31 May 2012Working Paper Summaries

Conflict Policy and Advertising Agency-Client Relations: The Problem of Competing Clients Sharing a Common Agency

by Alvin J. Silk

This paper takes a fresh look at a recurring and often contentious issue in agency-client relations: Should an advertising agency simultaneously serve competing accounts or should the agency be restricted from doing so? Professor Alvin J. Silk traces the evolution and current state of industry practices with respect to conflict norms and policies; reviews the body of conceptual and empirical research that is available about the sources and consequences of conflicts, and outlines some directions for future research to address unresolved policy issues. Key concepts include:

Historically, advertising agencies in the US and Europe did not simultaneously serve accounts or clients who were competitors.
Safeguards to preserve proprietary information have become an essential component of conflict policies.
Rival clients may be served by separate organizational units that are under common control and/or ownership.
A family of hybrid conflict policies has evolved that features elements of the split account system long practiced in Japan, augmented by safeguards that serve as partial substitutes for the umbrella prohibition on serving rivals imposed by exclusivity.
By relying on safeguards and splitting account assignments among different organizational units within or across a mega-agency or holding company, clients exert a measure of control over those agencies' access to confidential information while also offering them incentives to avoid conflicts of interest.

Author Abstract

What restrictions should be placed on advertising agencies with respect to serving accounts or clients that are competitors of one another in order to avoid conflicts in interest? In recent decades, the advertising and marketing services industry has undergone a number of structural changes that forced an ongoing re-examination and modification of traditional norms and policies emphasizing exclusivity in agency-client relationships. A typology of conflicts that have arisen in the United States shows the variety and complexity of contemporary conflicts. Cases of conflicts reported in the trade literature are used to illustrate policy issues as well as the spillover effects and resolution of disputes. To cope with these developments, two significant changes in conflict policies evident in current US practice are identified. First, safeguards to preserve proprietary information that function as organizational, location, and personnel mobility barriers among quasi-autonomous units within a mega-agency or holding company have become an essential component of conflict policies. Subject to the protection against security breaches afforded by safeguards, rival clients may be served by separate organizational units that are under common control and/or ownership. Second, a family of hybrid conflict polices has evolved that feature elements of the split account system long practiced in Japan, augmented by safeguards that serve as partial substitutes for the umbrella prohibition on serving rivals imposed by exclusivity. By relying on safeguards and splitting account assignments in a variety of ways among different organizational units within a given mega-agency or holding company that may also serve rivals (or across different mega-agencies or holding companies), clients exert a measure of control over the access of those agencies to confidential information while also offering them incentives to avoid conflicts of interest. Findings from the existing body of conceptual and empirical research bearing on the sources and consequences of conflicts are reviewed and directions for further research are discussed.