StevensGouldPincus

Margin Call & The Bankers

2012-01-31T09:53:00.000-05:00

by Rick Gould, CPA, JD

I saw the movie “Margin Call” a couple of weeks back. It hit home for me for two reasons:

1. It took place in the StevensGouldPincus office building in NYC, One Penn Plaza.

2. It was reminiscent of the financial crash of 2008 (the downfall of Lehman, AIG & Merrill Lynch) as well as the recent implosion and bankruptcy of MF Global.

The movie is about 24 hours in the life of a bank modeled after Lehman- fancy offices, great view, young brokers that believed they had the world in the palm of their hands. Fancy sports cars, posh apartments, getaway weekends in Paris. Kevin Spacey, Demi Moore, Stanley Tucci and Jeremy Irons did a great job portraying very successful executives. They saw their careers implode and their firm on the brink of failure as a result of the liquidation of its mortgage backed securities, in an attempt to raise cash to meet its required reserve margins- the “Margin Call”.

We saw the futile attempt to sell off toxic assets, the midnight board meeting, and the mass firing of traders and staff the next morning. What the events in the movie clearly showed, very reminiscent of the Lehman debacle, was that the bankers placed way too much faith in Ivy League MBA’s who functioned using complicated analytics, spreadsheets and mathematics.

Their Board of Directors was comprised of multi-degreed entrepreneurs, attorneys and accountants, all supported by very smart economists. But few of them fully understood the complexities of their business models and the risks these models created. Conservatism was not in their philosophy.

What was needed in the movie, and in the Lehman scandal, was the ability to interpret, to benchmark, and to predict what was in store, as well as how to protect vital assets and make the inevitable “margin call” survivable.

In both the movie and the real-life scenarios, the bankers did not have a clue what was “really” going on. Honest, hard-working people are now paying the price for the ignorance and arrogance of these secure, high salaried bankers.

In my opinion, these “masters of the universe” did not have enough skin in the game to protect investors from losing most, if not all, of their “safe” investments. The bankers did not have enough to lose personally. If they did, they would have hedged against the worst possible result.

American society has always embraced scholars for these positions, especially those from the top biz schools who populate the highest echelons of major investment banks. My preference would be to embrace the down-to-earth, self-made entrepreneurs who run the most successful and profitable PR/communications firms. These executives are smart, savvy and creative. They learn by doing, by trial and error, by rolling up their sleeves and by starting out in the trenches at the bottom.

These successful communications executives learned that keeping the client and all stakeholders in mind when making business decisions is not only smart, but also essential to sustained profitability. Especially for those who have patience and dedication, and who take the time and make the effort to master the business end of their business, the street smarts and communication skills needed to make cautious and correct decisions can be learned.

Is Mediation A Viable Option for Partners Disputes?

2011-12-01T22:04:00.002-05:00

By Rick Gould, CPA, JD

When partners do not agree on major business issues, such as compensation or equity percent, it is emotionally draining and counterproductive to the firms’ health, profitability and success. Any type of dispute can be potentially destructive.

What options exist to move partners from conflict to resolution? This discovery process should start with an honest conversation (ideally an in-person one), or an email or letter. It would then evolve into a negotiation. However, if this doesn’t work what is next?

Ending the business or pursuing litigation as a means to achieve resolution are costly and time-consuming options. I’ve seen these options to be mostly ineffective. All parties end up losing out exponentially more, both from a financial and emotional perspective, than if other resolution options had been pursued. And there is usually an implosion of the brand that results, especially in this day and age where conflict is so easily detailed in social and traditional media outlets. Reputations get undoubtedly tarnished, no matter who is perceived to be right or wrong. In my experiences, litigation should be an absolute last resort and it is to be avoided.

The best option, especially among partners, is honest negotiation through mediation. The partners will control the process, the time-frame and the overall cost. But to be effective, negotiation must lead to a final conclusion that all partners can agree to. This is often not doable, especially when a partner (or partners) allow themselves to be controlled by ego and emotion.

The middle and higher-ground, the better option, is to take the ego and emotion out of the mix and to mediate. Binding arbitration can also be pursued if mediation does not achieve a mutually agreeable outcome.

In mediation, a third party acts as a facilitator in negotiation between the partners. The mediator is trained to take emotion out of the dispute. He/she is tasked to come up with tangible solutions and an overall equitable resolution. The mediator may end up fully agreeing with one partner, or he/she may conclude that a compromise is in order. Either way, a fresh and outside perspective is critical to infusing clarity (and sanity) into the situation. Partners must recognize their managerial and personal limitations, and a mediator is just the one to provide that insight.

The mediator’s recommendation is not binding. However, it will often bring about a resolution, especially if outsiders, or even other partners, are eagerly watching. The mediator attempts to break the impasse to allow all parties and the firm to successfully move forward. Mediation is far less expensive than litigation.

A skilled and experienced mediator uses processes and techniques that lead to a successful outcome. And an ethical mediator will agree up front that, if not successful, he/she may not represent either party in an ensuing litigation. This incentivizes the mediator to resolve the conflict quickly and effectively.

Before you opt for mediation, be sure that all partners are honestly committed to achieving a resolution. Each partner should ultimately want to resolve the dispute from both a business and a personal perspective.

Profitability, Strong Billing Rates & 90% Productivity

2011-08-01T12:53:00.005-04:00

By Rick Gould, CPA, JD

Profitability, Strong Billing Rates & 90% Productivity.... How does your firm compare?

Our 2011 Benchmarking study clearly showed the U.S. PR agency profitability rebounded from a 2009 four year low of 13.5 per cent of revenues back to exactly what it was for 2008, 15.6 percent. This compares to a 13.5 percent in 2009, 15.6 percent in 2008 and a 19.7 percent profit margin in 2007.

The operating profit for the under $3 Million category was 13.1 percent, up from 10.4percent in 2009. The firms in excess of $3 Million up to $10 Million netted 16.2 percent and those in excess of $10 Million up to $25 Million netted a very respectable 17.8 percent and those in excess of $25 Million netted 16.5 percent, also respectable in challenging economic times. All four categories improved from the previous year.

One of the most significant findings of our survey was that the SGP “Model Firms”, the dozen agencies consistently meeting or exceeding the SGP model performance target criteria, continue to remain far above average during these recessionary times. In 2010, they averaged an operating profit margin in excess of 20 percent, partly due to their ability to hold professional staff salaries to under 40 percent of revenues, total labor cost at 50 percent and operating expenses at under 30 percent. This should be the goal for all firms.

A very noteworthy result was that Revenue per professional staff was up to $205,941 from $197,714 last year. Firms in excess of $10 million in net revenues averaged in excess of $230,000. Total overhead averaged 28.4 percent. Firms in excess of $25 million were at 25.0 percent.

For our full report please email me at rgould@stevensgouldpincus.com

Market Update: Current Factors Affecting a Decision to Sell Now

2011-05-27T13:58:00.004-04:00

By Rick Gould, CPA, JD

1. Capital Gains Taxes are expected to increase.

2. Jeffery Lyons, an operating director of Chicago-based investment bank City Capital, said in INC. Magazine in November: “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire.” (Or maybe just want to monetize their assets and sweat equity.) “That mounting supply could put more downward pressure on valuations for years to come - a sobering message to entrepreneurs nervously waiting for the market to bounce back.”

