Developing a Client Conflict Strategy

David addresses how vertically positioned agencies can manage a client roster containing multiple companies who are competitors with each other.

Transcript

Blair Enns: David, today on the 2Bobs Podcast we're going to talk about conflict. Does that surprise you?

David C. Baker: [laughs] Oh, this is going to be fun.

Blair: Conflict resolution or is it conflict management?

David: Conflict strategy.

Blair: Conflict strategy. Developing a conflict strategy. We're talking about a situation where a client comes to you and says, "Listen, we're willing to work with you, but you can't work with anybody else in our category." Something like that?

David: Yes. Like, "I'm Delta. We'd love to establish a long-term relationship with you, but I see that you've got American on. Are they still a client? What did you do for them?" Then, "Oh, no, this is going to have to be exclusive relationship." Then they pull the Blair phrase. I've heard you say, "Oh great. Here's how you reserve our entire capacity."

Blair: You smile like you've won the lottery and say, "I'd be happy to sell you our entire capacity in that category." There used to be a time, I don't know if it's still true, I think it's been a while since I've worked with anybody who's doing work with PepsiCo or Coca-Cola, but each of those large, behemoth even, beverage companies would have a clause in their contracts with marketing agencies that if you worked with them, you couldn't work with the other. In fact, I remember some incidents where I think it was PepsiCo had a line that said, "If you work with us, you can't work with any other beverage company."

It turns out they just didn't want you working with Coca-Cola. Conflict of interest runs smack into the idea of vertical positioning, doesn't it?

David: Right, because you're working for this narrow slice of the old SIC, new NAICS code stuff where it's technology subscription services or something and so automatically Salesforce is going to be one of your clients. Before they bought Slack, they probably wouldn't have wanted you to work for Slack. Sometimes it comes up with horizontal too. It's pretty rare, but you might have somebody in public affairs that does not want you to represent the other side, for instance. Even though it's still a horizontal specialization or it could be investor relations work, litigation work, but generally, it's just a fear with vertical.

When I'm talking with a client about all the possible positionings, we've got two programs where we work through that, one of the cons, in other words, one of the disadvantages of a vertical, there's four, one of those is the possibility of a conflict strategy. I really don't think this is a big issue, but that's not to say that I can wave a magic wand and assure all of your clients that it's not a problem. Here's the thing. Even though it won't come up, if it does come up, if you already have an established policy on your website that you can just point to, all of a sudden they relax and say, "Oh, they've thought through this. They have a policy."

It doesn't have to be indexed. It's not like Google can find it, but you could still link to it. Anyway, that's the whole point. Have a policy before it comes up if you think this is an issue, and it probably isn't going to be an issue unless you're vertically positioned.

Blair: That's the net takeaway here. Getting right to the end, which is think this through, have a policy, put it in writing. I don't even think you have to publish it on your website. Just have a PDF of it ready to go-

David: Oh yes.

Blair: -so when the client raises it, you can say, "Well, we have a policy. Here's how we do these things." I've quoted you many times as one of the great lines that has come out of your mouth, which is two clients in a category is a conflict. Three is a specialism. It's a great line.

David: Even more than that is an expertise. Except I don't think I said it, but I will claim it, but I don't know if I was the first to say that. Maybe. The fact that you admire me is such a-- Let's just linger on this moment.

[laughter]

Blair: Moving on. You want to get into why this is inevitable, why you're going to run into this.

David: Yes. I write these conflict policies. Did two of them last year and charged between $5,000 and $10,000 bucks. I'm just tired of writing them so we're just going to give away this stuff here. Next time somebody asks me to do it, we're just going to send them to a link to this episode. These next things are just the real philosophical underpinnings of your perspective, like how this arises and how you think about it. After we do that, then we'll, together, Blair and I are going to talk about what are the elements that you might want to address in different categories.

The first one is that, listen, we can't develop expertise in helping you unless we've worked with multiple clients in yours. It's just something like that. You wouldn't say this, but if you just didn't care about getting the work and you were in a very smart-assy mood, you might say, "How has this worked out for you hiring somebody who's never done what you want them to do before," or something like that.

