The Wall Street Journal published an article on Tuesday about the shady practices of advertising agencies. In order to appreciate what’s happening, we need to understand the business model of advertising agencies at a high level.
When it comes to large-scale advertising, we have three interdependent entities:
- The company that makes a product or service and wants to advertise it (the advertiser)
- The firm that helps the advertiser design and distribute a targeted advertising campaign (the advertising agency)
- The company that owns the medium or media in which the advertising will appear (the media company)
Advertising agencies are the link. They work closely with their clients (the advertisers) to design the best ad campaigns possible. They also work closely with the media companies, to find the best way to get these ads in front of potential customers.
What were the advertising agencies doing that was so shady? First, they were getting kickbacks from media companies, and they were hiding those kickbacks from their clients. The concern is that the advertising agency doesn’t have the client’s best interests in mind. Rather than finding the best media outlet for an ad, the agency might steer ads toward the media companies that offer the best favors.
Second, advertising agencies were steering work toward media companies that their executives had financial stakes in. Again, the concern is that the agencies’ interests aren’t aligned with the interests of their clients. This instance is even more nefarious, in the sense that specific executives were enriching themselves without disclosing their personal stakes.
Of course there are clean advertising agencies. I’d suspect the vast majority of them function perfectly fairly. The business model has proven itself over the better part of a century. As is often the case, a few bad apples can make everyone look bad.
Still, this episode shows how easy it is to cross an ethical line. It’s a particularly easy line to cross in business to business transactions, where you don’t imagine a single human being on the other end. It’s similar to why you see so much abuse in anonymous online forums. When you remove the human part of an interaction, you increase the likelihood of abuse.
I see this in my own day job, where I work with our sales team. It’s easy to see how uncomfortable people get when you talk about commercial strategy. Some sales people are so scared of the appearance of impropriety, that they’ll negotiate against themselves in front of a client.
And I understand every bit of that. As corporations get larger, and our economy becomes more financialized and more complex, it’s easy to feel like we’re getting screwed. It seems like even our most common transactions are becoming more complex, and require greater technical sophistication.
All of this shows why transparency and simplicity are so rare, yet so valuable. It’s easy for one nameless, faceless corporation to justify ripping off another nameless, faceless corporation. It’s not an interaction between human beings. It’s an interaction between two economic entities that owe their investors every financial advantage they can find.
Of course all of that is ridiculous, because the vast majority of transactions are brokered by actual human beings. Any of us can choose to hide behind the veneer of an all-powerful corporation. But we’re all human beings. We all rely on our paychecks to provide for ourselves and our families.
You wonder how small, nimble companies can compete effectively with massive corporations? Among other things, small companies rely much more on transparency and simplicity. They’re better at making a customer feel like they’re not getting screwed.
The same is true in our personal lives, and in our careers. This idea is part of the reason that authenticity has as much traction as it has. We are immersed in an economy where entities are trying to find and exploit every available advantage. It’s refreshing to surround ourselves with people, and to patronize businesses, that conspicuously break from that trend.
Transparency and simplicity are rare, and powerful. Find a way to truly earn the trust that so many people and companies take for granted, and you’ll find one of your most enduring competitive advantages.