Arun Sudhaman 07 Apr 2019 // 8:30PM GMT
We need to talk about Edelman. That’s not to say we’d like to talk about Edelman, although — and we can say this with some degree of certainty — people do like to talk about Edelman. By now, every Holmes Report editor is aware that the mere mention of the world’s biggest PR firm in one of our headlines guarantees the kind of traffic spike that no other industry story can imitate.
But no, we actually need to talk about Edelman, because the agency that for so long set the standard as both the industry’s most disruptive and consistently successful force has undergone a three-year stretch that, even by its fabled standards of "organized chaos", raises legitimate questions about the PR sector’s ability to meet the critical challenge of transformation.
Consider the facts. First there is the precipitous decline in growth, from the heady double-digit years when Edelman’s expansion was as predictable as China's GDP performance. Instead, the only consistency these days is in Edelman’s anaemic financial returns, demonstrated most starkly by its first revenue decline since the global financial crisis.
That 1.1% decrease came after Edelman grew by just 2.4% in 2017 and 1.8% in 2016, results that iconic CEO Richard Edelman vowed would never become "the new normal" for his beloved business. Which is worth noting, because numbers like these would barely merit a raised eyebrow at one of Edelman’s publicly-owned rivals. But this is Edelman, the company that helped to redefine the boundaries of PR during a 15-year period of turbo-charged expansion that saw it quadruple in size to become the world’s biggest PR firm.
Then there is the senior-level turnover, something that has always seemed to function as more of a benefit than a burden at Edelman, instilling new thinking at a faster rate than its network rivals, while ensuring that no one gets too comfortable with their spot on the roster. Yet, a quick glance at the roll call of names that have left in recent times — including some of the key architects of the firm’s stunning rise — suggests a unique level of pressure on this delicate balance.
More on which later. Five years ago, we examined Edelman’s ascent to the top spot, and whether the agency could continue to innovate despite becoming the undisputed market leader, rather than those ornery outsiders from Chicago. Legendary founder Dan Edelman may have passed on, but the question still seemed like something of an academic exercise, given the unbridled energy and restlessness which his son Richard had demonstrated during his first decade in charge.
Not for the first time, perhaps we were asking the wrong question, having grown overly accustomed to the conservatism that often characterises the world’s biggest PR firms. Because Edelman’s instability carries with it the lingering notion that the biggest PR business of them all has been too committed to change rather than too little, has poured too many resources into hiring those 600 creatives and planners, rather than opting for the kind of incremental transformation that appears to be serving key rival Weber Shandwick so well.
Richard Edelman would probably welcome this interpretation, given the aggressive entrepreneurialism that has fuelled Edelman’s meteoric growth at an agency that has always appeared to prefer big bets over tepid tinkering. But even this diagnosis, judging by the observations of numerous Edelman executives and alumni, is open to debate. And on that much, at least, we can be sure — where Edelman is involved, there is always plenty of debate. So, let’s talk about Edelman.
"We’re still like a sophomore in college"
Proof of concept
Proof of concept
Richard Edelman likes his metaphors. "I want you to think about a big oak tree," he begins, to explain Edelman’s current predicament. "We had a very strong trunk in the PR business. The first branch we built was digital, and that was really quite successful. The next branch we built was creative. Then Edelman Intelligence is another branch. Zeno is a separate tree, under the shade of Edelman."
You get the picture. Edelman’s growth has been fuelled by its embrace of new services and products, most notably in its digital practice, which now accounts for at least 20% of revenues. After turning that into a $200m business, it is hardly surprising that the firm turned to marketing budgets as its next source of growth, particularly when you factor in the broader convergence at play in the industry.
By now, the narrative is well rehearsed. Traditional communications budgets are under pressure, stifling agency growth, particularly at the larger end of the spectrum. Meanwhile, the boundaries between earned, paid and owned media have effectively disappeared, causing the premium on earned-first ideas to spiral inexorably upwards. PR agencies, accordingly, have an unprecedented opportunity to lead brand-building campaigns, rather than just loiter on the margins. And that, all told, should help PR firms unlock marketing budgets that can be 10 to 20 times as big as a typical communications retainer.