3. Ten years from now, multiples will go down because the supply of businesses (for sale) will be up and there will be fewer buyers.

4. It is already a factor that sellers far outweigh niche buyers. Buyers are no longer buying to add critical mass or to increase net revenues. Buyers are buying strategically, looking for a specialty firms in the areas of digital, public affairs, consumer and crisis.

5. Buyers are increasingly more edgy when it comes to the age of owners, the presence of strong second-tier management, the mix of clients and the potential for cross-referrals and growth.

6. Tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence required in the future.

7. The future reality is many sellers of PR agencies will have no one to sell to. They will have little choice but to sell their firms to key staff (for multiples less than they can potentially receive from an outside buyer) or to simply close doors and cease operations.

Only with industry-specific counsel can you decide what timing is right for your firm. These factors to consider are just a small part of what needs to be regularly analyzed in packaging your firm for a sale, whether today or in the distant future. Operate your firm as if you were to be sold tomorrow and you will have a better managed, more profitable firm overall.

Baby Boomer Burnout or Just Smart Business

2011-01-01T13:14:00.004-05:00

Reasons to Consider Selling Your PR Agency Now
by Rick Gould, CPA, JD

Jeffrey Lyons, an operating director of Chicago based investment bank City Capital, says in INC. Magazine November 2010 Page 111. “Economists estimate that as many as 70% of privately held businesses will be put up for sale within the next 10 years, as more baby boomers retire” (or maybe just want to monetize their asset, their sweat equity). “That mounting supply could put more downward pressure on valuations for years to come- a sobering message to entrepreneurs nervously waiting for the market to bounce back.”

Lyons adds, “five years from now multiples for small business’ will go down because the supply of businesses (for sale) will be up.”

It is already a factor that sellers far outweigh niche buyers & buyers are no longer buying to add critical mass, to increase net revenues. Buyers are buying strategically, looking for a specialty as digital, public affairs, consumer, crisis etc. And they are certainly much more edgy when it comes to age of owners, strong second tier management, mix of clients and potential for cross referrals and growth. And tightening SEC regulations on acquisitions will only increase the amount and extent of financial reporting and due diligence.

The reality is many sellers of small & mid-size PR agencies will have no one to sell to. They will have NO choice but to sell their firms to key staff for multiples less than they can potentially receive from an outside buyer, a buyer that accumulated a war chest for acquisition during the past couple of years.

Those are reasons to consider selling now or at the minimum begin packaging your firm for a sale. Worst case will be you will have a better managed, more profitable firm, which in itself will add to value.

PR Agency M&A Market Poised For Rebound

2010-09-30T23:25:00.002-04:00

By Rick Gould, CPA, JD

October 1, 2010

After almost two years in the doldrums, PR agencies are aggressively eyeing strategic acquisition opportunities in North America and beyond.

Our firm currently has 33 agencies looking to buy, compared to 21 that are up for sale.

This compares to a situation that was considerably more bleak at the beginning of 2010. We had no buyers at the beginning of this year, Now, it’s extremely active.

Buoyed by a solid first half of this year acquisition intent began to improve at the start of the third quarter. MDC Partners CEO Miles Nadal set the pace with several acquisitions including rapidly growing Allison & Partners and most recently Kwittken & Co. Nadal recently revealed to The Holmes Report Partner and Managing Editor Arum Sudhaman that he is aiming to spend upwards of $50 million on PR agency purchases.

In terms of capabilities, agencies are particularly interested in adding skills in digital, social media, healthcare, public affairs and crisis management. Next Fifteen recently bought two digital agencies within one week, while Huntsworth Group, MDC Partners and Edelman have all snapped up firms in the past few weeks. Edelman just announced this week the acquisition of Texas powerhouse Vollmer Public Relations. Our firm represented Vollmer as strategic advisors and is working with almost all of the major buyers on strategic acquisitions.

In addition, The Holmes Report disclosed that they are aware of a number of firms seeking acquisitions in continental Europe, the UK and key Asian markets such as China and India.

However, while interest is high, continued caution on the part of buyers is being reflected by length of time it is taking for deals to complete. In the past, buyers did not do enough due diligence. Not anymore. The due diligence is extensive and thorough. When a buyer is paying several hundred thousands or millions of dollars for an acquisition they have every right to know about the financial history, the staff and the clients. Buyers are experienced and savvy at the drill. What we do is facilitate the process by getting the seller ready before this lengthy review begins.

The majority of deals that fail are as a result of the seller believing their firm is worth more than it is.

The key to a successful M&A transaction is for both buyers and sellers to be reasonable and fair and let PR industry precedent dictate the model used for the sale.

The Effect of the Post Recession Recovery on the M&A Marketplace

2010-05-14T22:02:00.003-04:00

By Rick Gould, CPA, JD

The effects of the economic downturn & present phase of recovery are numerous & significant.

There have certainly been fewer buyers. Holding-company owned firms are in a “wait and see” pattern. But, we were experiencing many valid inquiries regarding strategic acquisitions for specialties and/or locations and/or intellectual properties.

New buyers have also evolved. Medium-sized firms ($10-25 Million) that have built up a war chest in the 2006-2007 highly profitable years have taken advantage of the scarcity of buyers.

The pool of sellers has increased. There are many quality firms available to be sold. Several profitable firms are in play. Why is this?

• Owners are looking to monetize their years of sweat equity
• Relief from back office distractions is desired
• Regional and/or International reach is being sought
• Expansion of brain trust & depth of staff is needed to grow
• Owners’ preference to once again practice PR vs. build and manage the firm
• Complementary specialties sought to gain additional clients
• Efficiencies of scale by sharing labor and operations expenses
• Cross-selling
• More disciplined financial practices sought
• The expansion of the firm’s capital base and borrowing capacity through consolidation.
• Maximization of profits.

Recessions are historically followed by periods of economic growth. The latest recession is deeper than anything in recent memory. But eventually, we believe in 2010, the economy will revive.

If history repeats itself, then a new cycle of consolidation will be off and running. Firms that have already begun the advanced preparation of being acquired in early 2010 will net the best deals. All current indicators we’ve encountered and interpreted indicate that 2010 will signify the rebound of PR agency M&A.

2010 Poised to Signify the Rebound of PR

2010-03-03T10:18:00.003-05:00

2010 Poised to Signify the Rebound of PR: Agency Revenues, Margins and M&A Activity

By Rick Gould, CPA, JD

Warren Buffett labeled the 2008 meltdown as the “economy’s biggest flop since the crash of 1929.” The flop he is referring to has indeed had a huge impact on the PR M&A marketplace. The first half of 2009 was relatively flat. The second half only somewhat improved.

The message for 2009: “flat” is the new “up”.

Holding company CEO’s attribute the decline to clients resorting to extreme cost-cutting. Accounts want more service for less cost. Pricing pressure is now the norm. Procurement departments are relentless in their pursuit of driving fees down. Overly aggressive agency spreadheets, screaming out the reality of increasing labor & operating costs, are received with deaf ears and are not drawing much client sympathy.

We can draw conclusions about what 2010 holds for agency revenues, margins, and the M&A landscape by analyzing a couple of key questions.

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How have the major holding companies reacted?

