Publicis CEO on repaying salary sacrifice and why its transformation is ‘complete’

Arthur Sadoun has said repaying the salary sacrifices that higher-earning executives took during Covid-19 is important to "show we care" as well as demonstrating the "robustness" of Publicis Groupe.

Sadoun, the global chief executive, said in an interview with Campaign that the French ad agency group's performance in 2020 had been "solid" and showed its Power of One model was working.

Q4 organic revenue decline eased to 3.9% and the US operation turned positive.

The group's "transformation" is now complete, he said, following the acquisition of data operation Epsilon in 2019 and a move to a "country" model with one P&L for clients to improve integration.

Six thousand higher-earning staff who voluntarily took cuts of up to 20% of salary for six months between April and September will be repaid later this month.

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Campaign: 2020 was tough but the second half of the year turned out better for the agency sector than many people expected. What happened in terms of clients’ behaviour? And how have their needs changed?

Sadoun: Everyone is going into this year with a renewed fighting spirit, while staying very cautious, as the crisis is far from over. At this stage, Q1 2021 looks more like Q5 2020.

Even before the crisis, our clients knew they needed to transform. The economic and social impact of the pandemic has just accelerated that.

On the business front, they are looking to better understand their customers, they want breakthrough creative ideas, delivered through smart media, and the technology to go direct. And they want all of this to be connected, to deliver personalised experiences at scale. This is exactly what we brought them last year and it’s why we are outperforming the market on organic growth, with the US positive in Q4.

On the social front, clients also need help to move their diversity, equity and inclusion goals forward, not as an adjacent initiative but as part of their core business and practice. With our culture of Viva La Différence, and the seven concrete actions we have developed, including the Diversity Progress Council, we are committed to helping them achieve this.

You have used “Power of One” and the country model to integrate disciplines across the group. How much have data and consulting services such as Epsilon and Publicis Sapient protected Publicis Groupe’s financial performance during the downturn?

There are two main reasons why we are delivering solid results in 2020.

First, the model we have built over the last years. Thanks to our long-term investment in data and tech, our country model which allows us to integrate that with our media and creative activities, and Marcel, we have been able to contain our revenue decline and maintain our new business momentum. Epsilon and Publicis Sapient have contributed positively to this performance, particularly in Q4 where Epsilon grew by 5.5% and Publicis Sapient is positive in the US.

Second, the extraordinary efforts of our teams. They have saved thousands of jobs by using Marcel and staying inside the company for any additional resources they needed. They have helped our clients to adapt fast. And they have shown a sense of solidarity at every step of this difficult year that is simply outstanding. I want to truly thank all them for that.

When did you decide to repay the salary sacrifice to 6,000 staff and what was your thinking?

I have been thinking about doing this since I saw the [final] results [for the first time]. We knew things were going in the right direction [during Q4]. It is a trade-off because it is a less of a [profit] margin.

I tested it on some of my key people and I also tested it with a few clients to understand the reaction. I understood from my people that it would make a massive difference because every piece of good news that has an impact on your personal life makes a difference. And when I talked to clients, they said it shows your robustness and continuity of the team and you put your people first.

Then I had to go to the board for this decision, and they said yes immediately.

Every tangible piece of good news makes a difference to your mental health. When you are at home for a year and you have been fighting for your clients and the company from home, with all the problems it creates, having news from your management on the day of the earnings that "We thank you for your effort and, more importantly, we are repaying your trust", I think it’s important—I really do.

How much are people still working from home around the world?

Except in some places in Asia, the level of lockdown and working from home did not decrease at all [in Q4]. For some of them, it has been a year [of WFH]. This is why today is an important day—hopefully they will see they are in a strong company where they are the future and where we reward the people that have delivered an extraordinary effort. We are trying to do tangible things that show that we care.

There has been a lot of talk—for example, at WPP’s capital markets day in December—that legacy ad networks have been suffering in the industry since before Covid. How have your creative agencies been performing? And how do they need to evolve to stay relevant?

At Publicis, we consider creative agencies to be core, not legacy. We’ve actually seen them be pretty resilient during the crisis, and some were positive at the beginning of 2020.

What is true is that creative agencies have to evolve. The creative challenges we face are more complex than ever, requiring the most diverse creative skillsets from copywriting, art direction, experience design, product innovation, content production etc. The creative agencies of tomorrow need to be able to deliver all this diversity with expertise and brilliance. And to curate the right mix of teams for the right projects. Because in the end, the best creative is the killer app for brands and businesses

We have seen a number of clients such as GSK and Mondelez focus on content production. Why is demand growing? And how different is it from ad agency work?

