Political Risk Seen By Major Advertising Group
WPP Stock Falls Hard in London
By blackhedd Posted in Economy — Comments (8) / Email this page » / Leave a comment »
Here's a story that is rather parochially related to the media/branding/strategy industry. It's about the travails of WPP Group, one of the world's "Big Four" advertising organizations.
I'm pointing it out to you because of a fascinating quote by WPP's chairman, Sir Martin Sorrell, about Presidential politics in the US.
In my own businesses, I've often looked to the health of the media/branding/strategy industry as a leading indicator of future business conditions. The theory is that large companies undertake branding initiatives in advance of anticipated revenues, with about a six-month lead time.
So it got my attention when London-based WPP Group announced a putrid third quarter, with revenue growth falling well short of analysts' expectations. Their stock is getting hammered in London trading this morning.
But why would Sir Martin Sorrell, WPP Group's peripatetic CEO, set expectations for weak business conditions in 2009, well over a year away?
Because of political risk in the United States:
WPP said the recent liquidity crisis in credit markets, triggered by defaults on U.S. subprime home loans, had no effect on WPP's business so far. ``There has, as yet, been little or any effect on spending levels across the board, both functionally and geographically,'' the company said.
A ``more important concern should be the impact that any new U.S. administration will have on 2009,'' WPP said. A new government might ``be tempted to dispense any politically unpleasant medicine to the electorate, early in the potential eight-year political cycle,'' the advertiser said.
As I said, the lead time for media/branding initiatives is often about six months, so it's not surprising that current economic conditions aren't yet having an impact on WPP's revenues.
But I have to tell you, it's only on extremely rare occasions that a CEO goes out of his way to identify political risk in the United States. You expect that kind of statement with countries that are susceptible to military takeovers or socialist strongmen, but not here. Almost invariably, the political climate in the US is nothing more than a sideshow, from a business perspective.
I can only speculate on the kind of risks that Sir Martin has in mind. But I don't think he's expecting the Republican nominee to win the Presidency. Almost everyone I know who is involved in business or financial planning, takes a Democratic President as a foregone conclusion in 2009. And as a practical matter, that means Hillary Clinton.
So what kind of behavior is WPP anticipating from the next President Clinton, that will have a significant impact on the US economy, and (by extension) on media/ad spending?
My guess would be massive tax increases, onerous new regulations, and some kind of national health-insurance initiative. What's your guess?