IPG is trying to rebuild its balance sheet. Omnicom and Publicis have made it clear that acquisitions are on hold unless something extraordinary surfaced. WPP’s CEO Martin Sorrel predicts flat revenues right through 2010. He recently classified the present conditions as “less worse than they were.” Huntsworth’s Lord Peter Chadlington agrees with this assessment and is mapping an aggressive strategy for growth in 2010 via acquisition. Miles Nadal, Chairman of MDC Partners, has said “more dollars will go to social media and special events”.

Are there good times ahead?

2009 experienced the most challenging conditions for agencies since the early 1990’s recession. In 2010, most of the marketing service holding companies are looking to drive growth via strategic acquisitions. Based on our 2009 Economic Uncertainty Report, a vast majority of the 157 responding agencies of all sizes believe that revenues and profitability will improve in 2010. But the mood is one of cautious optimism.

For further insight, please participate in our 2010 Best Practices Benchmarking Survey being distributed on Monday, March 1. Participants will have first access to the full survey results once released.

StevensGouldPincus 2010 Benchmarking Survey

10 Predictions For 2010

2009-12-28T22:05:00.002-05:00

By Rick Gould, CPA, JD

1. The PR agency business will not only survive but also prosper.
Our recently completed Economic Uncertainty Survey reported two-thirds of the 157 firms polled believed their revenues would increase in 2010. Only 14% believed they would decrease. Our report will be available to the public on January 11. Participants will receive it on December 29.

2. Profitability will increase for firms who cut back operating costs in 2009. The labor force, trimmed significantly during the recession, will be able to handle more work at increased efficiency. Additionally, firms increasing their billing rates will improve their bottom line. The dismal 11.6% average operating profit of 2009 will slowly creep up to the 20% level that was attained in 2007.

3. The M&A marketplace in PR will become robust once again.
Many firms contemplating a sale in the past couple of years will now be ready to actively pursue opportunities. Holding company firms, historically the most active buyers, will be strategically acquiring firms. Many prospective sellers have realized that their growth potential is limited without the resources, staff and brain trust of a larger regional and/or global firm.

4. Firms will increase their commitment to and budget for training.
Training second tier staff to be more entrepreneurial will be seen as a necessary investment. With today’s financial challenges, senior account staff can no longer solely manage accounts. They need to also manage the “profitability” of those accounts.

5. Finding quality, experienced staff will remain a major challenge in 2010. Recruiters, experiencing a very flat 2009, are already collecting resumes for aggressive distribution in the coming months. You should be doing everything possible to retain quality staff and keep recruiters from luring them away to other competitors. Creative incentive plans are available and should be utilized.

6. Firms will be more aggressive in marking-up rebillable costs to clients. The past two years have witnessed a decrease in this practice. However, for many years it was commonly accepted that rebillables were marked-up 17.65% over cost. The cost of tracking rebillables is cumbersome and should absolutely be recouped, either through a mark-up policy or through the assessment of an administrative fee.

7. There will be an increasing need for new media/interactive divisions. Firms that grow in this area will stay ahead of the competition. Funds should be budgeted to invest in highly skilled staff and advanced equipment to support these areas.

8. Return on Investment (ROI) will remain an issue with clients. PR ROI needs to be discussed and promoted on the same value level as ROI of ad agencies and other marketing service specialties.

9. Brand-building will continue to be a high priority. For both the PR agency internally and for their external clients, brand building online and through new media outlets will take priority over many other projects.

10. Trust and ethics will remain a major necessity for agencies and their clients.

A Healthy and Prosperous New Years to All!!

PR Agency Owners Must Become Better Business People

2009-10-05T11:03:00.003-04:00

By Art Stevens

Why is it that owners of independent PR agencies take more satisfaction in generating great ideas for clients than in making more money for themselves? Where is it written in the PR scriptures that making money is gauche? That you're more obligated to your clients and employees than to yourself?

Let me shatter a prevailing myth among PR agency owners: It is perfectly permissible to satisfy your clients and make a lot of money at the same time. How? By learning how to be a better business person—not just a PR professional.

As PR professionals, we've been trained to do the work—for our clients or for our organizations. We routinely immerse ourselves in providing services and our talents to clients. What gets lost in the shuffle is the management of a business. The shift from being a PR professional to running a business can be very difficult. Many professionals who have made the choice to start and run a business have done so to practice their particular brand of public relations. They haven't initially thought of themselves as business owners, entrepreneurs and capitalists. And if truth were told, many of them don't want to be any of those things.

To run your PR Agency as a business first you must learn how to manage your business profitably and satisfy clients and employees in the process. To that end, here are some basic rules you must learn if you want to run your business like a business:

1. Don't allow your total payroll to exceed 50% of your revenues. If your agency has net fee income of $1,000,000, your payroll shouldn't exceed $500,000. If it's at $600,000, then that extra $100,000 comes right out of your pocket—and your family's.

2. Don't over-service your clients. Using the previous example, if you allow your agency an additional $100,000 of payroll, then you're indeed over-servicing your clients. All clients are perfectly happy to allow you to do more for them than they're paying for. They're no dummies. On the other hand, I've met very few clients who didn't feel that their PR agencies were entitled to make a fair profit.

3. Do not automatically hire new employees when you generate more business. This is one of the major mistakes PR agency owners make.

4. Focus all your efforts on making a pre-tax profit of 25%—regardless of the size of your agency. Your benchmarking parameters must be as follows: 50% of your gross net fee income in payroll, 25% in overhead and 25% in profits. If you hold to these benchmarking parameters, you will provide the appropriate level of service to your clients, hold your payroll to the correct proportion—and take home considerably more money.

5. Begin to think about increasing that 25% pre-tax profit to 30%. Heresy, you say? Can't be done? Sacrificing client service? Absolutely not. What this means is that you will place greater value on the services you provide. You will sacrifice less meaningful services to your client and emphasize the most meaningful ones. Remember, PR agencies aren't assembly lines. We must learn to get paid for value added, not for how many news releases we can crank out.

6. Raise your hourly rates. Go ahead. Take a deep breath and do it going forward. I can assure you that if your clients are thrilled with the work you're doing for them, they will not balk.

These six suggestions are a beginning. They are a means to allow you to rethink your role as an agency owner, to re-engineer your business and to help put you on the road to generating greater profits. If you're frustrated that you have nothing to show financially for all your hard work, dedication to clients and employees, and commitment to quality … take heart.

By changing your mindset from that of a PR professional to that of a business person, you can allow yourself to have the best of all worlds.

The PR Industry Will Rebound Faster Than The Communications Field

2009-08-23T11:24:00.006-04:00

By Ted Pincus

Is the public relations profession overreacting to the global economic meltdown?

Have the massive layoffs and contractions at many agencies and corporate PR departments been ill-conceived?

I contend that they are, and that many bright opportunities will be deferred or squandered in the name of temporary economy measures. We should consider a call for reason, and for the avoidance of panic in the face of bearish headlines. Doomsday delusions should not be allowed to ignite compulsive, irrational cost slashing.

According to one of the world’s foremost authorities on the media/communications industry, PR will not only see an early resurgence of demand but—remarkably—emerge from the recession’s wreckage as one of the nation’s fastest growing industries. Moreover, among the communications field, it is projected to be the number one growth segment during these next five years.

