Wall Street is not much interested in the overbilling scandal at Fleishman-Hillard's Los Angeles office. It involves, after all, only a few people from a single office of a single division of the global giant Omnicom Group Inc. a company made up of hundreds of individual units.
Omnicom stock hit a 52-week high of $87.39 a share on Jan. 18, five days after John Stodder, a former Fleishman vice president, was indicted on charges that he fraudulently billed L.A.'s Department of Water & Power on a $3 million annual public relations contract.
A $3 million contract for a conglomerate with revenues expected to reach more than $10 billion this year is not a material concern. In fact, there has been no mention of ongoing investigations in Omnicom's filings nor in any of its press releases. Omnicom spokeswoman Pat Sloan declined comment on the matter, referring queries to Fleishman-Hillard.
"When you look at the portfolio of companies that Omnicom has, Fleishman is like a pinky nail in the annual report," said Mike Paul, president of MGP & Associates PR in New York and former vice president and senior counsel at Hill & Knowlton's New York office.
Far more important to Omnicom these days, at least at the bottom line, is the impact that Procter & Gamble Co.'s pending acquisition of Gillette Co. is likely to have on billings. Gillette spent $812 million on advertising for the first nine months of 2004 and much of that business was handled by Omnicom units. Omnicom shares fell after the acquisition deal was announced, and Deutsche Bank projected that $100 million in Omnicom revenue could be lost if the Gillette work gets dropped.
That the brouhaha over Fleishman's L.A. contract, along with scattered embarrassments at other Omnicom units, would have little effect on the corporate entity speaks to how the advertising and public relations business has changed over the past decade or so. Once a hodgepodge of largely privately held agencies, the industries have undergone massive consolidation that has resulted in smaller shops being bought up by slightly larger ones, which in turn have been sold to still larger ones.
The result has been the expansion of international powerhouses such as Omnicom, Interpublic Group of Cos. and WPP Group plc. But unlike roll-ups in other industries, the acquired operations in P.R. and advertising often retain their name and identity rather than being amalgamated into a larger entity. This reflects the importance of maintaining ongoing relationships with clients who would prefer to work with individual units within the conglomerate rather than the conglomerate itself.
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