In the latest in a series of stunning developments, advertising agency holding company Interpublic Group of Cos. on Tuesday disclosed that $101 million of its $181.3 million in earnings restatements is related to intercompany charges at its McCann-Erickson WorldGroup unit.
After an expensive internal investigation, Interpublic, which also owns such advertising agencies and marketing services firms as Foote, Cone & Belding and Chicago-based DraftWorldwide, said the McCann charges were principally in Europe and had been improperly expensed. They were erroneously included in accounts receivable and work-in-progress.
Interpublic’s agencies create advertising for some of the biggest brands in the world, including Coca-Cola, Mitsubishi and Kraft Foods.
Another $44 million was related primarily to “understated liabilities” dating back to at least 1996 at an undisclosed subsidiary currently residing with Interpublic’s Partnership unit. That unit includes several stand-alone advertising and marketing services agencies, including Draft and Minneapolis-based Carmichael Lynch, as well as newly acquired New York hot shop Deutsch. The restatements also affect earnings in the first and second quarters of 2002.
In addition, the company disclosed that the Securities and Exchange Commission is conducting an informal inquiry into its restatements.
The details of the restatements, though anticipated, reverberated through the clubby and chatty advertising business. Most industry executives said they were amazed at how long the accounting irregularities went undetected.
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Observers said the restatements continue to raise questions as to whether the massive consolidation binge that giant holding companies went on over the past few years was too much, too quickly for the industry to digest.
Embattled Interpublic Chief Executive John Dooner sought to put the matter behind him on Tuesday.
“This has been a trying episode for our company,” Dooner said. “As you expect, with the restatement behind us we can now focus all of our energy where it belongs, on our clients and our people, as well as financial imperatives.”
Yet, many in the industry believe that Dooner is far from being out of the woods. Key to his future will be the company’s decision on a chief operating officer of Interpublic. Dooner revealed that the company was searching for a No. 2 last week.
As previously reported, Interpublic said that its third-quarter net income was $7.5 million, or 2 cents per share, compared with a net loss of $481.1 million, or $1.30 per share, in the same period in 2001. Revenue declined 7.4 percent, to $1.5 billion.
Porter Novelli stays inside: After months of searching outside the agency, Omnicom Group’s Porter Novelli unit is instead staying inside to fill its general manager’s post. It selected Linda Hadley, the public relations agency’s national director of strategic planning and research. She’s been with the agency for 15 years. She fills a post that had been vacant since last spring following the departure of Jim Heininger. Steve Jursa, who had been running the agency on an interim basis, will continue to run the agency’s technology practice.
Another departure at JWT: Bob Silverman, J. Walter Thompson Chicago’s chief financial officer, is leaving the agency to take the CFO reins at cross-town rival BBDO Chicago. He replaces David Quinnert, who is retiring. No word on whether Silverman will be replaced at JWT.
On the move: Pat McDonough, formerly associate media director at DDB Chicago, joins the Chicago office of MediaEdge:CIA as a communication manager working on Jim Beam and other clients. … Bill Graff, formerly with Gruner & Jahr’s Rosie magazine here, becomes Midwest advertising manager for National Geographic Traveller magazine, a new position. … Andrea Wood, a former senior vice president at Golin/Harris International, was named executive director, strategic communications, of Clear Blue Chicago. … Mary Beth Hughes, formerly senior vice president of Window to the World Communications Inc., joined Zagnoli McEvoy Foley Ltd. as director of business development.
Account action: Freudenberg Household Products LP, a privately held leading global manufacturer of household cleaning products, including brands Vileda and Roll-O-Matic, appointed Wheatley & Timmons Inc. as its public relations agency of record for the U.S.