Arthur Sadoun on staff bonuses, the metaverse and Cannes

Arthur Sadoun has said Publicis Groupe’s record 2021 results and upbeat 2022 forecast show it has “made the right choices for the future” in terms of acquisitions and moving “from a holding company to a platform organisation”.

 

Sadoun, the chairman and chief executive of the French agency group, spoke to Campaign after reporting a 75% increase in annual pre-tax profits to €1.34bn (£1.12bn).

 

Organic revenues rose 10%, with no slowdown in Q4 despite the new Omicron variant of Covid-19, and have climbed back above pre-pandemic levels.

 

That allowed Sadoun to set aside €400m for the staff bonus pot – double 2019 levels – and pay “a bonus for everyone” who has been with the group for at least two years. 

 

Thousands of Publicis Groupe's workforce of 85,000 are entitled to annual bonuses. However, an additional 35,000 employees who normally receive no variable compensation but have worked at the company since at least January 2020 will receive an extra week's pay – equivalent to about €1,000 (£830/$1,130) per head on average.

 

Sadoun also told Campaign that ad industry must ask itself if it is “doing the right thing for the planet” by sending so many people to the annual Cannes Lions festival.

 

In some ways, 2021 was like 2020 because the advertising and marketing sector performed better than expected. Now we can see your Q4 results, how would you describe the whole year? And how would you rate Publicis Groupe’s overall performance?

 

2021 was a record year for Publicis. This is true commercially, as we grew by 10% on the year and ranked number one in the [JP Morgan] new-business leagues, for the third time in the past four years [see table below]. It was true financially, as we once again delivered industry-leading [profit margin] ratios, at record high levels. It was also true for our people, who mastered working together in a challenging and mostly remote working world.

 

In 2020, our industry went through historic lows, and in 2021, it rebounded to reach new heights. So it is worth measuring our performance on a two-year basis. Versus 2019, we delivered growth of 3% on the year, with an acceleration of 5% in the second half, and all of our KPIs exceeding 2019 levels. Clearly, we are emerging from this crisis as a stronger company. 

 

Some agency groups have already said that they plan to pay bigger bonuses to reward staff for their performance in 2021. What can you tell us about the Publicis Groupe bonus pot? And how does it compare with recent years?

 

Over the last two years, our people have shown incredible fight and courage, learning to live with the virus and standing in solidarity with each other, despite the lack of in-person connection. They have been confronted with extremely difficult business challenges and always put our clients’ interests first. They have simply been outstanding and we can never be grateful enough for their efforts.

 

To recognise and thank them all, everyone who has been fighting by our side for the past two years will receive a bonus in 2021. This includes the 35,000 of our people who have no variable remuneration, and who will receive an additional week’s salary. As a consequence, our 2021 bonus pool has doubled [to €400m] compared to 2019, our last "normal" year. 

 

What are your predictions for 2022? How confident are you that Publicis can keep growing? In particular, how do data unit Epsilon and consulting arm Sapient continue to maintain high growth?

 

Let’s face it, predicting anything with certainty, given the last few years, wouldn’t be very wise. But what I can say is that, thanks to the strength of our integrated model, our new-business track record and a positive environment for advertising and business transformation, we aim to deliver between 4% to 5% organic growth in 2022.

 

No doubt, Epsilon and Publicis Sapient will continue to strongly contribute to this performance. In 2021, they delivered +12.8% and +13.8% respectively, helping Publicis to capture a disproportionate amount of the structural shifts taking place in our industry towards first party data management, digital media, and commerce, which have accelerated during the pandemic. 

 

What risks do you see from rising inflation – both in terms of client spend and Publicis’ own costs such as salaries?

 

For the moment, the main effects we are seeing in our industry from inflation are on personnel costs. We are committed to compensating our people fairly and in line with economic realities like the rising cost of living. By shifting in recent years from a holding company to a platform organisation, we have the flexibility and the agility to mitigate the impact of inflation while continuing to invest in our talent. 

 

You said at your Q3 results that clients “don’t need any encouragement” to behave in a more sustainable way. So how will Publicis Groupe prioritise environmental, social and governance (ESG) work for clients this year? And what do you think about investors who claim some advertisers have “lost the plot” by focusing too much on “purpose”? 

 

ESG initiatives should be about actions not words. We have reached an inflection point that requires concrete, inventive and measurable solutions. The pressure for business to be more sustainable is coming from everywhere – from clients, from our employees who expect to work in a company that does good and that they can be proud of, and from our planet in crisis. Our efforts in creating a responsible marketing environment and fighting climate change have been recognised by eight out of the 10 leading ESG agencies, placing us at the head of our industry in rankings. But I don’t believe this is good enough. There is still a long way to go and our industry, with all our diverse talent, skills and creativity should be leading on this front.

 

When it comes to the work we do with our clients, I do believe that purpose-driven communications can be a powerful approach if aligned with brand and business authenticity. It can change minds, push culture forward, trigger new positive behaviours at scale, all while driving responsible and profitable growth for clients. 

 

Do you see a big return to Cannes Lions this year? How can the ad industry support global events while committing to improve environmental sustainability?

