Printing Money: Secret Transcripts Reveal How Grey Group Juggled Clients' Cash
After a decade of litigation, ad agency Grey Group has given up trying to keep secret a set of internal memos describing how it bills giant international clients such as Procter & Gamble (PG),Mars, British American Tobacco (BAT) and SmithKline Beecham (now GlaxoSmithKline (GSK)).
Grey lost a ruling in the New York state appellate courts in July, and allowed an appeal deadline to lapse in early September. The documents, which date back 20 years, allegedly describe how Grey handled "volume discount" rebates given to it by the print suppliers who create ads in magazines, newspapers and on billboards. Instead of passing them directly back to the clients whose money earned them, Grey booked them as revenue, the documents suggest. The documents describe rebates totaling hundreds of thousands of dollars each year, and about $5.6 million in total.
The most astonishing portion of the documents are what purport to be three transcripts of meetings with the CEO of Grey's London office. They were allegedly generated by Grey's CFO, who claimed he hid a tape recorder in his pants pocket while he talked with his colleagues.
Grey has previously disputed the accuracy of the transcripts and denied it did anything illegal or without its clients' knowledge. No Grey executives have been accused of any wrongdoing in relation to the discounts. A Grey spokesperson said, "The story is more than ten years old and our response has been well documented."
BNET is publishing a selection of the documents here for the first time.
While the memos do not relate to current management at Grey (the company was later acquired by WPP (WPPGY)), they do offer an unsual and intimate glimpse of how ad agencies discuss clients' money when clients aren't around. They also highlight a controversy between marketers and agencies that never seems to go away: What to do with the bonuses, discounts, rebates and incentive schemes that vendors -– like printers -– offer ad agencies to keep their business. The rebates are earned with money that clients pass through their agencies; the problem is that vendors offer the rebates to the agencies but not the clients whose money triggers them. Recent examples include:
- Chinese authorities are currently investigating a media kickback case in which one executive is accused of laundering money through a brothel.
- Aegis Media in Germany settled with client Danone in June for €30 million to end allegations that it had kept its clients' rebates.
- Leo Burnett settled with the U.S. Armyin January 2009 for $15.5 million a case in which it was accused, in part, of marking up bills for pass-through expenses that were supposed to be billed without profit.
- In 2005, Interpublic (IPG) gave back $250 million to its clients in so called "Agency Volume Bonification" monies – rebates that the agency initially kept but eventually returned when an accounting scandal forced the agency network to restate its financial numbers. That practice was made illegal in France in 1993.