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By Christine Moore
Christine Moore of FirmDecisions outlines how marketing leaders, including procurement, should budget to protect their company against financial, operational, and reputational risks
“Marketing procurement is increasingly taking a holistic view of corporate governance programs. In fact, corporate governance is becoming even more important post-pandemic.”
As we say goodbye to the summer and head into a busy fall, many of us in marketing services will spend much of the rest of the year running strategic and financial planning sessions that will dictate activity for 2022. It’s an intense period of collecting budget numbers from brands and functions, rolling them up to better understand how the year ahead will shape up.
While developing budgets, many of us — at least on the indirect procurement side — will have to work to new and different parameters compared to previous years (read pre-Covid). Securing the supply chain, minimizing risks, and planning for investments in rapidly evolving marketing technologies are just a few of the urgent priorities jostling for attention as we develop our plans.
Good governance in marketing procurement
Marketing procurement is increasingly taking a holistic view of corporate governance programs. In fact, corporate governance is becoming even more important post-pandemic. In a study commissioned by FirmDecisions, marketing procurement and sourcing leaders from across North America indicated that companies have recognized the importance of minimizing risk and increasing transparency in most marketing spend categories as a key priority for their organization.
For the marketing division, budgets have not been set to deliver against these parameters historically, as the risks were considered limited in this space. Marketing has been focused on working with the best agencies, which they find through competitive pitches. Marketing, procurement, and agency leaders spend a lot of time upfront negotiating the best terms of a master service agreement (MSA). Once the MSA has been agreed and signed, the teams move on to develop much shorter scopes of work for specific brands, campaigns, or years of activity.
What we seldom think about is that the MSA is in place — among other things — to ensure that our risks are minimized and that both parties deliver on their respective promises agreed when the contract was negotiated. But how can you have any certainty that the terms of the contract are being upheld until and unless you regularly audit your agency partners? This is why assessing contractual compliance is so important for any business or organization making significant investment in marketing services.
What should be in scope for your MSA?
Your MSA should contain clauses that prescribe the nuts and bolts of the relationship you have with your key agency partners. These should include:
· How your partners handle your company’s financial funds
· How your sensitive, competitive data is protected
· How you receive rebates from media owners
· Which affiliates work on your business and how the approval processes work
· The way in which your agency deals with conflicts of interest
· How mark ups are applied
· The rules on the use of programmatic media
· How much transparency you have into your media buys
· Which level of insurance your agency holds to protect your company against risks and losses
I could go on, but I think you get the point. For those keen to get chapter and verse on all areas that should be covered and issues that should be addressed in a fit-for-purpose MSA, the Association of National Advertisers (ANA) has issued a comprehensive template contract that many of its members — many of the biggest advertisers in the market — have widely adopted. It’s detailed here.
Mitigating and minimizing risks
So, as a CFO, how can you help your marketing colleagues protect your company against financial, operational, and reputational risks? The main obstacle getting in the way of marketing teams performing regular contract compliance reviews of their marketing partners is that they simply do not budget upfront for them. It is often an after-thought, usually when an issue or concern arises with one of their partners; when the lack of information on prior or current performance against the contract becomes evident to the organization. For this year’s imminent budget planning sessions, I cannot emphasize strongly enough how important it is for CFOs to ask their marketing leaders how they are protecting their company against financial, operational, and reputational risks.
The answer is to budget only a small amount — in the range of less than 2–4 basis points of your total media spend on average — to engage expert specialist partners to institutionalize a regular cadence designed to validate the contractual compliance of your media, creative, digital, and other partners.
Learning from those with experience
In our recent study of 100 marketing procurement leaders — who between them manage a combined spend of almost US$27bn — 61% of respondents said they have used contract compliance as a tool to ensure that their marketing partners delivered their services in a compliant manner. The top four reasons they gave to justify this investment were:
1. To ensure that contractual obligations were fulfilled
2. To validate good corporate governance
3. To deliver on fiduciary obligations as a public company
4. To manage this pivotal commercial relationship better
42% of respondents said they planned to implement auditing and compliance management for contracts in the next 12 months. There was also an acknowledgement that compliance allows organizations to be more responsive and make decisions faster, while at the same time reducing risk. The full findings from the research study can be found here.
Time to act now
Whether your company has undertaken compliance audits in the past or not, there is a way forward. For companies adopting compliance for the first time, we recommend setting the stage by understanding the “state of the union”. In this process, you will gain a general understanding of key issues that exist in your current contractual relationship and can develop a roadmap to improve these areas by working with your marketing partners.
For advertisers who have undertaken marketing contract compliance in the past, there is huge value to be gained from implementing a regular cadence of audits across various marketing categories. This is particularly true in the ever-more complex marketing ecosystem which features many more links in the transactional chain. By auditing regularly, you’ll develop a great oversight process, great benchmarking capabilities across categories, and a heightened collective intelligence within the company.
The time is now — as we all go into the dreaded budget season — to make sure that you and your company is prepared to minimize risks and set the standard for partner management. In the wake of the once-in-a-generation turbulence of Covid, you owe it to your current and future generations of colleagues to know where you are today and set the standards for the years ahead. For perhaps the first time, marketing procurement truly does have the opportunity to become a centre of great corporate governance for your company. Time to get busy.