It is a seductive portrait of the industry’s future. One that — to some degree or another — has entranced all of the major networks. But while some have dipped a toe, or made a modest plunge into the waters of integration, Edelman’s immersion has been the most complete. The agency makes much of the 600 creatives and planners it has hired over the past five years, along with a string of high-profile names from adland, including Judy John and Mark Renshaw from Leo Burnett, Rupen Desai from Lowe, Carol Potter from BBDO and Jesse Lin from McCann.
All of those hires have been made with the express goal of tilting Edelman towards bigger brand building assignments, the kind of work that wins at Cannes rather than just impressing comms directors. But they have also coincided with Edelman’s financial slowdown, leading to an obvious question. Is Edelman’s investment in creativity to blame for the firm's recent, sluggish, performance?
Unsurprisingly, Richard Edelman sees it as correlation, rather than causation. "I feel like we’ve really made a bold step in an industry that is in transition," he says. "We’ve put our money where our mouth is, we have absolutely committed ourselves to the change and I think we are making real progress in the work, and the work is what matters most to us — the numbers will come."
Accordingly, Edelman admits that he is willing to accept a few lean years while his firm demonstrates it can deliver on his vision of "earned creative".
"I would say that, for us, the success with the work proves the concept," he explains. "Of course we must be tighter and faster and all that. You know when you’re a freshman in college you have a certain way of approaching things. By the time you’re a junior you know how better to do it. And we’re learning based on experience and trust and people working together."
Edelman used a similar analogy when I interviewed him onstage at PRovoke18 six months ago. "You can’t just have a good idea, you have to prove it’s going to work, do your research, and have new forms of execution," he said at that time. "We’re still like a sophomore in college in terms of our ability to completely execute, but that’s the dimension we’re now competing in."
And, to make the point even clearer, he often resorts to another metaphor — this time a sporting one that casts Edelman as a football team that has finally made it to the Premier League. That might serve to undermine Edelman’s existing PR competition (League One, anyone?) but the argument is clear — the agency is on a steep learning curve, and some allowances should be made.
Underpinning this is Edelman’s fierce belief that the PR industry must make its case direct to end users, rather than relying on the third-party proxies (most notably journalists) that have served as informed intermediaries. To do that, he believes that advocacy has to be as visual as it is educational, as shortform as it is longform, against a backdrop of ad blocking and cord cutting and companies that must stand for much more than mere profit making.
"All of this is making it harder to reach through paid," points out Edelman. "So if my theory is correct, earned creative is really going to be a very important means by which companies communicate direct with the end user."
What matters right now, claims Edelman, is that the firm can demonstrate an increasing ability to deliver on this vision, via the work that it is doing for clients. And there are examples aplenty, from an HP campaign that challenged the idea of an ‘All-American Family’, to Dove's Real Beauty Productions with Shonda Rhimes. For the WNBA, meanwhile, Edelman created a fan recruitment campaign that started in earned and social before ultimately turning into a 30-second TV spot, while the firm has also developed standout creative campaigns for Crockpot in the US and Unilever in India.
Another example comes from Taco Bell, for which Edelman created a job fair to help the company find more qualified applicants in a fiercely competitive labour market. "They have really delivered when it comes to bringing creativity to things that might seem mundane," says Rob Poetsch, public affairs and engagement director at Taco Bell, adding that Edelman was initially tapped for its corporate reputation expertise in terms of the food and nutrition sector.
That is exactly the kind of pattern that Richard Edelman wants to replicate across the firm — where Edelman’s expertise in one realm ultimately nets it increasing business across a client’s other marketing and communications functions. "We’re seeing more creative output from them both in ideas and the people they are bringing to the table," says Poetsch. "In certain areas, they are leading creative. What we like is they have a lot of expertise across the board in areas that we can tap into."
Taco Bell is a relatively small Edelman account. There are further examples from the B2B world — notably Mitsubishi and Tenneco — which involve Edelman serving as the lead agency partner. The implication is hard to miss. Edelman is hoping that this type of work ultimately translates into the bigger marketing budgets on offer from major consumer and technology companies, even if that reality has yet to take shape.