Blair: You want somebody who's never worked in this category before or do you want somebody who knows this category inside out? Really it's the gray area that's the troubling area. It's the in-between where you're not seen as vertically specialized, but you're working with a competitor. There's something about once you have this client density in the vertical. The client just assumes that "Oh, that's what I'm paying for, is that category expertise."

David: There's consolidation too on both sides of this thing. You look at all the holding companies. Some of them have hundreds of agencies, and that could potentially pose just as much a conflict. Then you have consolidation on the client side. Where one client owns 40% of the production for something or other. Meanwhile, we have all the same number of agencies, but suddenly we have fewer clients. It's a little bit illogical, especially when you think about globalization. Right before we started recording today, Blair, we were talking about the difference between some of the older and newer agencies.

You remember when exclusivity was a geographic thing? Where, "Okay, I'm the only one that can serve the interest of my town so nobody from an outside town come in here." Globalization has really changed everything. By talking about this today we're probably making more of it than it needs to be because every time I've written one. It has come up and it's a really important opportunity. My client wants to have a policy that will relax the potentially new client. It does come up, but it's just not very often.

Blair: They come to you in a reactive state where a prospective client or an existing client has raised this flag and they need to deal with it.

David: How many agencies have you come across that have a written conflict strategy already?

Blair: Oh, I don't know.

David: Not many.

Blair: Yes. To your point that it doesn't seem to come up as often. Do you remember the term conflict shop you would talk to an owner of a large agency and they would say, "Oh yes, I also own a conflict shop." Which is just another small agency off to the side. Maybe even in the same office where any piece of business that would be perceived as a conflict of interest, it's done by this agency on the other side of that wall.

David: Like it's ever that secret.

Blair: It's almost as good as the line, A Chinese wall. Remember that? In law firms, "Oh no. We've got a Chinese wall."

David: One that you can see through with thin paper.

Blair: All right, so you're giving away some free advice so you don't have to consult in this area anymore. Let's give the listeners the outline for a conflict strategy.

David: I don't know, there's four or five categories and then multiple points under this. You've got to put this in your own language but this sort of logic tree is how you think about it. The first category is when we think an actual conflict occurs. Let's define what a conflict is, and a conflict doesn't occur just because you have two clients. A conflict occurs when there's actual impropriety. That's the conflict. We're trying to prevent wrongdoing. We're not trying to prevent the possibility of wrongdoing. We should be able to have two clients.

In fact, when I was doing research for the first one that I was writing,I thought a lot of what I'm doing here is just instinct and being in the industry for years, but I wonder if there's any academic literature or at least journalistic-like literature on this. I came across an article that apparently has been referenced a lot in Harvard Business Review 2012 by Michael Blanding taking a direct quote from this article. It says, "There have been no recorded cases of that happening in professional service firms."

Blair: Sorry. Of what happening?

David: Of an actual conflict occurring.

Blair: No recorded incidents.

David: Yes. From everything he could find, that was 10-plus years ago.

Blair: There's a line in the conflict management school of a friend who has a master's degree in this, given the nature of his day job, it comes in really handy. The line is "A conflict arises when there is a perception of a conflict." Which seems to contradict what you said earlier. It's not the possibility of impropriety, it's actual impropriety itself.

David: Exactly.

Blair: It's an issue when any one party thinks it's an issue, and that's when you have to deal with it.

David: You don't get to define how somebody else thinks about something. It is important to say that we have had no conflicts in our history. Here's our client list. This is where it might have occurred if you'd like to speak with them, fine.

Blair: I understand your concern, but the reality is we have had no conflicts. Even quoting this guy, Michael Blanding, in the history of all professional services, there has been no conflict. That's a hard pill to swallow.

David: It's in HBR. That can't be wrong.

Blair: Then it must be true.

[laughter]

David: All right. The next one is how we make these decisions, and we put these in three categories. What happens if a conflict is possible? We look at this and next one is what if one is likely and then what if one occurs? We're throwing these three categories up here. If we think that a conflict is possible, we'll assign a different strategy team to whatever the work that we're doing for you. We're going to stop short of doing that for the implementation team because they're being directed by the strategy. They're not influencing the strategy.

Another way to interpret that is if we want this account and you are demanding some sort of policy from us, then this is what you do. We create a separate strategy team. That's the first one.

Blair: Yes. Not the implementation.

