Nemesis for the Brothers

Vaunting ambition gave the Saatchis power, then turned the dream to dus t, says Paul Vallely

It is not enough to succeed; others must fail. The words were once a favoured quotation of Maurice Saatchi: an epigram that summed up the elegant ruthlessness with which he dispatched business in those years, a decade since, when failure seemed a n impossible imagining.

Even a couple of months ago it seemed a world away. Until just before Christmas the chairman of the world's best-known advertising agency was busy planning a year-long festival to celebrate 25 years of Saatchi's greatest hits.

Now it all must taste of dust. Maurice Saatchi has resigned in a cloud of bitterness. His brother Charles seems bound to follow by relinquishing his role as honorary president of the business empire. And the agency they built from nothing was in disarray, with rumours of its top clients quitting and its shares closing on the Stock Exchange at 112p - wiping £62m off the company's value since the day before, when three of the agency's top executives announced that they were resigning too.

"It reads like a soap opera which can only harm the whole industry," said one of the agency's chief rivals who, for once, felt it prudent to shelter under the cloak of anonymity. The plot developed new complexities yesterday with claims from industry insiders that Maurice had already begun work on setting up a new agency. "He has been on the phone every day since, from seven o'clock in the morning to midnight every day. The offers are pouring in," said the Saatchis' biographer, Ivan Fallon.

And there were clear signs, too, that there was more than immediately met the eye to the orchestrated and highly public resignation of the man appointed to succeed Maurice as chairman, Jeremy Sinclair, and of the chief executive of Saatchi's north American agency, Bill Muirhead, and the chairman of its London agency, David Kershaw.

"Maurice has been talking to Saatchi's old clients," one insider revealed. Another said: "He is a very determined man. If someone crosses him this is what happens."

How did it all come to this? The Saatchi saga was the classic success story of the Thatcher years. It seemed that - despite a hefty glitch in the late Eighties, of which more shortly - the Saatchis had successfully negotiated the recession and the transition to the leaner Nineties that had eluded so many of the other industries that burgeoned with them.

Charles and Maurice epitomised the Thatcherite dream, building a business from nothing, transforming their chosen field, buying up rivals, winning the approval of the Prime Minister and the account of her party and selling the fantasy to the nation.

"They did four key things," said one of those who worked with them in the early years. "First, in an industry which had become obsessed with research and analysis, they threw the emphasis back on to the quality of the ads - they produced powerful ads which made news. Second, they made chief executives and chairmen take an interest in a subject which, until then, had been left as the province of marketing directors.

"Third, they became the first British ad agency to achieve worldwide status. And fourth, they created a household name which, after their association with the Tory party, gave them a really high profile. Mrs T had an enormous impact on the nation's businessmen - if the Saatchis were good enough for her ..."

But there was hubris at the heart of it all. Some of the acquisitions they made were simply overpriced, such as the purchase of the Ted Bates ad agency in the United States for $500m in 1986. Others verged on the ludicrous, like their plan to take over the Midland Bank, which the Bank of England could never have approved.

In this vaulting ambition lay their nemesis. Two years ago they announced the biggest losses ever made in advertising. Yet until recently it seemed the brothers had cheated fate. A new chief executive, Charlie Scott, was brought in to rescue the tatteredfinances. Over the past two years he has succeeded in rebuilding profits. But he also engaged in an increasingly public series of battles with Maurice Saatchi, after Charles had retired into the background, which culminated in the present terminal struggle.

The other main player in the battle is David Herro, the 34-year-old fund manager for Harris Associates in Chicago, which owns 10 per cent of Saatchi's shares. He, in alliance with Scott, forced the resignation of Maurice by threatening to call an extraordinary general meeting at which, the Saatchis' financial advisers calculated after a straw poll of investors, they would lose. Saatchi fell loudly upon his sword.

"It is clear that Maurice - and behind him the brooding saturnine presence of his brother Charles - feels that Herro made a mistake and he must be made to pay," said Fallon.

Herro and Co were already annoyed that investors who bought at £50 a share seven years earlier had seen the value of their investment fall to a mere £2 in recent times. The final straw was the attempt by the chairman to negotiate an option deal that could have netted him £5m in bonuses.

The debacle has revealed a growing tension between the shareholders and the customers the agency is there to serve. Two of its blue chip clients, British Airways and Mars have not simply threatened to withdraw their business; they have entered the fray. Yesterday Lord King, the BA president, in a letter to the Daily Telegraph, proclaimed that the row raised important issues of corporate governance. "Are we to believe that a Chicago-based institution owning less than 10 per cent of the company's stock isable to dominate board policy in the United Kingdom?" he asked.

The intervention reflects something of the difference between ad agencies in the US, where the interests of shareholders have been largely preferred to those of clients, and those in the UK where, under the Saatchi influence, the opposite has obtained. Mars, insiders say, has already taken the decision to remove its $400m account - not out of loyalty to Maurice but for straightforward business reasons. "But BA is a different story," said one industry observer. "There there is a debt of gratitude built on a relationship goes that back to 1982 and the privatisation."

That debt owes a lot to the way the Saatchis changed the face of advertising. "Their philosophy was to make people feel that they enjoyed running their business more with the Saatchis around," said one ex-employee. "They advised on much more than advertising - staff motivation, training, takeover bids, mergers, acquisitions, internal communications."

The result is that nowadays it is not easy for a big multinational simply to move its account elsewhere. "It's tricky to move a big piece of business," said one top ad-man. "It's a much more structured relationship than an outsider might think." And it is not simply that the company and ad agency become enmeshed, with the agency staff forging personal relationships and learning where the bodies are buried. "There are only 14 multinational agencies. Negotiating changes for large businesses can be very de licate because of client conflicts in agencies," said another. So when IBM recently decided to consolidate its global advertising, and moved accounts from 42 small agencies to Ogilvy & Mather, the agency had to resign its accounts with AT&T, Compaq andM icrosoft to accommodate the $500m new deal.

Yesterday the industry was abuzz with rumours about the Saatchis' plans. Was Maurice trying to sabotage his old firm in order to provoke a hostile takeover? Or force the fragmentation of the company so he could buy back the name?

"He wouldn't need to," said Fallon. "They can just set up something new and call it C & M Saatchi or The Brothers." The suspicion is that the intention is altogether more venal. "They always felt that without the Saatchis, the firm of Saatchi & Saatchi was nothing. Now they're out to prove it."

Maurice, it seems, is hatching a new scheme. "He thinks the age of the advertising agency is over," said his biographer. "Increasingly, companies are finding that they don't need a third party between their marketing department and the customer. They might need to hire expertise - in space-buying, creative input or direct marketing - but they can buy that as they need it from specialists as they would from marketing consultants. In the age of digital superhighway marketing, the ad agency will be stone a ge stuff."

Bryan Appleyard's column will appear tomorrow