WPP's About-Face on Kraft Exposes Ethical Pitfalls at Ad Firms

  • Advertising giant’s Finsbury PR group dropped assignment
  • Publicis CEO: ‘This is a deviation unacceptable in our world’

For a brief moment last week, WPP Plc Chief Executive Officer Martin Sorrell found himself on both sides of one of the biggest takeover proposals ever, Kraft Heinz Co.’s unsolicited offer for Unilever Plc.

Public relations agency Finsbury, majority owned by Sorrell’s London-based advertising company WPP, was initially hired by Kraft Heinz to handle strategic communications in the U.K. for its $143 billion bid. The problem was, WPP already counted Unilever, the maker of Dove soap, as a client -- and it’s a much bigger one.

The conflict quickly ended after Unilever CEO Paul Polman complained and Sorrell ordered Finsbury to drop the Kraft mandate, according to people familiar with the matter. Sorrell declined to comment, as did WPP, Finsbury, Unilever and Kraft. The episode was reported earlier by the Financial Times.

It’s the kind of ethical quagmire that advertising companies find themselves in more often as they build out businesses like public relations and TV production to supplement their traditional advertising and media-buying clients. Maurice Levy, the outgoing CEO of Publicis Groupe SA, said the lines have been blurring for a long time when it comes to conflicts of interest. He said that this time, his longtime nemesis Sorrell may have gone too far.

“This is a deviation that is unacceptable in our world,” Levy said on Bloomberg TV on Wednesday, adding that he didn’t know whether the story was true, and that he couldn’t believe WPP would have worked against Unilever. “When it comes to operations like a takeover, we have to be extremely clear to support a longtime client,” he said.

Watch Bloomberg Television’s interview with Maurice Levy here.

WPP acquired Finsbury, which specializes in financial PR, in 2001 as it sought to branch out from advertising, and also owns firms such as Ogilvy Public Relations and Buchanan Communications. Competitor Publicis owns MSLGROUP, one of the largest PR conglomerates in the world, while fellow French ad agency Havas SA owns U.S-based strategic communications firm Abernathy MacGregor Group.

Agency practices came under fire last year when the trade group of their clients, the New York-based Association of National Advertisers, commissioned a study that concluded ad firms received rebates for ad space bought on behalf of customers, savings that weren’t disclosed nor passed along to clients. The agencies denied doing anything improper.

WPP, the world’s largest advertising company, along with Publicis, Omnicom Group Inc. and Interpublic Group of Cos., are cooperating with a U.S. Justice Department investigation into collusion with independent video companies, over allegations the ad firms steered business producing commercials toward their in-house units.

In its short-lived battle with Kraft, Unilever hired the independent U.K. agency Tulchan for PR advice. Kraft ended up with FTI Consulting after Finsbury dropped out.

Kraft’s bid collapsed on Sunday following a 48-hour skirmish. Private-equity firm 3G Capital and billionaire Warren Buffett’s Berkshire Hathaway Inc., which together own about half of Kraft Heinz, decided that Unilever’s negative response made a friendly transaction impossible, people with knowledge of the situation said.

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