Jenny Chan 陳詠欣
Nov 25, 2013

Betterway scandal comes to close in China; Publicis moves forward with rebuilt agency

SHANGHAI - Publicis Groupe has reached an out-of-court financial settlement with the co-founder of its field-marketing agency Betterway after a drawn-out corruption probe that began when internal Publicis auditors raided the agency's offices in February 2012.

Betterway scandal comes to close in China; Publicis moves forward with rebuilt agency

Publicis acquired a majority stake in Betterway in 2006, with co-founders York Huang and Jenny Zhang retaining 20 per cent ownership. The company operated as Betterway/Publicis Dialog.

Publicis auditors launched an investigation into Betterway's books in February 2012 after a physical raid that sent all employees home. At the time, Huang only admitted to a "disagreement" between Betterway's Chinese management and Publicis. Both Huang and Zhang were subsequently fired.

The parties reached settlement in September 2013, according to people close to the affair.

Industry sources also believe Huang and Zhang formed a “shadow agency” to transfer (or “sub-let”) revenue from Betterway's client projects so they could extract maximum earnouts instead of a minority-shareholder cut. Making "easy money" from holding companies via such schemes has been a common form of corruption in China.

Publicis opted for an “amicable” out-of-court settlement, even though a disgruntled Betterway whistleblower provided key evidence against Huang and Zhang, which argued for a likely win if the duo faced formal prosecution, according to multiple sources.

Anonymous sources close to the parties involved said Publicis was reluctant to take the case through China's court system, as the company believed Huang to have close ties with local judicial/legal figures via his relatives. The amount of the settlement has not been disclosed.

Patti Sun, current CEO of Publicis Betterway China, who was previously with OgilvyAction, has been serving as the replacement head since October 2012. She hired six staff, all ex-OgilyAction as well, to assist her. Together with Jeffrey Yu, CEO of Publicis Greater China, Sun spent the past year revamping the organisation's operating and reporting structures.

The agency is now a 100 per cent owned Publicis entity. 

“It took longer than we thought," she said. "We initially expected to settle the matter by the end of last year."

The agency almost lost accounts, such as Wrigley's and Johnson & Johnson, after the probe began, as  worried clients switched to a project basis. “The whole of 2012 was still very messy and staff morale was very low,” Sun told Campaign Asia-Pacific. But in 2013 Sun's team won the Huawei business as the agency made a slow comeback.

After a 16 August 2013 internal relaunch—complete with the traditional Chinese lion dance—the firm rebuilt its Beijing, Shanghai and Guangzhou offices with more than 200 full-time employees (from 346 in the past) plus 20 representative offices in various parts of the mainland to perform promoter training. From a service offering perspective, the field-marketing agency added retail-creative services that include design of point-of-sales materials.

In line with the nature of its business, Betterway's new office looks like a mini shopping mall with a cafe, KTV, theatre, and a mock “convenience store” with racks of new products that clients place at Betterway as pre-market litmus tests.

Betterway's work this past year includes home appliance brand Casarte's nationwide roving-kitchen roadshow and toilet paper brand Mayflower's Guinness World Record challenge (100 people painting fish on the paper at the same time).

Upcoming major work will be for the Nanjing Youth Olympic Games in 2014. Its last substantial event-based project was for China Mobile and China Telecom in the Information and Communication Pavilion (ICP) at the high-profile Shanghai World Expo back in 2010, which it won after a six-month pitch.

Huang, a former Procter & Gamble executive, is out of the advertising agency circuit and is dabbling in the tea business after obtaining a licence to distribute a Dutch tea brand called Original First Tea (斐思语茶) in China.

 

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