"Those are the kinds of work that make us feel bullish about the future," says Edelman North American president Russell Dubner.
Category of one"We can do that work faster, cheaper and more effectively"
Underlying Edelman’s attempted transformation is another premise. That the holding group model, the de facto option for major marketing agency relationships, is under pressure like never before. "I think that clients are going to look at all their relationships and see who provides real value," asserts Edelman. "If it’s about shareholder return as opposed to what’s good for the client, that doesn’t cut it."
To Edelman’s way of thinking, the holding groups are either too focused on media billings, or committed to digital first. "We’re unique in that we come to the table with earned creative that can actually lead," he claims. "Within a holding company, I doubt that can actually succeed."
That may be so, but many big CPG players are taking the axe to their marketing budgets. That includes Unilever, one of Edelman’s most important relationships. Yet, even here it appears that the Anglo-Dutch conglomerate is more focused on wringing more value from its holding groups, rather than actively investing in other options.
Edelman’s response to this contention has been typically feisty. At PRovoke18, he publicly criticised the moves to integrate Ogilvy and MSL into their creative sibling networks. "The people who are the best at those places, maybe they want to be with that group of buccaneers who still think PR is the lead discipline," he said at the time. "So bring it. Tell Arthur Sadoun I said so."
Six months later, he is a little more circumspect. But only a little.
"I think that the holding company concept has been around for 25 years and, in that period, we’ve gone from number seven to number one," he points out. "The reality is we bring a different approach. We like our chances. We want to be best in category and we want to grow our category."
But what is that category, exactly? 15 years ago, Edelman embarked on an ambitious program to build its digital offering, investing well ahead of the curve — a strategy that ultimately paid off handsomely, helping the firm overtake its margin-obsessed rivals. So the firm could be forgiven for emulating that approach when it comes to creativity.
Except that there is typically a risk inherent in being too far ahead of the market, especially in an era when big companies are becoming increasingly conservative about their client choices. Asked to define the category that Edelman now believes it occupies, Richard Edelman responds with "We want to expand beyond PR into broader communications. We’re the communications business. We do PR, we do digital, we do creative, we do experiential and we do advisory, we do employee engagement, so we are a communications company."
Which sounds suspiciously like a public relations agency to me, with — indeed — the kind of model that all of Edelman’s key PR rivals are aiming to deploy. "I’d say we’re the most evolved in the communications category," adds Edelman. "I think that there are specialist firms that do parts of it. I think the holding companies are marketing services firms. We’re a communications firm."
The semantics may count as a notable shift from five years ago, when Edelman professed his attachment to the "public relations" label, alongside the 'communications marketing' slogan that appears to have quietly fallen by the wayside. But, leaving that aside, the risk for the firm may be that it has invested too much in an offering that clients — more accustomed to buying a particular type of agency, rather than a particular agency — are not quite ready for.
"We have a really important business idea," responds Edelman, unwilling to concede the point. "We’re going to pursue this with all our power. My entire senior management team has conviction around us being right. We can do that work faster, cheaper and more effectively."
Meanwhile, global accounts continue to recede — putting major networks at a disadvantage against the local heavyweights and midsize agencies that have outperformed the market in recent years. For a long time, Edelman bucked this malaise; perhaps the surprise is that it did not catch up with the firm sooner. Even Weber Shandwick, Edelman’s key agency rival, saw revenues decline in 2017 before rebounding to growth last year.
All of which places increasing pressure on the creative model to work, by unlocking bigger budgets. "We have to be really great at what we’re trying to do because, for a client to take the jump and say 'I don’t need to do this with a classic ad agency but we’re going to trust Edelman to do it', we have to have the best ideas and the best people and the best service concept," admits Edelman. "That’s why it’s so great to be a family business."
"People who spend time with CMOs can see the opportunity," says a senior Edelman executive, on condition of anonymity. "There’s a thread that encapsulates when the creative model works. Have a really great understanding of culture first and earned. And [someone who] can convince a CMO or CEO to give us lead creative duties."
