The matter of Media Transparency has been a subject of high interest and concern in the media and marketing community and will continue to be so. The 4A's and its members have consistently stated the position that transparency and contract compliance are core principles that must exist between an agency and its clients. Trust is the cornerstone of the agency and client relationship.
A working group of 4A's media agency executives has created Transparency Guiding Principles, which distill and clarify the increasingly complex U.S. Media Planning and Buying landscape. The principles outline recommended behaviors to inform client and agency agreements. We believe these principles offer first-of-its-kind guidance in the U.S. and will serve as helpful to agencies who are providing U.S. planning and buying media services and the clients that they serve. While the guidelines include considerable input from leading advertisers, the principles represent the beliefs of the 4A's working task force and are offered as guidance to 4A's members.
The 4A's working group agreed that transparency covers various subject areas that require extensive collaboration to provide clarity and industry guidance, particularly given the rate of change in the industry. The first priority addresses transparency in the working relationships among clients, agencies and the media, covering the following areas:
1) Client/agency-retained relationships for U.S. media planning and buying services
2) Separate commercial relationships among agencies and media vendors and other suppliers
3) Client/agency governance.
The “Transparency Guiding Principles of Conduct” are specific to these focus areas. These principles apply only to the U.S. market for the following groups conducting business in the U.S.
- Agency group
- Holding company
- Related companies/affiliates who may be brought to the media business relationship.
The principles cover the business arrangements and agency remuneration practices as well as recommended guidelines for media market participants in the United States. They are intended as principles that should be followed as soon as possible. These principles may evolve over time, particularly as the media and marketing landscape continues to evolve, and, as such, will be revisited. They do not represent mandates – but recommended courses of action.
- Agency: The organization that creates and/or places advertising or marketing communications for clients. The agency has the contractual relationship with the client and is the organization providing services to the client. This would include an in-house media buying function of a full-service or other agency.
- Agency group: The agency and other members of the agency's group that are providing or assisting with the provisions of services to the client under the agency/ client agreement.
- Arms-length: An agreement made by two well-informed parties freely and independently of each other. The price, requirements and other conditions of the agreement are fair and real.
- Disclosed: A model where the agency discloses the underlying elements of any amounts charged to the client, including the agency fee, and, where applicable, the agency profit.
- Holding company: A company that does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group. For example, Dentsu Inc., Havas Group, Interpublic Group of Companies, Inc., MDC Partners Inc., Omnicom Group, Inc., Publicis Groupe SA and WPP plc.
- Non-disclosed: A model where the agency does not disclose the underlying components of the amounts charged to the client, including the agency fee or profit.
- Programmatic buying: The automation of media buying and selling processes and decisions, enhanced through data. Costs/fees associated with programmatic buying typically fall within three buckets: Technology Fees for use of technology or interface that allows for electronic trading, typically referred to as a demand side platform or DSP; Staffing Fees or Managed Service Fees for the staffing required to perform and monitor the trading; and Data Fees for cost of layering on additional data feeds to further leverage data for targeting and media purchase.
- Rebates and non-transparent incentives: The return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity or value, of goods and services, such as media, within a specified period. Unlike a discount, which is deducted in advance of payment, rebates and non-transparent incentives are given after the payment of the full invoice amount. It is known by a variety of names including “Rebates,” “Agency Rebate,” and “Agency Volume Bonus”.
- Transparency: The state of being transparent, generally characterized by visibility or accessibility of information, especially concerning business practices.
4A's Transparency Guiding Principles of Conduct
The following provides nine individual Transparency Guiding Principles of Conduct.
Transparency Guiding Principles of Conduct 1, 2 and 3 address client/agency- retained relationships for U.S. media planning and buying services.
1. The default principle in all client/agency relationships where the agency is agent and the client is principal is full disclosure and full transparency in media planning and buying, unless there is an exception that the client has agreed to in advance and is covered by a separate agreement. Further, the client/agency agreement should specify that the client is the principal and the agency is the agent.
- The agent acts according to an agreed-upon scope of authority set out in a client/agency agreement. The principal is bound by what the agent does. The agent is the agency that has been given the authority by the principal, the advertiser-client, to act on its behalf and in its name with third parties, e.g., purchasing media from media owners. The agent acts for the principal with the same authority as if it is the principal. The agency acts on behalf of the client according to the client's stated objectives.
- The client has full visibility into how/how much the agency and any affiliated/ related companies who provide services to the client (including agency group and members of the holding company group) are compensated, and there is full transparency in respect to the cost of media and any other costs or fees passed through to the client. Rebates/non-transparent incentives should be reported and returned to the client.
- The client pays the agency in sufficient time to permit the agency to meet the client's payment obligations to vendors.
- The agency endeavors to get the best pricing available in the market, based on factors such as the quantity and type of media being purchased, but does not guarantee pricing.
- Both agency and client should ensure that their respective personnel understand and are trained to understand the meaning of principal and agent.
