Outdated Client-Agency Agreements Pose Risks to Advertisers

By Cliff Campeau

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WARNING: If the contract between your organization and its advertising agency(s) has an effective date prior to January 1, 2017, you may be at risk.

Not unlike fresh produce, dairy products, meat, medicine, or even beer, contract language is perishable.

Seems far-fetched, you say. Consider the ad industry is a dynamic, fast-paced business sector. One only need recall the breadth and rapidity of change brought on by technology advances and increasing levels of regulation in just the last four years:

• April of 2016: Europe enacts The General Data Protection Regulation (GDPR) governing how companies handle consumer data, forcing advertisers, agencies, publishers and intermediaries to implement business rules and guidelines to safeguard personal data and privacy.
• June of 2016: The Association of National Advertisers (ANA) publishes its North American Media Transparency study, leading to wholesale changes in contractual controls. As a result, nearly 2/3 of ANA members indicated that they would update their media agency agreements.
• December of 2016: The industry’s four largest agency holding companies involved in a Federal bid-rigging probe following allegations by post-production houses on the misleading use of rates they provided to agencies.
• September of 2018: The California Consumer Privacy Act (CCPA) goes into effect giving consumers more control over the personal information that businesses, including advertisers, agencies and publishers collect about them.
• October of 2018: The Federal Government informs the ANA and its members that the Federal Bureau of Investigation would be investigating potential misleading conduct and or deception between media holding companies and advertisers.
• June of 2019: Cybersecurity company Cheq reports that advertisers will lose over $23 billion to ad fraud in 2019 alone.
• July of 2020: Year-to-date the European Union has issued over 300 fines to advertisers and publishers totaling more than $171 million for violating GDPR guidelines.

Each of these occurrences and numerous others has led to the need for advertisers to rethink their contractual controls in order to safeguard their organizations both legally and financially. In turn, this requires language enhancements and the addition of terms and conditions dealing with a range of topics such as privacy protection, data security, intellectual property ownership, transparency, audit rights and indemnification.

All too often, the contracts governing client/agency relationships are slow to evolve, posing serious risks to advertisers. This in spite of trends such as the growth in the number of intermediaries, agency use of affiliates, expanding agency rosters, murky supply chains, brand safety concerns and the prevalence of ad fraud that pose risks to advertisers.

The thinking on items that were once considered “standard” within the industry, and therefore thought to be sufficiently covered in the context of agreement language can no longer be assumed. Advertiser expectations on topics such as; establishing principal-agent relationships, client-centric audit rights, requirement for full-disclosure in all dealings by the agency with affiliates and third-party vendors and limiting agency revenue to the remuneration described in the agreement and or appropriate SOWs must be reviewed and explicitly defined.

In our contract compliance practice, we have identified 3 key “triggers,” which if present, should incent advertisers to review and revise their agency agreements:

1. The “effective date” of the current Client/ Agency agreement is more than 2 years old.
2. If the parties utilized the Agency’s contract template as the basis for the agreement. These documents contain language that reflects the agency’s interest, not necessarily those of the advertiser.
3. If an advertiser has “evergreen” agreements in place, but updates Statements of Work annually. Too often, while clients update the SOW, reviewing the contract for necessary updates is forgone.

The good news is that both the ANA and the ISBA have issued solid guidance in the form of framework agreements for use as a starting place to construct media and creative agency contracts. It’s important to note that while these broad-based agreements are an excellent resource, every relationship has nuances with new evolving risks that should be weaved into new advertising agreements.

Current, comprehensive supplier agreements leads to solid controls, improved transparency and stronger agency relationships. Integrate periodic contract compliance and financial management auditing and advertisers can rest easier knowing that they have successfully extended their governance and risk management framework to this important area. In the words of Peter Bernstein, “The essence of risk management lies in maximizing the areas where we have some control of the outcome, while minimizing the areas where we have absolutely no control of the outcome.”

Cliff Campeau is a Principal at AARM | Advertising Audit & Risk Management. You can email him at ccampeau@aarmusa.com.

The views and opinions expressed in Marketing Maestros are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.