These are the views of Veronis Suhler Stevenson, NYC, arguably the leading economic research and private equity investment firm focused on the communications, media and education fields in North America and Europe. It invests buyout and mezzanine funds for recapitalizations, growth financings and strategic acquisitions. To date it has invested in companies that today have realized and unrealized enterprise values of over $14 billion. For 22 years, it has published the annual Communications Industry Forecast.

Its latest forecast report recently disclosed that PR and viral marketing is not contracting at all but actually growing slightly from $5.195 billion in 2008 to $5.448 billion in 2009, although its growth rate is slowing from 7.1% in 2008 to 4.9% in 2009. But the surprising news is that VSS projects this growth rate to sharply accelerate in the coming four years, showing an annual average of 12.5%. By 2013, our field should have volume of $8.069 billion the report says.

That 12.5% growth rate significantly exceeds the 8.0% forecast for Direct Marketing; 5.2% for Advertising; 7.4% for Marketing Services; and 3.9% for Business-to-Business Promotion, over the same time period, VSS says.

What these forecasts portend for PR agencies is that patience and temporary sacrifice—by agency owners—can pay enormous dividends in terms of maintaining momentum to tap opportunities offered by an economic upturn. This means having the fortitude to swallow major cuts in top management compensation and the bottom line, in order to resist layoffs of valuable talent and contraction of facilities. (I can still remember vividly the values learned when I owned my agency over a half century of periodic recessions, during which I took no salary and no profits in order to sustain client relationships and organizational momentum.)

According to our latest StevensGouldPincus survey of 106 leading agencies, those firms that maintain low staff turnover, low client turnover and realistic operating cost structures should be in the forefront of those benefitting from the coming rebound. Those that remain strong and sustain momentum at a short-term sacrifice of owner comp and profits will be the agencies best able to capitalize on the post-recessionary era.

And is one sure to come? As a Great Depression baby and a guy antique enough to have weathered seven recessions and recoveries, I can sense the historic pattern repeating itself once again. Count on it, and be ready.

“OK, the cheese moved…. why am I surprised?”

2009-07-30T10:36:00.002-04:00

By Jennifer A.K. Schafer Cassani

While muddling through the process of reorganizing my office one night last week, I ran through the management section of books up on the shelf. With my mind occupied by topics and undercurrents of today’s economic tide, a snarky grin broke out on my face as I reached for an oldie: “Who Moved My Cheese?” by Dr. Spencer Johnson.

This book has received both praise and criticism for its simple parable about changes in life. My snarkiness waned, however, as I scanned through the pages first read years ago. It was replaced by a nod of recognition and an eyebrow rose in the realization that the same simple wisdom still applies today.

Who Moved My Cheese?, by Dr. Spencer Johnson
In summary:

1. Change Happens: They keep moving the cheese
2. Anticipate Change: Get ready for the cheese to move
3. Monitor Change: Smell the cheese often so you know when it is getting old
4. Adapt To Change Quickly: The quicker you let go of old cheese, the sooner you can enjoy new cheese
5. Change: Move with the cheese
6. Enjoy Change: Savor the adventure and enjoy the taste of new cheese
7. Be Ready To Change Quickly and Enjoy It Again and Again: The cheese will keep moving

Regardless of whether or not you are a fan of the book, hate cheese, hate mice, or both… its message endures. May this brief rumination, at the very least, give you a fresh outlook and motivation to analyze where you are and where you want to go as a business owner. And may it also serve as a catalyst for undertaking a more productive path toward your goals.

Being a big fan of cheese myself, and armed with a hearty aged-gouda and appropriate vino pairing, I sat back and mused over the concept of change in the business landscape and economy. If the only constant in life is change… then why be so surprised when it happens?

Lamenting the reasons and rationale regarding this current meltdown seems futile, because history and cyclical analysis has shown it has – and will – happen again to some extent. Should we not focus instead on preparing our businesses for future insulation from such events?

Like the surge in sales of bottled water, canned food, flashlights and other essentials when forewarned of an oncoming natural disaster, are we surging to obtain essential things to plan and ensure the longevity of our businesses? Unlike an oncoming hurricane or tsunami, we know all too well that forewarning of an economic disaster rarely comes soon enough. Developing a proactive stance, versus reactive, is the key here.

How are you finding sources of renewed inspiration and motivation to help your business weather this economic storm? Have any recent readings given you reason to pause and ponder?

Benchmarking Study Supports Profitability Theory

2009-06-18T15:46:00.009-04:00

By Rick Gould, CPA, J.D.

“Firms that implement changes based on current benchmarks ultimately realize increased profitability and success.”

The above statement has been our mantra since the last major PR economic downturn in the years following September 11, 2001. That recession, coupled with the Tech boom/implosion, inspired us to become scientific in an industry that is the furthest from an exact science.

The 2009 Best Practices Benchmarking Study, based on 2008 results, with 21 critical categories illustrates a glaring distinction between firms of all sizes, regions and specialties and what we call the “Model Firms.”

The study consists of four revenue categories, nine regions plus Canada and thirteen specialties. A total of 106 leading firms across 27 categories participated, a noteworthy sample.

A significant decrease in Operating Profit was consistent in all categories.

[Please click photo to enlarge image]

So… are the days of 25-30% profitability over? Are the days of CEO’s and Executives earning substantial salaries and still having reserves to invest in quality staff, space and technology over?

We say the answer is “NO”.

In contrast, the twelve "Model Firms” firms that diligently manage by benchmarks averaged operating profit of 24.4%. Five of the firms generated operating profit in excess of 25%.

How do they do this, you ask?

They do it by averaging 49.3% in Total Labor Cost, Base Account Salaries of 37.5% and total Operating Expenses of 26.2%. Their Total Costs are 75.5% of Net Revenues.

We have followed these Model Firms for many years.

• They all monitor their stats monthly
• They carefully control their labor costs, keeping it under 50%
• They closely watch all components of operating expenses, totaling no more than 27%
• They create accountabilities and goals that tied to the benchmarks in our studies

Our Benchmark Report has been sent to all 106 firms that participated in the survey. It will be released to non-participating firms and the public July 1st. Feel free to e-mail if you would like us to send a copy directly to you at that time. rgould@stevensgouldpincus.com

New Opportunities for Lobbying Firms

2009-05-26T13:30:00.000-04:00

by Colburn Aker, J.D.

The power of lobbying is still robust in the nation’s capital. Yet, firms face tougher competition. Acquisition or merger could be their best strategy.

Growing corporation are rushing to hire lobbying and public affairs firms. Why? It pays.

A just-released study shows that clients saved $220 for every dollar they spent in lobbying. More than 800 companies received a tax saving of more than $100 billion because of the new law.

“That’s why corporation are pouring more and more money into lobbying every year,” said Craig Holman, a lobbyist for Public Citizen.

There is plenty of business. In three quarters in 2008, more than 40,000 firms filed Senate lobbying reports, with more than 4,000 new firms included.

The Obama Administration has made lobbying a key target of his ethics policies. These moves have angered many lobbying firms, but have had little apparent impact on the ongoing boom in K Street business.

Corporations want the best lobbyists. They naturally go to the best firms. They also may hire the best public affairs firms, which can promote their issues, but have fewer hours (less than 20 %) meeting with Congress to require a report.