- The majority of client/agency relationships have the agency acting as agent and the client acting as principal. Other models exist where the agency is the principal and these are covered under the second principle.
2. The agency and the client can agree to a fixed price or other pricing arrangements for the agency's other products and services through open and arms-length negotiations. These might include proprietary media (including pre-owned inventory) trading desks, barter, programmatic buying and other future models.
- The agency should always ensure that the client clearly understands the nature, implications and benefits of any opt-in products and services, including disclosed and non-disclosed models. These should be documented with an opt-in agreement, with a clear explanation of any implications for audit rights, access to the agency's underlying costs and whether the agency is acting for the client as its agent or as principal.
3. The agency business is governed by contracts with clients. All terms of business between the agency and the client should be documented in a formal written agreement(s), and both parties should comply with the obligations to the other party that are noted in the respective agreement.
- It's incumbent on both clients and agencies to communicate key terms of the contract to those individuals in their respective organizations who will be working on the business and be affected by the contract.
- It's critical that there is a deep understanding of the business model by both clients and agencies and the terms of the contract, particularly for opt-in services. As media becomes more complicated, so do the business models and contract arrangements.
Transparency Guiding Principles of Conduct 4 and 5 below address separate commercial relationships between agencies and media vendors and other suppliers.
4. The agency, (agency group and holding company) may enter into commercial relationships with media vendors and other suppliers on its own account, which are separate and unrelated to the purchase of media as agent for their clients.
- The agency is paid by the media partner for services provided, such as barter, content production or research projects. Where this is the case, the agency may consider such relationships confidential and commercially sensitive.
- The agency should disclose, on a confidential basis to the client, the general type of commercial relationships and explain the controls and procedures it has in place to ensure that these relationships are on an arm's-length basis. These commercial relationships reflect services provided by the agency, are kept separate and do not promise or commit to client spending.
- It should be clear that the agency's commercial transactions do not influence communications and media planning and investment recommendations for the client, which should be done on behalf of the client and according to the client's stated objectives.
- If the agency recommends any proprietary media (including pre-owned agency inventory) on a media plan, it should be disclosed as such, and if approved by the client, it should be documented with an opt-in agreement.
5. The agency should disclose and seek the client's acknowledgement of any agency's ownership interest in any entity and details of any of its employees who are directors of any entity that the agency recommends or uses as a provider of products or services to the client. In such cases, when the recommendation is made, the agency should demonstrate that the recommendation is as good as, and preferably better than, other independent alternatives that may be available to the client.
Transparency Guiding Principles 6, 7, 8 and 9 below address client/agency governance.
6. Rebates and other non-transparent incentives on U.S. media spend are not accepted industry practice in the United States.
- As a best practice, the agency/client agreement should require the agency to report and return to the client any rebates and incentives received by the agency, agency group, holding company or other affiliated companies that are based on either the client's spend alone or on the aggregation of other clients' spend, including the said client's spend.
- Although rebates and non-transparent incentives are acceptable in some other markets outside the U.S., media spend in the U.S. should not contribute in any undisclosed way to rebate payments/arrangements in other markets.
7. Agencies operating in the U.S. should comply with all relevant U.S. laws and regulations, including those that apply as a consequence of the agency's parent company, if any, being publicly listed on a stock exchange.
- Client should ask agency to explain their relevant internal controls, policies and procedures (e.g., gift policies) and agency should comply with such requests.
8. The agency and client should discuss and document appropriate audit rights commensurate with the services and products provided, recognizing that the agency has confidentiality obligations to its other clients and stakeholders.
- Those agreed audit rights should extend to other members of the agency group that are providing or assisting with the provisions of services to the client under the agency/client agreement. The agency will use reasonable efforts to enforce audit rights on affiliates and subcontractors providing services under the agency/client agreement.
- Audits should be undertaken by reputable auditors that are appropriately certified (i.e., a certified public accounting firm), are independent and unbiased, and who will sign a non-disclosure agreement (NDA) acceptable to the agency. The NDA will permit verification of findings but restrict the auditor from disclosing the media agency's confidential information to the client and using any information received during the audit other than for the purpose of conducting the audit. The agency shall provide the client and the independent auditor with reasonable assistance.
9. The aforementioned principles will evolve and be applied based on new economic models for buying and selling media that will emerge in the future.
We'd like to recognize the following executives who contributed their time, energy and experience to this document.
Chief Revenue Officer
President, Chief Executive Officer and Founder
Chair, 4A's Board of Directors
Chairman and Chief Executive Officer
Omnicom Media Group, Omnicom
Global Chief Executive Officer
President-Chief Executive Officer
Global Chief Commercial Officer
Chief Operating Officer, OMD USA
Omnicom Media Group, Omnicom
EVP, Managing Partner
Chairman, GroupM Connect North America
President, Managing Director
EVP, Chief Operating Officer
Global Commercial Director
K&L Gates LLP
EVP, Media and Data Practice