 

Award shows in general will always be a vital way of celebrating what all of us love about this industry: creativity in all of its forms. When it comes to Cannes Lions, I have to admit that it feels far away, as every month comes with a new set of uncertainties but I’m looking forward to having the opportunity to connect with people in person again. That said, the question you ask is very timely: are we doing the right thing for the planet by asking people to travel to the south of France, when the vast majority of the thousands of participants come from the Americas?

 

As a Frenchman, it breaks my heart to say it, but I believe it is something we have to discuss openly as an industry if we are serious about our collective commitments to tackling climate change. 

 

How are you preparing clients for the metaverse? How significant do you think it will be for the advertising and marketing industries?

 

You just have to look at Facebook’s rebranding as Meta [which is a Publicis client], Microsoft’s acquisition of Activision Blizzard or Google’s creation of an augmented reality headset to see how significant the metaverse will be. For us, the metaverse is a real opportunity, as it will add a new dimension in personalised experiences at scale. With the technology of Publicis Sapient, the data of Epsilon, our media clout, and our creative brands, we are already developing services to help our clients lead in this new channel. A great example is Leo Burnett’s work for Samsung. At CES, our team launched 837x – a virtual version of the Samsung flagship NY store – in the metaverse. It was a fully immersive environment with all the experiential aspects of the metaverse rooted within Samsung’s innovation, sustainability and connectivity initiatives. 

 

In the last couple of years, some critics dismissed the agency holding company model as out of date but sentiment is changing. Analysts at the investment bank UBS recently said we are “witnessing a structural recovery in marketing services” after low growth before the pandemic. Have agency groups such as Publicis proved the critics wrong? Or was some of the criticism valid and you needed to modernise?

 

There is an old French saying that goes: ‘Les chiens aboient et la caravane passe.’ (The dogs bark and the caravan passes.) A rough translation applied to Publicis would be that if we had listened to the critics, we would not have done Marcel [an internal online platform], which saved thousands of jobs in 2020 and today gives 85,000 people the opportunity to progress in this new hybrid world. We would not have shifted our organisation to a country model, that killed the siloes, the solos and, by the way, the bozos, and delivered the integrated model our clients need. And we definitely would not have made the biggest acquisition in our industry with Epsilon, that gives us clear leadership in first-party data management in a soon-to-be cookie-less world.

 

So it is too early to say we have definitively proved the critics wrong. But, hopefully, our results confirm that we are making some progress and more importantly, that we made the right choices for the future, even in the tough moments. 

 

UBS pointed to “demand for non-communications services such as ecommerce, technology, experience, data and business transformation” as a big driver of growth. So is the best way forward for Publicis to continue to invest in these new areas and reduce dependence on advertising and media? 

 

At Publicis, we don’t see these areas as separate from our core business of creative and media. They are inter-dependent and an evolving reality of how consumers engage with brands, shop and buy. This is especially true when the marketing world faces two major disruptions: the shift from cookies to identity, and from paid to owned media. So the best way forward for Publicis is definitely to continue to invest in first-party data management, new digital media channels (like retail media and advanced TV), and commerce, to deliver the personalised omnichannel creative experiences that clients and consumers expect from us. 

 

Despite Publicis’ performance in 2021, the company trades on a lower price to earnings multiple than some agency rivals. How are you going to convince investors that Publicis should be rated more highly? For example, by buying back shares (as WPP has been doing)?

 

You’re right, a shortcut to a higher share price is buying back shares to see the unit price rise, and consequently the multiple. But that’s not our strategy to create long-term value for all of our stakeholders. We are here for the long run.

 

Our priority is to continue to invest in our capabilities and transform Publicis, to make our clients win in the platform world and our people progress collectively and individually. It is why in the last four years we acquired and integrated Epsilon, to take clear leadership in personalisation at scale, and we repositioned Publicis Sapient around digital business transformation and industry verticals. It was a lot of work, and for some years it penalised our short-term organic growth and our stock price.

 

But today, it gives us a clear advantage, be it in new business, where our track record speaks for itself, or even in our market cap, that recently put us in the same range as the two market leaders, despite our smaller size [compared with WPP, in particular]. 

 

Publicis has a new initiative, Work Your World, which allows employees to work from anywhere for six weeks of the year. It sounds like a nice idea but how does that fit with trying to get people to come into the office regularly to collaborate together?

 

As I said early on in the pandemic, we will never be a Zoom company. Our leaders around the world are looking very carefully at finding the right balance for their teams between working from home, and the office, which will always be our primary place of work, while taking into account local contexts and regulations and always putting the well-being of our talent first.

 

But just bringing our people the right level of flexibility isn’t enough. We owe it to them to turn the hybrid world we are living in into new opportunities, through unprecedented experiences like Work Your World. Today, it is already more than a nice idea. It’s a reality that more than 10,000 of our people have started to explore. Since it launched on 3 January, 8,000 have already simulated their first trip [by using an online tool], and hundreds have already completed the process and are starting their travels.  

 

(This article first appeared on CampaignLive.co.uk)