I know that a confidential counselor is valuable. Professionals today will evaluate your staff, compare your costs to others, develop an excellent marketing program, and consider the advantages of acquisition or merger.

The issue business is here to stay. Isn’t it time for firms to come together?

Minimizing Exposure to Client Bankruptcy

2009-05-01T09:00:00.002-04:00

by Rick Gould, CPA, J.D.

Visualize this hypothetical:

• You won your largest account against several top PR firms. You have invested time and key staff in servicing this Fortune 500 client.

• The high-profile client instantly elevated your brand recognition. Their fee is $125,000 per month, representing 41% of your net revenue and generating 25% profitability.

• You are very liberal in allowing your bills to be paid in 75-90 days. You’re sure they are good for it.

• You maxed out your line of credit to cover the receivable. You have no access to additional credit lines or capital.

• You then receive an email informing you that your largest client is filing for Chapter 11 protection and you are just one of several hundred creditors waiting in line.

We read daily about the rise in bankruptcies. Numerous solid companies, previously profitable, have filed for Chapter 11. As their credit lines dry up, as suppliers press hard for payment, as professional costs increase in restructuring debt, as operating costs increase and as retaining expensive turnaround firms add to the bleak mix, bankruptcy protection will continue to be used as a tool in this economic downturn.

Additionally, you may have exposure to outside vendors and suppliers with whom you have entered into agreements on behalf of clients. The vendors/suppliers/freelancers have the agreement with “you”. They perform the service or provide materials for an event. They bill your agency; you bill your client. Your client ends up in financial distress or files for Chapter 11. The vendor/supplier/freelancer is entitled to get paid. You now are on the hook for both the amount due to the third party, as well as for your fees for PR services rendered to your client.

How do you ultimately protect yourself from this kind of situation?

Our distinguished colleagues at PR specialist law firm Davis & Gilbert published a February 3 report in their “Insolvency & Bankruptcy Alert” titled “A Guide for Dealing with Advertisers and Vendors in Bankruptcy.” Although mainly geared to the Ad Agency industry, the advice is equally valuable to PR firms.

Following the advice of Davis & Gilbert could save you substantial dollars and stress if you get caught as a creditor in a bankruptcy filing.

Davis & Gilbert outline the following critical legal protection points:

• Review forms of client-agency agreements and other contracts.
• Consider including provisions that would give your agency more flexibility to terminate the contract or change the terms in the event certain early warning triggers are tripped, i.e. consider inserting a provision that allows you to modify payment terms if your client’s financial condition deteriorates.
• Minimize the risk of a preference action by requiring advance payment from any client in financial distress. Advance payments fall outside the definition of a preference and are less vulnerable to attack. A preference is a payment made by your client to you on a “past due” account or within 90 days prior to the bankruptcy filings. If any payment to you by your client is considered a preferential transfer (preference) you may have to pay it back to the trustee in bankruptcy.
• Formalize agreements with vendors and subcontractors to limit any authority of such entities to legally bind your agency.
• Once a bankruptcy petition is filed, your client is bound by the automatic stay which stops all actions of creditors against the debtor. Violators are held in contempt of court.
• Your client may, at their discretion, elect to assume or reject your contract. If your client assumes the contract, it must make good on all past due balances. The choice, however, is the debtors and the client may not be able to terminate the underlying contract
• As a reward for providing your continued services to your client in Chapter 11, you may be considered an administrative expense for the services provided after the bankruptcy filing. This will put you higher up in the payment priority ranking, but is not a total guarantee for payment. If ultimately a full liquidation (Chapter 7) ensues, even administrative expenses may be foregone.

Conclusion

Legal analysis is required to assess your exposure and resolve any preference attack. It is imperative to have this conversation with your attorney to mitigate the risk of getting caught up in a client’s bankruptcy filing.

For additional information, please contact:
Michael Lasky, Partner at Davis & Gilbert - 212-468-4849 or mlasky@dglaw.com

Through the Looking Glass

2009-04-19T22:29:00.004-04:00

By Jennifer A.K. Schafer Casani

Similar to the nonsensical literary theme found in the 1871 sequel to Alice’s Adventures in Wonderland, the foundation of the current economic landscape is just as distorted. It is only after completing Through the Looking Glass that the reader can make sense of the varied themes and plot devices.

Unfortunately, we in the PR and business world do not yet have the benefit of being at the end of this current economic story. We won’t have the luxury of full-understanding that hindsight brings until the current chapter fully unfolds.

So, then….. How do you polish up the lens of your own looking glass with which you view your firm’s tale? By regaining focus on what truly matters.

1. Focus on your strategic and business plans

These two tools are vital contributors to your firm’s story. They are like the table of contents which outlines how a book unfolds.

Make sure these two plans are revised yearly, or more often as financial factors dictate. And get them in writing; it just isn’t good enough to have them in your head. PR firms with concrete strategic and business plans are valued higher, both in terms of dollars and of desirability by buyers.

2. Focus on your personal plan

Do you still have the guts and gusto that PR entrepreneurship requires? Or has the personal parable of why you do what you do changed? Getting real clear with your personal motivations for being in business, and how they roll-up into your firm’s strategic and business plans, is essential at a time like this.

3. Focus on your bottom-line

As a PR firm owner you are the author, not the ghost-writer. Be personally cognizant of and accountable for what your current numbers mean.

Current, and more importantly correct, financials are like time-saving chapter summaries. Interpret and apply your balance sheet, income statement, statement of cash flows, client roster, employee productivity report, etc. in conjunction with industry benchmarks. Doing so will ensure your expenses and operations are in-line with the desired outcome of your firm’s storyline.

4. Focus on managing time wisely

Wasted expenses aren’t the only factors to consider in today’s economic tale of woe. Wasted time is just as much of a tragedy. Systematically working through numbers 1 – 3 above will tell you where and how long you need to spend this resource.

Work smarter, not harder, on the things you can control. And seek out advisors where your areas of expertise fall short. This will help you navigate the twists and stomach-wrenching turns in the plot of today’s financial saga.

PR Agencies Should Follow Their Own Sermons

2009-04-01T23:21:00.000-04:00

By Ted Pincus

They say that every industry, sometime, faces a watershed moment that separates the men from the boys. This time is ours.

The PR industry has spent a half century on the pulpit preaching one emphatic mantra to clients everywhere—public and private corporations, non-profits, government agencies.

That mantra is simply that nothing is as important in reputation-building as credibility, and the only path to lasting credibility is truth, openness and transparency. Owning PR agencies during that half century, is there any one of us who doesn’t recall the tough crusade we waged? The boardroom debates with clients we endured? And the inner gratification we felt when a client not only acted on our recommendation and came out of his bunker but went on to benefit long term? Did we not all learn the veracity of the lesson we were teaching—and see living proof that rain-or-shine transparency paid handsome dividends in keeping the confidence of customers, employees, shareholders and Wall Street?

If you learned, lived and preached those sermons as I did, how could you not be appalled by the paranoid mentality that has swept over a substantial segment of the PR agency field in knee-jerk reaction to the economic meltdown of the past six months? Witness so many agencies who spent enormous promotional sums and prodigious energy in seeking the spotlight during the bright, glorious climate of the past six years since the 2002 dip, and the entire decade of the 90’s before that.

