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The Decisions Facing Agencies as they Pull Out of Russia

Tim Cross 16 March, 2022 

A number of the major agency holding groups, WPP, Interpublic Group, Publicis Groupe, and Dentsu, have announced they are closing down operations in Russia, in response to its invasion of Ukraine. Other major agency groups including Omnicom and Havas have said they’re monitoring the situation – it wouldn’t be surprising to see them follow suit.

But shutting up shop in Russia is a complex operation. For the holding groups, with their sprawling and interconnected web of businesses, it’s not just a case of pausing product sales and finding new suppliers.

Winding down operations involves either closing down businesses entirely and laying off hundreds of staff, or trying to find new owners despite a lack of obvious buyers. And Russian offices don’t necessarily work in isolation – their closure can affect other parts of the agency groups’ businesses around the world.

Closing down Russian campaigns

The first and most obvious decision for agencies to make is whether to keep running campaigns for Russian clients, or for international brands operating in Russia. Some agencies are choosing to cancel contracts with any businesses directly targeted by sanctions from the West while still working with other brands – and indeed this was IPG’s response at first.

IPG CEO Philippe Krakowsky explained that since IPG doesn’t own a media business in Russia, the company didn’t think there was a major risk that it was fuelling the local economy or funding Russian media by continuing work with other clients. Other agency groups could use this same logic, and choose to shut down Russian media agencies while still running the creative side of their business.

But this line of thinking has become less credible as the war has escalated – since continued presence in Russia will inevitably have some sort of benefit on the Russian economy in the long run – hence why IPG changed course.

The direct impact of no longer running ad campaigns in Russia should be fairly low – though obviously this will vary from business to business. WPP CEO Mark Read says that Russia accounts for less than one percent of global advertising revenue, meaning the direct impact from loss of clients will be relatively small.

And given that a number of global brands are pausing sales in Russia or closing down their own Russian businesses completely, a portion of that spend would be lost anyway, regardless of the agency’s decision.

Another aspect of this decision – and one which carries its own cost – is  the questions of how closely to audit programmatic supply chains.

There are a variety of techniques buyers could use to try to avoid buying inventory from Russian media companies – but these techniques aren’t bulletproof. So agencies must consider how far they’re willing to go to be absolutely certain they don’t end up accidentally funding Russian disinformation outlets, or non-Russian media properties which spread disinformation relating to the war.

Closing down offices

The other major decision for agency groups is what to do with the physical aspects of their business in Russia – their offices and employees within the country.

All of those which have pulled out of Russia have expressed that they’re wary of suddenly making all of their Russian staff redundant, thereby punishing their employees for the government’s actions.

And while it’s not been mentioned in any public announcements, some may well be keen to find options which are easier to unwind further down the line. If a holding group completely closes down all its Russia-based agencies and lets all of those employees go, starting those agencies back up again when international relations improve won’t be straightforward.

That’s likely partly why those pulling out are choosing not to close down their Russian agencies, but rather to transfer ownership elsewhere.

WPP, which was the first of the major holding groups to announce its decision, has 1,400 employees or contractors in Russia. In an internal memo Mark Read said the company is exploring options, including “transfer of ownership and divestment” – though he acknowledged that some jobs might be lost entirely. Any employees who lose their jobs will be given “enhanced financial support”.

Publicis meanwhile has 1,200 employees in Russia. Publicis has already chosen its course, handing over control of Russian operations to Sergey Koptev, founding chairman of Publicis in Russia, with a “clear contractual condition of ensuring a future for employees there”. And IPG similarly says it is ceding control of its Russian agencies to “a local leadership team”, with finances provided to continue paying staff for a minimum of six months.

In all of these cases then, the agencies themselves are likely to continue operations – though no longer affiliated with their current parent companies, and likely with a reduced workload.

This means there’s potential for the holding groups to reform relationships with these Russian businesses if and when Russian aggression ends and international relations improve.

However this strategy also leaves other questions open. For example those Russian agencies may have non-Russian clients, and those relationships become much more complicated. IPG referenced this fact, with Krakowsky saying that the holding group will continue talking with its divested businesses in the coming weeks “in order to ensure continuity for any non-Russian clients who remain active in the market”.

But clients may wish to back out of contracts which were signed while those agencies were part of a wider holding group, and possible would have involved input from other, non-Russian agencies. Exactly what happens in these cases seems very unclear.

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2022-03-17T12:09:03+01:00

About the Author:

Tim Cross is Assistant Editor at VideoWeek.
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