"It’s culture more than anything"
Many agencies make a virtue of senior-level stability. And why not? There is much to be said for leadership continuity, particularly when it comes to managing client relationships. But the corollary to this truism may be that familiarity breeds complacency, and a certain amount of turnover is required to ensure that ideas do not stagnate.
Edelman has always seemed like an agency that veers towards the latter interpretation of talent management, not least because of the firm’s legendary ability to attract some of the best in the business. Richard Edelman in particular, has rarely shied away from the opportunity to inject new thinking into his leadership ranks, trusting that the bottomline benefit will outweigh any potential downside from disruption.
For the most part, Edelman has got this equation right, as demonstrated by its irrepressible surge to the top spot. Recent years, though, suggest that Edelman’s talent equation has tipped beyond a restless pursuit of excellence towards an unhelpful level of flux. In a relatively short space of time, the agency has bid goodbye to a slew of senior executives, while also turning over a high number of P&L leaders across local and regional markets.
Neither does there appear to be any one pattern that explains the turnover. Some are architects of the firm’s rise (David Brain, Alan VanderMolen, Julianna Richter, Cornelia Kunze, Kevin King); others are adland transplants (Mark Renshaw, Rupen Desai, John Clinton); many more are leaders of key markets across the US and internationally; and a handful are casualties of a more streamlined global practice offering (Michael Stewart, Tish van Dyke, Gavin Coombes).
Richard Edelman chooses his words carefully when asked about the departures. "We’re trying to have managers who are, in a way, leading us into the future and this transformation of our business is one that is, as you described, a continuing process and so I’ve been very comfortable with saying that, you know, I’m really proud of the team and I’m going to continue to push for attracting the best talent to the firm."
Quite reasonably, Edelman also points to the numerous senior hires the firm has made — many of whom fill roles left vacant from departures. There is #LikeAGirl creator Judy John, for example, the firm’s latest high-profile adland hire, joining other ex-ad industry executives like European head Carol Potter and APACMEA chief Jesse Lin. Thomas Crampton has arrived from Ogilvy to lead digital, while Joe Lockhart, Richard Wergan and Stephan Kehoe have all brought corporate heft from in-house roles, in the shape of the NFL, Philips and Visa, respectively.
And there are some eye-catching market leadership appointments: Rachel Winer from Buzzfeed to lead Chicago, Ernst Primosch in Germany and Omar Qirem in the Middle East. Indeed, Dubner defends the changes in the US — where there has been turnover at the top in Chicago, San Francisco, LA, Atlanta, Portland and Washington, DC — as the necessary price of transformation, noting that several of the former market heads have moved into more entrepreneurial roles.
"After people develop that perspective, they can then step into another role where they can drive a whole set of value because they’ve been in a place where they’ve had to integrate all the pieces, which equips them well for the next chapter," says Dubner. "I think that befits the philosophy that Richard has described."
"I want to retain the core and I want to add new perspectives," adds Edelman. "I want to do both, it’s not one or the other. It’s not binary and so you know if we want to evolve the business, we have to bring in people from Buzzfeed. At the same time, we have to retain a Kevin Cook who’s been 20+ years at Edelman and was an absolute all star for United and AllState. It’s both."
Richard Edelman is probably more comfortable than most with this kind of fluidity. This is, after all, a man who once described "organized chaos" as his agency’s guiding principle, who disdains the traditional leadership hierarchy that would make his managers subservient order-takers.
"We’re still hungry, we’re still entrepreneurial," he points out. "We don’t run a top down, kind of by-the-numbers organisation. We give a lot of room for senior people to make decisions and but it all has to be client service and excellence and creativity and I think our culture is as it has been."
And yet, the notion that change is always afoot at Edelman is not always an invigorating one, particularly as growth slows at an agency that has rarely struck observers as a soft and cuddly workplace.
"Even in the good times, I found the culture hard and unsupportive," says one former Edelman leader. Or, as one existing executive puts it, "I think it’s culture more than anything. It’s that competitiveness internally that is getting in the way — imagine if we harnessed that for good."