They could not have been more aggressive, open and informative in trumpeting the impressive fee volume increases and amazing success stories. Everyone, it seemed, was a momentum layer. And as long as the momentum continued, their entire practice was an open book—audited statements and all.

But this year, in many cases, the holy teachings were shelved as agencies ran for cover. Even though some experienced only a drizzle, not a monsoon, they suddenly were beset with lockjaw. The most dramatic manifestation of clamming up: this week’s report by Jack O'Dwyer that, while 23 of the 25 largest independent agencies on his roster reported faithfully—whether good numbers or bad for 08—a remarkable total of 48 other agencies refused to disclose their latest numbers and effectively dropped out of his rankings. He ended up with 157 ranked agencies, including new ones, down sharply from 190 last year.

Nobody ever relishes talking publicly about bad news. In my lifetime, I can’t remember a single client who enjoyed releasing a decline in volume and earnings. And yet a growing number over the years saw the efficacy of consistency in reporting, and even bit the bullet and volunteered to forecast weak results ahead. And if you needed proof that this was the best policy, you could look no further than a 2007 study by Accenture that documented the evidence that all-weather transparency by public companies paid a solid return in long term street support. As an analyst or money manager, you tended to sponsor those companies that placed sustainable credibility above temporary embarrassment. They were never in the closet.

The climate of 2009 is one that none of us—even us Great Depression babies—ever faced before. The end game of this recession—and its impact on the communications field—is unfathomable. It’s a test of everyone charged with managing a business. But part of that challenge is the acid test of whether people can sustain not only their solvency but their principles when the chips are down. It’s seeing if integrity can win out over hypocrisy. Maybe it’s no accident that the most successful independent agencies on the O'Dwyer roster were –with only two exceptions—the ones that led the way in keeping their doors open.

Kudos to PR Agency Owners

2009-03-22T11:21:00.000-04:00

By Art Stevens

I do a fair amount of consulting with independent PR firms and deal directly with the owners. This is a difficult time for PR firms. Many find client budgets eroding and have had to deal with the reality of business squeezes yet another time in this decade.

There’s a very big difference between what happened to PR firms during the economic downturn in 2001-2003 and this time around. The agency owners are handling it better.

They learned a lot of lessons early in this new century. They went from being high level creative PR practitioners to running businesses just to survive. I’m pleased to say that although this current downturn is just as uncomfortable and fraught with danger as the earlier one PR firm owners are handling things much better this time around.

In fact, not a single agency owner I’ve been encountering this year is in any way committed to taking a bath and allowing the business to run them. Just the opposite. They are dealing with the challenges and at the end of the day will come out way ahead.

They’re not waiting for new business to come to them and plough through cash flow. They’re putting their people on shorter work weeks and in some cases reducing total staff salaries by 10 to 15%.

They’re working closely with me as their outside consultant to plan ahead – monthly projections that are conservative; monthly projections that list projected client fees, costs, and anticipated profits.

They’re taking a close look at troublesome clients and not allowing any to rack up huge receivables. The client collection process is quicker than ever and more effective.

But most important, there is no panic among agency owners. They realize they’re not alone in this cockeyed recession and that many PR firms are being adversely affected. Agency owners are more business savvy than they’ve ever been. Maybe that’s because they’ve had to be given the way the economy has played havoc with PR firms twice so far in this new century.

I advise PR agency owners to take action now not later. This is not a time to wait it out or to plough through hard earned profits and working capital. There is no need to take losses while waiting for good times ahead. Attack, attack, attack. Pare down. Take steps. Things may get worse before they get better.

But I’m preaching to the choir. And that’s why I say kudos to PR agency owners. They’ve learned.

Now May be the Best Time to Acquire

2009-03-09T19:52:00.001-04:00

By Rick Gould, CPA, J.D.

For most prospective buyers, an acquisition in this period of economic uncertainty appears high risk. Some buyers may be hoarding cash reserves previously earmarked for acquisitions in case the downturn sticks around longer than anticipated.

However, now may be an opportune time to acquire IF:

• A firm is stable financially and has a clear vision and strategy, and

• A firm’s strategy is to strengthen core business, create a new niche division or to have another “existing” office

While the strategy of most firms in a downturn is to focus on maintaining the core clients and specialties, an acquisition can be a positive option to supplementing core values. Expanding in scale and scope can both add to a firm’s bottom line and post-recession position. More time is available during a recession to focus on effectively transitioning the merged firm.

From a sellers’ perspective, we have found that many who have never entertained selling before are doing so now. They are looking to be relieved of back office, gain depth of staff, have access to additional capital, protect their present financial position and secure the family financial future. The correctly matched buyer will support their priorities and values.

Other prospective sellers have realized from this downturn that being an entrepreneur is not always lucrative and fun. The financial and personal risk became more real, and they concluded that managing all aspects of the PR agency may not be for them. PR and client service are their passion, and their preference moved away from independent entrepreneurship and toward securing a senior level position within a larger PR firm.

Although valuation multiples have certainly decreased, we do not anticipate they will be further reduced.

The best positioned buyer firm will have a solid acquisition investment plan. Such a plan consistently points to the goal of making an already valuable buyer’s business even more valuable.

When managed, cultivated and executed properly, the acquisition investment for the buyer will have a significant payback. The value-added in earning potential will be in multiples more than its cost once the investment is recouped. Few, if any, of the major public firms today grew solely through organic growth.

What may spell economic uncertainty to selling firms could translate to major opportunity for those properly positioned on the acquiring side.

Crisis of Confidence? Not at Your PR Firm.

2009-02-22T17:00:00.001-05:00

by Mike Muraszko, Partner

My SGP colleagues and I speak with PR agency principals around the U.S. on a daily basis. As you’d expect, most recent conversations haven’t been focused on “sky-is-the-limit” optimism, sustained and steady growth, or record margins. Most agency heads instead talk about weathering the present economic meltdown, working feverishly to maintain their current client base and budgets, and competing for new business more intensely than ever before.

While few would deny the severity of the global financial crisis that has cast a painful domino impact on the entire ad and marketing services sector, PR firm management, too, needs to guard against becoming part of the general “crisis of confidence” that presently holds many Americans captive. The solutions to our Wall Street, banking, and automotive industry calamities appear to be systemic and will require difficult, long term, no-holes-barred, solutions. To say the Obama Administration has its work cut out for it is an understatement.

I was chatting with a PR agency president here on the West Coast last week and he shared his thoughts with me about the present state of affairs. “I don’t have time to worry about the fate of my business in these tough times. As I always have, I determine my own fate and success everyday when I counsel a client, approve a marketing expenditure, or hire and retain a great employee.” He went on the say, “I don’t mean to over-simplify, but if you dwell on today’s harsh business reality, you lose sight of the solutions.” Frankly, I believe his comments are very much on the mark, and for me the conversation sparked several take-aways consistent with what SGP and savvy agency execs have been advocating. Among these are:

- Observe financial discipline. It should, ideally, be standard practice in both good and recessionary times. It pays dividends regardless of economic conditions. As SGP managing partner Rick Gould puts it “Manage by benchmarking. Manage by the numbers.” It’s your first line of defense in getting your agency through this recession.