With the rise of personalisation at scale, content is shifting from linear to dynamic. The only way for our industry to continue to create great content, faster and cheaper, is to better link ideation to production. This is ad agency work. To my point earlier, they have to evolve to integrate all aspects of creativity including production.

What are you expecting in terms of volume of new-business activity in 2021? How is the nature of pitching changing—for example, is there any move towards more integrated or holding company pitches?

The 2021 new-business season will be busy, simply because all of our clients are in the midst of transformation and are looking for partners to help them accelerate.

They don’t call "holding company pitches" but they are increasingly looking for capabilities from a broad spectrum, to help solve the complex challenges they face. At Publicis, this is what we are designed to do. It’s how we help our clients unlock growth and it’s why we welcome more broad-scope reviews.

You have been talking about helping clients to grow in a “platform world”—a theme at your internal company conference in December. What exactly is a “platform world”? And how is Publicis Groupe organising itself to help?

Even before the pandemic, it was clear that we were living in a platform world. You only had to see who was disproportionately benefitting from digital media investment compared to the publishers, or the market cap of the leading tech companies.

The current crisis has only intensified their dominance, making it urgent for clients to have their own platform strategies, be it CPGs becoming data and direct-to-consumer brands, or retail brands becoming media and personalised service businesses.

Whatever the category, to thrive in this platform world, brands need to take back control of their customer relationships, justify their premium, make their scale a huge advantage versus new competitors, and win in commerce.

If you’re a client wanting to know more, get in touch. And if you’re a talent who wants to join the adventure, do the same.

Publicis Groupe adopted the “Power of One” strategy five years ago, and you said when you bought Epsilon in 2019 that it would speed up your “transformation”. So, what stage is your transformation at now? And what’s the next step?

Our transformation when it comes to operations, organisation, and capabilities is complete, which is a big reason we have performed well in a very tough context this year.

But to say that our full transformation is accomplished is to ignore the continued dynamics and uncertainty in the world today.

In that context, we are going to double down on the three priorities that have guided us since the beginning of the crisis.

First and foremost, we will keep our people strong, by focusing on their physical and mental health, reinventing the way we work and accelerating on our DE&I agenda. We owe that to all of our teams, who have spent the last year balancing family life, working from home, lockdowns and restrictions at every level.

We’ll make our clients win in a platform world, through our model connecting data, creativity, media and technology, to drive growth for them and for us.

And we will continue to protect and reinforce our operations, as the economic crisis is far from over.

Campaign reported Publicis Groupe had discussions with a private equity investor at the end of 2020. The company declined to comment to us before publication but subsequently denied talks were on-going. Is there anything more that you can tell us about this and your general view about M&A?

We denied it about 20 minutes after the rumours were published. Again, our transformation is complete in terms of assets. We will continue to make small, targeted acquisitions to strengthen our capabilities in specific areas at a country level, but nothing on the scale you have seen in the recent past with Sapient and Epsilon.

You have set up global delivery centres, including in several locations in India. Do you plan to expand them? What’s the benefit for clients? How much is it about saving money? And does it mean moving more jobs offshore from more expensive locations such as Paris, London and New York?

The pandemic has shown all of us the potential of a distributed global workforce. I think the old way of thinking about low-cost/high-cost geographies will become less and less relevant.

For us, we will go where the best talent lies and create centres of excellence that can help our clients’ businesses wherever they are.

Our global delivery centres are a good expression of that, and a huge competitive advantage for us. They enable us to scale outstanding talent in data and technology, around the world. Back when we could travel, we would take our clients to visit our 13,000-strong teams in India, and they would see that we are talking about high-end engineers who can work remotely with all of our agencies and sometimes directly with our clients themselves.

You have talked previously about cost reduction, and Publicis Groupe recently appointed a new CFO. What further savings do you hope to make—for example, what percentage reduction in office space and in travel costs? And where do you plan to invest?

We are currently completely rethinking the way we work, in terms of offices, travel, and collaboration as a whole. And of course, Marcel will have a big role to play in that.

It’s too early to say what kind of savings and investment we expect, but we will look at that with the same approach as in 2020: our people first.

They are at the core of our investment strategy for the years to come. They are the reason we were able to manage this crisis well last year and they are why we feel confident in the future.

It’s not just words. We have decided to repay the salary sacrifice that 6,000 of them made back in April, because we want our people to know that when we fight as one, when we outperform as one—as we are demonstrating today—we win as one.