While Richard Edelman rejects the notion that culture is an issue, he does admit that the firm’s slowdown, along with its transformation challenges, have caused him to rethink at least one aspect of his leadership.
"Well, I think it’s made me feel as if I need to be very visible with the people," he explains, pointing to a recent town hall call before Edelman publicly unveiled its disappointing 2018 numbers. "For instance before I spoke to you about the numbers I talked to our people and I said we are completely committed to this strategy and we are playing the game for the next 10 years. We are 100% committed to keeping our best people and we’re just — as we would advise our clients — we’re just transparent about what we’re doing and how we’re doing it."
Acquiring problems"We’re really undaunted about doing these acquisitions"
Complicating matters further has been another, far more conventional, aspect of Edelman’s expansion strategy — namely, the firm's acquisitions of other businesses. Once again, this has typically served as a high-functioning, if somewhat risky, component in Edelman’s outperformance of the market.
During its run to the top, for example, the firm snapped up some of the most attractive agencies from across the globe — JCPR in the UK, Parisian outfit Elan, Vollmer in Texas, Indonesia’s Indo-Pacific, Significa in Brazil, Ergo in Germany, Dabo in the Middle East, Sweden’s Deportivo, Pegasus in China and entertainment firms UEG and Matter — adding scale and capability to underpin its rapid growth.
But agency acquisitions are rarely a linear process that follow a simple additive formula. Founders leave and many fail. For Edelman, a number of deals have proved particularly ill-fated, in key markets to boot.
In China, for example, the political scandal around Pegasus served to stymie Edelman’s growth in a critical market for several years. Deals for Dabo, Ergo and Russia’s Imageland also saw significant challenges. In these cases and more, the fallout has often included the departures of key personnel, subsequent instability, restructuring and, occasionally, the closure of entire offices — as in the cases of Moscow and Stockholm. (Edelman also shuttered startup operations in Poland and Turkey as part of a drive to focus on higher-performance European markets).
Edelman has been absent from the acquisition trail for the past three years, robbing it of a natural stimulant amid its current low-growth malaise. That will no doubt change as Richard Edelman seeks to rejuvenate growth at the firm. There is no escaping the irony that, as Edelman’s acquisition game has stuttered, key rival Weber Shandwick has stepped up its dealmaking to notable effect.
"Look to us in the next year to do a couple of acquisitions," confirms Edelman. "They will more likely be for capabilities and not for geographies. In other words, to do more in public affairs, for instance."
Neither does Edelman believe that the firm’s unhappy acquisition experiences will have any bearing on its appetite for M&A, especially given the lessons he told PRovoke18 he had learned from them.
"We’re really undaunted about doing these acquisitions," he responds. "We are committed to top class capabilities and where we’re thin on the ground, we’re going to fill in. Where we need leadership, we’re going to get it. These were, you know, issues on these acquisitions on building cultures or things like this."
Instead, Edelman asserts that the firm’s investment in creative and digital, along with the need to "settle in" its more recent purchases, have effectively prevented it from buying more shops.
"We’re going to go back now to getting, sort of, line of business capabilities, employee engagement, public affairs, things like this," he continues. "Hires as well as acquisitions. We couldn’t do all this at the same time, you are correct actually in that assessment. In the last three years we’ve invested in these diversifications. We did UEG...and we also hired a lot of people in creative and digital so now look for us in the next phase to do these other things. We may have to reinvest in some developing markets but, by the way, we are also going to be continuing to invest in things like Edelman Intelligence."
"If Edelman is struggling with transformation, it’s alarming for the industry"
No one ever said that creative transformation would be easy. And that goes for the PR industry in general, in which Edelman has often played a symbolic role that suggests it is more than just another firm. Maybe even an idea in and of itself, the industry’s best hope of turning the tables on holding groups that would relegate public relations to tactical afterthought.
This is why, perhaps, Edelman’s current travails matter so much, suggesting that any schadenfreude on the part of rival agencies should be tempered with the knowledge that they probably cannot afford to ignore a wake-up call of this magnitude.
"If Edelman is struggling with transformation, it’s alarming for the industry," says an Edelman executive.