- Service, service, and service. The core strategy in the present environment is keeping the current client. As Launch Squad (www.launchsquad.com) partner and co-founder Jason Mandell has noted, enhance services, innovate, and stay relevant. Said Mandell in the 01-14-09 issue of The Firm Voice, “The temptation is to go back to your bread and butter, to hunker down, and not invest. That’s a big mistake… If your agency doesn’t stay fresh during the recession, you’ll have to play catch up during the recovery.” And the recovery will surely come!

- Treat your people well – now more than ever! This is a trying time for many on multiple levels – financial, professional, and personal. Make sure you’re totally in synch with your star performers too. Be up front also about the challenges your agency may face, but reject use of scare tactics. You’re a team that’s in this together. And as Coyne PR (www.coynepr.com) president Tom Coyne commented in the 01-14-09 The Firm Voice edition “Don’t forget to be a leader. And don’t forget to show the firm you’ve been through this before: Reassure them that you do have a plan for the downturn – and make sure you do have a plan.”

Let’s face the facts. The unraveling of the U.S. and global economies over the last 12 months has been unnerving. And there’s likely more bad news to come before we hit bottom. Confident about your agency’s future? Maximize your affirmative response to that question by maximizing the above and other best practices.

The Reality of Economic Uncertainty

2009-02-09T16:30:00.000-05:00

by Rick Gould, CPA,J.D.

The just-released SGP PR Agency 2009 Economic Uncertainty Report fully validates the edginess and lack of confidence most of us feel regarding a quick economic turnaround. Overall results of the 237 PR agencies participating confirmed what we all feared.

- Projected revenues were down substantially from a year ago
- Clients’ budgets were down substantially from a year ago
- Negative impact of the bottom- line was felt by 64% of the firms in contrast to 18% a year ago.

We are in for a challenging 2009. According to our study all areas of the U.S. are feeling the pinch, although New York firms and Southern California firms had less of a negative impact on their bottom-line (still 69% negative).

You are all likely reading articles, editorials, columns and op-eds about how to survive this debilitating economy. Or maybe you prefer the shows (and their websites) that zero-in on politics and the economy - such as Morning Joe on MSNBC, Neil Cavuto on Fox or Campbell Brown on CNN. There are dozens of other anchors who can give you input on the economy no matter what your political preference may be. What they are all saying unanimously is that the economy is in major trouble, and it will take substantial time and effort from all sectors to get us from recession to prosperity.

The reality is: we all need advice and input from people who are smarter, more experienced and/or more specialized than we are. These are unprecedented times.

But no piece of advice will fit all situations; every PR agency is different. Each CEO may have a different style of management and different aspiration for the size they want to be. The number of offices needed to service clients, different niches offered, strategies to unlock profit potential and services to offer clients are all critical questions to re-visit this year in order for a firm to prosper. The answers should be as unique as each firm, tailored to support its individual strategic plan.

So my best advice is:

1. Review the 2009 Economic Uncertainty Report
2. Review how it applies to your firm based on size, location and specialty
3. Think about how your firm stacks up, and what strategy is in place to capitalize on the PR agency rebound that will follow the recession
4. Use any business down-time to tighten management procedures and client budgets, and to pursue previously postponed business planning and creative projects
5. Most important, stay optimistic and positive. Prosperous times will ultimately return.

SGP PR Agency 2009 Economic Uncertainty Report (Economic Uncertainty Report 2009)

Executive Meltdown

2009-01-29T14:40:00.001-05:00

By Rick Gould, CPA, J.D.

Like most of the country, we had hoped the sale of Merrill Lynch to Bank of America would produce a larger, stronger financial institution and set an example for the banking community at large.

Instead, we were outraged to find out that just subsequent to the shareholder merger approval - and prior to releasing fourth-quarter losses - the Merrill Lynch Compensation Committee approved close to $4 billion in discretionary bonuses for executives and selected staff. And to make matters worse, we now find out that it was allowed by Bank of America! Our government had to fork up an additional $20 billion from the Troubled Asset Relief Program (Tarp) and guarantee additional debt to close on the acquisition of Merrill Lynch by B of A. This is unacceptable conduct and goes far beyond the definition of C-Suite abuse.

The federal rescue package was not intended to line the pockets of executives who already were grossly overpaid considering the billions lost by their banking institutions. It was meant to stimulate the economy and assist borrowers who need the banks as equity partners in their personal and business lives! What has become of the American way?

John Thain deserved to be fired. Merrill Lynch was in crisis. When he was made CEO thirteen months ago to rescue Merrill Lynch from failure he had to know they were getting clobbered in Q4 ($15 billion loss), experiencing dramatic losses for 2008 (ultimately $41 billion) as he was contemplating lavish pre-merger bonuses and as he paid out $1.2 million to re-decorate his office. Now pressure is mounting on Ken Lewis, Chief Executive of Bank of America, to resign for his mismanagement and withholding vital information from shareholders.

As a result of these recent events, Bank of America is in crisis and their share price has decreased by an astounding 80% in the past four months.

A meaningful stat in the just released 2009 EDELMAN Trust Barometer (http://www.edelman.com/trust/2009/) found “trust in U.S. companies at a low and trust in banks fell 16 points to 31 percent.” http://www.prweek.com/uk/home/article/876203/Trust-banks-collapses/

The good news is that both the new federal administration and the Attorney General of New York are both committed to implementing and enforcing stricter rules and compliance on executive pay, over the top bonuses, and lavish perks. We will be watching closely.

Nouveau Poor Society May Take Two Years of Therapy Before Regaining Trust & Traction

2009-01-20T11:00:00.000-05:00

SUN TIMES COLUMN 320

By Ted Pincus
What hit us this year? Let’s sort it out and have a look ahead.

This autumn, in a reversal of fortune perhaps unprecedented in modern history, American society morphed into the Nouveau Poor. The American dream became a galloping nightmare, the end of the era of excess.

Unforeseen by virtually any of the pundits, policy priests or players, the global meltdown left us all disbelieving, fleeced and wildly disoriented. We asked ourselves: How could a government run by seemingly risk-averse conservatives allow myriad crap games to take place with our money on the line? How could the icons of Wall St. shoot the moon on flaky leverage while garnering 10 percent of the nation’s salaries? How could our most revered banks end up on their knees? How could the auto companies that were symbols of industrial might over our lifetime be on the street today with a tin cup? How could noble global giants like Siemens be nailed on broadscale bribery charges?

And how could a time-honored, sweet old salt-of-the-earth money manager—a dad, uncle, gramps and Park Avenue paragon—scam some of the world’s most sophisticated investors out of $50 billion for the fun of it?

But there is was. The unreal became real. Nigerians were suddenly being warned to be wary of emails from Americans seeking deals. And if you received an insufficient- funds notice from your bank, you weren’t sure if they meant your money or theirs. And after a quarter-century binge, you’d think that the big dose of cold water would sober us up and we would have learned a few lessons. But that’s hardly the case.

I find two aspects of the travesty especially fascinating. One is the concept that nobody admits to being accountable for the most severe recession since the Great Depression, nor the most precipitous drop (47 percent this year) in the equity market (and likewise many people’s net worth.)

