necessary one.

What techniques do you have for getting through the tough times?

Swimming and The Rolling Stones. Let me take this opportunity to categorically deny the rumours from anonymous sources that I prefer The Beatles.