At the same time, of course, ad agencies are encroaching on PR agency turf, aggressively eyeing the kind of convergence that will enable them, rather than a PR firm like Edelman, to offer the end-to-end solutions that clients crave. Meanwhile just last week Accenture acquired iconic creative firm Droga5, the biggest sign yet that the management consultancies are driving their tanks onto the increasingly windswept lawns of the marketing communications world.
"I think their PR agency competition is largely going to be to promote that which their creatives come up with and ours is going to be different," says Edelman of the threat from ad agencies. "We’re earned creative and they’re paid creative. Their PR is going to support paid creative.
"Edelman used to support paid creative 25 years ago," continues Edelman, warming to his theme. "My dad in the Chicago office was supporting Charlie the Tuna and Morris the Cat, both Leo Burnett creations for Heinz. Fine. That’s what the PR units of ad agencies will do. We intend to disrupt the market by having earned creative which is as we’ve discussed" fast, social, you know [built around] brand purpose."
Those are fighting words. But any agency making this kind of transformation has to ensure that implementation keeps pace with the strategy. In Edelman’s case, the latter aspect seems sound enough, but several insiders agree with the words of one former executive, who notes that "the creative transformation was really hard — new clients, new processes, new types of billing — much harder than we imagined."
Another current Edelman executive wonders if the firm’s legendary focus on growth has served as a distraction from the hard questions posed by transformation. "We invested so hard and so fast in the new capabilities, but we did not make any organisational changes or to our model. The power sits in the geographies. We didn’t unlock that power or direct them."
That is as much an industry issue as it is an Edelman one. So is another factor — that the firm’s new creative talent is largely housed within the classic PR agency structure, albeit one that has attempted to adapt to the demands of specialist talent, and brought in senior execs from adland to instil a more relevant mindset.
"Did the model really change and did we set them up for success?" asks the Edelman executive.
That is a question that takes on added urgency for the industry in general, given the comfort zone of its leaders. Richard Edelman is not the only CEO who counts a corporate PR background, as he once told me on a podcast, suggesting that more marketing expertise, along with a harder look at structural issues, may well be required if the industry is going to successfully rewrite the public relations playbook.
Hence the view that maybe Edelman has actually under-committed to transformation, even as much of the market wonders if the firm has sped too far ahead of the curve. Richard Edelman sidesteps this suggestion, again pointing to the work as "proof of concept." But there is no doubting his commitment to a strategy that, if he is ultimately proved correct, may one day see Edelman take the lead role on creative duties.
"We’ve got to get beyond our sort of classic brand PR remit," says Edelman, with particular reference to the CPG sector. "To do experiential for Sunkist, for instance, or digital for Sunkist on top of PR, which trebles the business."
But trebling the business seems like a long way away right now. Instead, rather than the finely-tuned, high-performance vehicle that Edelman resembled on its surge to the top, the agency now resembles the beloved Silicon Valley idiom of an airplane that is being rebuilt while airborne, all while dealing with a variety of issues — macroeconomics, leadership change, CPG slowdown, M&A problems, culture — that are bringing plenty of turbulence.
"It’s been a perfect storm", admits a senior Edelman exec, of the many challenges the firm has faced as it attempts to undertake a profound shift in course. "Richard is fighting hard — left, right and centre."
Which might explain why the globetrotting CEO appears to be as involved in the minutiae as ever, rather than slowing down and delegating. At PRovoke18 he admitted that he finds the firm’s challenge "rejuvenating", perhaps buoyed by his recent remarriage and the opportunity to deliver unparalleled change during what he says will be his final decade as Edelman CEO.
Which, of course, raises the question of succession. Edelman’s three daughters will be owners, he says, but "whether they’ll also be able to run the firm, let’s see." That leaves open the possibility that someone not named Edelman will be the firm’s third CEO, just one more angle to add to the riveting journey of a firm that continues to captivate the industry’s attention.
"I think people are absolutely resolute at Edelman," says the firm’s 64-year-old CEO. "The word ‘undaunted’ is a good one. They recognize that this is a really important evolution of a category. I think people have bought in."