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For a business constructed on new ideas, advertising remains uncomfortably stuck with its old ideas of how to construct a business. Ad agencies, whether private or publicly owned, are almost all built on a 19th Century corporate formula. Did everyone miss what happened after 1999?

What employees want.

1999 was the advertising industry’s last “good” year, boasting bonuses and flush salaries. By 2000, the news was of layoffs. One figure showed 43% of New York City’s marketing industry—mailroom to VPs—were on the street. No ad job was secure. It was the year that, for the advertising employee, corporate paternalism died.

After 2000, no agency owner could ever again expect to find people who believed their own best interests were also their employers’ first, or even second or third. In an industry whose inventory, famously, “goes down the elevator every night,” the consequences are, or should be, far-reaching. But the overwhelming majority of ad agencies continue to run on the assumption employees will continue to risk their livelihoods for a fixed salary, while they watch the owners, divide the rest.

That’s no longer true in the wider economy. According to the U.S. census, only one in three California workers held a “traditional” job. 32 million U.S. workers were either soloists, temps or micropreneurs, making them the largest segment of the working population, larger than all public sector employees combined. And perhaps most telling, 70% of all U.S. businesses had no employees.

Clearly, people desire more of a stake in the business they work for than they trust the traditional corporate employer to provide. That’s probably been true for as long as there has been business.

Thanks to globalization, an individual can now produce in a few years what once took a large corporation, decades. In 1990, it took a manufacturing plant to be a fashion industry mogul. In 2008, it took a phone call to China. Andy Spade (husband of Kate) went from being a copywriter to a fashion tycoon in 5 years. And he never built a factory.

The barriers to forming an ad agency are even lower. And advertising peoplehave always been among the business world’s most creative, and most restless. As an advertising agency owner, the idea of employees who neither see their agency’s success as their own nor see any obstacle to opening up a new, competing shop down the street is scary.

What agencies want.

If for no other reason than self defense (actually, there are plenty of other reasons, but they tend to sound a bit touchy-feely to anyone not personally involved) a better corporate model for today’s advertising agency is employee ownership.

The employee-owned agency has access to a wider talent pool. If an ad agency lives or dies on its talent and creativity, what sense does it make to hire from only that dwindling group of people who don’t demand a share of the success they bring their clients?

The employee-owned agency fosters loyalty. Isn’t it preferable to offer workers a portion of the wealth they produce, and keep them, than to have the best and brightest of them go off and build their own company?

The employee-owned agency is more productive. Who will work harder, the employee whose efforts may or may not be rewarded based on what three or four finance subcommittees might or might not decide, or the employee who knows he or she will get a percentage of the agency’s quarterly profits?

(Incidentally, the question of effort ties directly to another topic, far beyond this blog’s scope – that of performance-based agency compensation. Briefly, traditional agency ownership and performance-based fees do not fit.The agency’s owners may fervently wish to see their clients succeed. But the creative director still wants to build his portfolio. For the employee-owned agency, performance-based compensation “works.”)

Lastly, the employee-owned agency is flexible in the event of a downturn.Where the traditional agency has no choice but to cut jobs, losing capabilities, the employee-owned agency maintains its staff. Yes, their paychecks suffer, but at least they are still working. And the agency can continue to fully serve its clients.

What employee-ownership is not.

Republik employees do not vote on what color to paint the walls. One of the original and most progressive employee-owned agencies was St. Luke’s in London. They were a partnership that dissolved, I think, because of the inertia of having to discuss every single decision.

Powerful leadership remains vital to agency success, and for us, the key to reconciling authoritarianism and democracy lay in the separation of short-and long-term goals. The Republik’s Executive Committee is elected, one person, one vote, by every agency employee. Once elected the day-to-day management is in the hands of the Executive Committee. (Our inspiration was the U.S. Constitution, with its checks and balances and the insulation from mobocracy provided by the Electoral College.)

And no, employee-ownership is not the answer for everyone. Specifically, employees who cannot risk a fluctuating paycheck. Not to mention stockholders and individuals who want to retain an outsize share of their agency’s upside potential.

The unforeseen trade-offs.

There are some surprises in store for the employee-owned agency. You willfind it is stressful for employees to know too much about their company’s financials. But know they must. Each quarter’s gains and losses are public knowledge. There are giant agency VPs who have less idea of what goes on in their companies than the lowest man on the totem pole here. Then again, some of those giant agency VPs like it that way.

You will find that the work can be less sexy. When employees start watching their client’s bottom line, they start thinking maybe a Web 2.0 database building program is more important than a new TV campaign. Personally, I miss doing big TV spots. They were fun.

You’ll wince when a strategist tells the client, “this part of your media budget is wasted. Save it.” Even though you know it’s the right thing to do.

On the plus side, you will be relieved of your police department duties. You will have a cop on every beat, ready to pounce on any employee pulling less than his fair share, or helping himself to a little bit more.

You’ll spend less time fine wining and dining your clients and more time eating burgers with your new boss, the receptionist.

And you will gain new and unimagined listening skills. Sometimes they will pay off in big and unexpected ideas. Sometimes they will be sorely tested.When you can keep your eyes intently focused during the receptionist’s explanation of how the next client’s strategic brief ought to be subtly tweaked, you’ll know you’re getting the hang of it.

by Robert Shaw West Brand Futurist The Republik Companies Chairman/CEO

Photo Credit: Tesmec via Wikimedia Commons – Licensed CC-BY-NC-SA