Despite a proliferation of sheriffs on our range –dozens of federal agencies watching over us and thousands of regulations in place—nobody saw the wild west show evolving and blew the whistle. Newfangled, fancy securitized mortgages for sub-prime borrowers, blessed as triple A. An insane spiral of executive comp,pomp and entitlement driving a mad auction of home prices and corporate jets. Nobody (except Economist Joe Stiglitz) said “This is all unsustainable.” Certainly not the feds nor the legislators nor the financial system,precarious as it was becoming with brokers leveraged 35 to 1. When everyone’s enjoying the party, nobody want to be the one to say “the party’s over.”

Thus as we view the wreckage, no one steps up to claim responsibility. Lawmakers who fell for the siren song sung of Fannie Mae and Freddie Mac lobbyists and allowed lax oversight are the same ones now castigating the villains. There has yet to be an overhaul of supervision of the great arbiters –the major rating agencies whose profit motives colored their blessings, turning watchdogs into lapdogs. The carmakers have yet to admit that their blind, unstoppable output of iron behemoths made them anachronisms in the market. In fact, other than Master Illusionist Madoff’s stunning confession, the only mea culpa murmured by anyone was this month’s quiet acknowledgement by top cop SEC Chairman Chris Cox that he had sort of slept through the gathering storm on Wall St.

When Walt Kelly’s Pogo paraphrased Commodore Perry and proclaimed that “we have met the enemy and he is us,” he was pushing conservation, but could well have admonished all of us this year. Let’s face it. We were all asleep and ultimately all accountable for both the financial collapse and the moral meltdown.

The second fascinating thing is that despite the jolt, we’re still ignoring many root causes of our latest disaster. While the ’29 crash really affected a modest number of fat cats and two-bit speculators on high margin, the Crash of 08 was a great leveler. It democratized the agony, impacting most of the nation’s 67 million shareholders plus untold others indirectly through benefit plans and dependency.

Yet as the smoke clears, why have we still so many lessons to learn? With Madoffs on the make and governors on the take, where are the new safeguards? How long a reaction time is necessary? How long does it take for Congress to figure out that Sec. Henry Paulson who emerged from Wall St. to help create the present mess is the same guy doing massive damage in the same barnyard? Why would they decry a sick banking system and then hand him the first half of a $700 billion Troubled Assets Relief Program bailout kitty to simply dole out to a few of his favorite banks, plus a whopper to AIG, with no strings attached? They’re sitting on the dough and pumping virtually none into our strapped system. And with 20 days left of his reign, why are some legislators considering handing him more?

The whole epic is becoming a cliff-hanger because a brand new posse comes to town in a few days, armed with a different kind of stimulus package. It sensibly aims at stemming foreclosures first, forestalling bankruptcies, reversing the home price slide, hopefully with a massive refinancing program to give livable 4.5 percent, 30-year-fixed mortgages to the millions out there in trouble. It will likely launch an array of infrastructure projects that should create 30,000-50,000 new jobs for every $1 billion spent. And the highest priority will be intangible: a restoration of trust in each other, bank to bank, business to business, and people to government. (Faith will be a tough hurdle. For example, consider that the Dow didn’t recover its 1929 high until 1954) We can only hope that the Paulson swan song will be prevented from further sabotaging America’s new dawn before the sun has a chance to rise.

A year ago on this day, my column expressed the worry that we were already in a recession, and were due for a very rough ride in 08—and I only hoped I was wrong. As a Great Depression baby and now an aging flack, I’ve seen seven recessions. I believe this one will be the worst by far, the most stubborn, painful post-war period of our lives. While the Obama team faces economic challenges almost as awesome as did FDR, it also faces the dual dilemma of global terrorism and simmering conflicts on most continents. It will be tackling a trillion dollar rescue task while saddled with a leftover $9.8 trillion national debt and soaring health and social security obligations. Triggered by the avalanche of mortgage delinquencies forecast to double this next year and unsustainably high credit card debt, the economy is quite likely to see a 6 percent plunge in GDP, unemployment in double digits, and 24 months of anguish, I believe.

But as Nietzsche said, what doesn’t kill us makes us stronger. And if we do wake up and realize that the free lunch was always a myth, that sacrifice is a necessity, and that each of us is responsible for past neglect and wishful thinking, we may emerge from this mass embarrassment as a trimmer, healthier, wiser society. If we do, our future New Years will be well worth celebrating.

Gameplan for the Recession of 2009

2009-01-05T20:24:00.004-05:00

By Rick Gould, CPA, J.D., Managing Partner

We tell all of the PR agency CEO's that we counsel that if they continue to manage by benchmarking, manage by the numbers they will get through the current recession that will hit us the hardest in 2009. Here are some tips we offer that may be of help to you!

1. You MUST lay off staff if revenues are down...you can't keep staff and "hope" things will get better. It takes courage and is painful but it must be done.

2. Cut costs wherever possible... freelancers, temp help, non-essential travel and entertainment.

3. Freeze hiring unless for a critical position...All staff needs to work harder and longer to get through the recession. Bonus staff members that do so after the firm is over the hump. Any staff members not willing to do so should be the first to go.

4. Defer bonuses other than for lower level account staff and admin staff who count on their week or two salary bonus to survive.

5. All management take pay cuts...They received big raises and bonuses when times were great in 2006 and 2007 and now they need to reduce compensation and/or forgo bonuses for the new year.

6. Use C-Suite Conference calling whenever possible instead of meetings that entail expensive travel and hotels. Do a line by line analysis of each cost and expense and look where it can be reduced.

7. Management teams must "manage" very tightly...staffing levels and mix of account teams. All staff should know that their commitment to efficiency and productivity is necessary and expected. The account teams need to work within client budgets to assure profitability.

8. Sublet space if you have space available after layoffs.

9. Meet the recession head on...What is needed now is leadership, discipline and guts to do what is best for the "firm"....(i.e. layoffs, cost-cutting and belt tightening across the board). PR agency CEO's are smarter as a result of the recession of 2001-2002. Having gone through it they have built up cash reserves and learned how to manage by the numbers. They have also been open to advice by professionals who are in a position to help them.

10. There is no road map or crystal ball for 2009. The squeeze is on but it is not a surprise. It has been predictable for months. It was foreseeable. So PR pros should not complain, just roll up their sleeves and do what is needed to get through this and still maintain respectable profitability of at least 15% and hopefully 20%, which was the average of firms for last year.

At SGP we believe with tight management and knowing what is needed to be done the majority of the firms will be fine. CEO/Owners of smaller PR agencies that are not prepared for 2009 will most likely end up merging their firm into a larger firm and go back to being PR account execs and not need to worry about the back office, tight cash flow and managing the firm.

The key to strategy in a recession is KEEPING THE CLIENT, at all cost, especially when client relationships may be at risk due to disruption of account teams due to layoffs, and to client earnings declines. It means super attention to justifying PR program results and value; and maybe voluntary adjustment of client fee commitment. It's better to negotiate a fee reduction on a temporary basis than lose the client forever.

To weather the coming New Year, CEO's and Owners should cultivate a positive outlook and vision for their firms. Take advantage of your downtime by tightening management and improving accountability. Develop and increase marketing strategies and find other projects to provide and enhance the creative edge, unique to your own company's strengths. Be sure to communicate your vision and be optimistic, as it will inspire enthusiasm. Let the downturn be the spark to drive innovation and creative thinking in 2009.