David: Not the implementation.

Blair: We think there's a possible conflict, which is code word for you raise the issue that you think there's a conflict. Then at your behest, we will assign a different strategy team, but not the implementation team.

David: The implementation team is so much bigger. It's way more difficult to do it. Now if the client thinks that it's beyond possible, but actually likely then, and here's the key phrase, then at the client's expense, we will create a different, we'll segregate the implementation team. The ones doing the design, the writing, the coding, whatever that is.

If it has occurred, reminder, it never has in the history of mankind, according to HBR, we will let you know. We will discipline or release the staff and offer to resign the account.

This is the best way I can think of to do this and this in the real world with about six or seven of these that I've done, it's really satisfied the incoming client that wanted a policy in place.

Blair: Do you think the policy should define on the agency terms what constitutes a conflict?

David: Yes, but I think it ought to be soft language. Like, this is generally how we think about a conflict. I don't think I'd be absolute, because I think it's going to hurt you to appear arrogant about this. I think you need to think about it from the client's side.

Blair: Got you. Do you think a conflict arises when the client says, "We don't want to hire you because you've previously worked with our competitor"? There's no conflict there is there?

David: Oh no, no, no. Let's you and I put ourselves in the shoes of the agency and we're not going to be arrogant and we're going to think about, okay, how do we evaluate this when it comes up? It's very rare that it comes up. It's like the size and the length of the contract. If you're hiring us for a $40,000 thing and you think we're going to turn down 1.7 million a year, it's like, no, I want some of what you're smoking basically. Or whether it's project or AOR base. Are we the agency of record or whatever it's called for in that relationship.

How much you're willing to compensate us for either just the strategy team or just the implementation team or some sort of balance if we absorb the costs of separating the strategy team and then really how far upstream we are. It's like by God, some clients give us stuff that it just gets handed down to us like the tablets by Moses and we're just the scribes. We're not going to influence strategy, but if you intend to have us influence strategy, well that'll bear on how we think about this. Those are the things that I would probably establish, but I would say them in a pretty human way.

Blair: There are a lot of variables here. If the listener can't take some of these things you're saying and just carte blanche, draw up a strategy policy from it. They have to draw some inference from the nature of the work that they do. How strategic is it? Are you vertically specialized already? I think that's a big issue. We use the language like AOR agency of records. We're talking about a generalist ad agency typically, or historically. These large ad agencies would have one client in a category and they couldn't have another like J. Walter Thompson head Ford back in the day.

I think it's team blue now. Obviously, they're not going to work for Nissan. I think the way some categories work is the conflicts are defined by continents. On one continent, the agency is working on one brand, on another continent, it's working on another brand. When you get to these specialist hybrid firms that you and I see all the time and that we're more likely to work with and more likely to be a listener of this podcast, you get some highly niched firms who are vertically specialized, who do nothing but work with people in the same category.

I'd be interested to hear from the listeners how often conflict of interest comes up with them these days.

David: The third one ago that I wrote was for a firm. I want to be careful how much identify. They were in the US and they had the three largest cloud providers. It was a specific software piece, and they had as clients, the three biggest installed basis of that. I could not think of a more potentially conflict-laden arrangement than that. That's when I had to write this policy and they got the work. The only thing I really have to say about this is just, I joke with my clients about it, and you couldn't joke with your prospective clients in the same way.

What I say joking is, conflict can make some clients nervous. I get that, but you know what terrifies them? That's incompetence. Anyway, I just leave it at that. This points to me how great a listener and a judge of what's happening on the other side a salesperson needs to be, how curious, how aware, how they steer conversation. How they understand how to overcome. It's just such a beautiful art. This is just part of that.

Blair: Their emotional intelligence, their ability to perceive how real an issue this is. Then to assuage any fear or concern. The idea that you're going to just have a blanket policy statement that's going to deal with everything you throw at everybody. It's not that simple. There's a lot of nuance here. Human beings need to figure it out. It's easier for you to figure out ultimately to a positive outcome for you if you do have a standard policy in writing before the client raises the issue.

David: Your new salesperson, that needs to be a part of their indoctrination, so to speak, so that they understand how you think about it before it ever comes up on the phone.

Blair: This has been great, David. Thank you.

David: Thanks, Blair.