From the NYT: Agency Combines Clients’ Stocks for a Mini-Mutual Fund

19 Jan

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Published: January 18, 2010

FORGET about the Standard & Poor’s 500-stock index or the Dow Jones industrial average. The latest gauge of Wall Street performance — at least on Madison Avenue — is the K.B.S.& P. Client Stock Index


Peter Wortmann

Lori Senecal, the head of Kirshenbaum Bond, began a special stock index, the brainchild of two employees: Aric Cheston, left, and Matt Powell, right.

K.B.S. & who? K.B.S.& P. is short for Kirshenbaum Bond Senecal & Partners in New York, part of MDC Partners. It is only coincidental that the S.& P. in the abbreviation echoes the shorthand term for Standard & Poor’s.

The index, scheduled to be introduced on Tuesday, is intended to track the performance in the stock market of shares of companies that are publicly traded and clients of the agency. Eighteen of its more than 30 clients have stock that is traded on exchanges, among them BMW, Cablevision, Capital One Financial, Diageo, Kao Brands, TJX and Weight Watchers.

What makes the index interesting is that it is not a fanciful construct but a real portfolio, a mini-mutual fund that will have its own ticket symbol, KBSPX. Agency executives are opening a brokerage account with another client, the Vanguard Group, into which will be deposited 300 shares of each of the 18 companies.

The 300 employees of Kirshenbaum Bond will be offered long-term cash and compensation incentives to mirror the performance of the stocks in the index, which they will be able to track each trading day on an intranet on the agency’s Web site.

MDC is spending an estimated $500,000 to start the index, which includes contributing four restricted shares of MDC stock to the fund for each Kirshenbaum Bond employee, for a total of 1,200 shares.

The index is a version of efforts by a growing number of agencies to put skin in the game by showing clients they are willing to be paid based on how their work performs in the marketplace. Other examples include agencies taking ownership stakes in client companies or sharing revenue from the sales of products they advertise.

“We’ve been hearing from a lot of clients that they want more accountability,” said Lori Senecal, who came to Kirshenbaum Bond in August as president and chief executive. “They need us to own their challenges.”

“The index is a tangible way to add that belief to our culture,” she added. The index is among steps Ms. Senecal is taking since she joined Kirshenbaum Bond from McCann Erickson Worldwide to, as she put it, “reinterpret its heritage in the service of the marketing needs of the future.” Translation: shake things up.

The agency, which gained a reputation in its early years for cheeky work like the “Wendy the Snapple lady” campaign for Snapple beverages, has been on a roller coaster more recently with gains of accounts like Vanguard offset by losses of clients like the Wendy’s fast-food chain.

“Agencies either go forward or backward; they don’t stay the same,” said Richard Kirshenbaum, who shares the title of co-chairman at Kirshenbaum Bond with Jon Bond. Although “we’re a very healthy and successful agency, and a very profitable one,” Mr. Kirshenbaum said, “it’s time to have renewed energy and spirit at a time when the landscape is changing” for the advertising business.

The index was the brainchild of two Kirshenbaum Bond employees: Aric Cheston, partner and creative director, and Matt Powell, chief technologist. They will each receive a cash bonus of $10,000 from MDC.

Starting an agency mutual fund was among 50 ideas presented by employees at a crowd-sourcing meeting in October that sought proposals to help revitalize Kirshenbaum Bond from everyone who works there.

Ms. Senecal is also adopting another idea from the meeting: The agency will devote the hours of 10 a.m. to noon each Friday to “hot housing,” as employees divide into groups and brainstorm new approaches for clients.“It’s motivating all levels of the organization from the bottom up,” said Miles S. Nadal, chairman and chief executive at MDC in Toronto. “If you want a behavior, you should create economic incentives to reward that behavior.”

MDC will look into “rolling this out on a broader basis,” Mr. Nadal said, by starting similar indexes and funds at its other agencies.

Among other moves by Ms. Senecal since she arrived at Kirshenbaum Bond were the hiring of Mick McCabe, a partner at Deutsch in New York, as the agency’s first chief strategy officer, and bringing in Marc Lucas, executive creative director at the New York office of Razorfish, as chief creative officer, assuming those duties from Mr. Kirshenbaum.

Kirshenbaum Bond has landed two major assignments under Ms. Senecal. One expanded the agency’s relationship with Capital One, which awarded Kirshenbaum Bond the task of creating ads in print, radio, digital and out-of-home media. The other assignment was to be agency of record in the United States for Vanguard.

Kirshenbaum Bond “understands our business metrics,” said Sean Hagerty, principal in retail marketing at Vanguard in Valley Forge, Pa., and knows how to “focus on how do we most efficiently and effectively talk to our audiences in a financially responsible manner.”

The agency’s first work for Vanguard is being developed, he added, and could begin appearing in March. (Vanguard’s shares are not in the portfolio because the company is privately held.)

As Kirshenbaum Bond employees watch the index, they may learn a lesson in the stock market: How the shares of a company fare does not always correspond to how the company is doing.

One way gyrations could be mitigated is that “the index is based on a number of clients in diversified industries,” Mr. Nadal of MDC said.

Besides, the index is intended to be “a long-term retention mechanism” for employees and “value is created over a longer period of time,” he added. “As Warren Buffett says, in the short term the stock market is a voting machine but in the long term it’s a weighting machine.”

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