This week’s Mad Men serves up interesting and potentially explosive twists and turns, which are pushing SCDP towards opposing negative and positive poles. In order to save himself from the U.K. tax collector, Lane activates a $50,000 line of credit against anticipated future revenue. He uses this cash influx to paint a rosy financial picture for the partners and fund a bonus pool for the agency from which he can pay his tax bill. Lane sees this as a risky but reasonable bet. Then, an uncertain business environment and cautious partners delay the bonus distribution to the partners, forcing Lane to up the ante with an even bigger gamble. Lane “borrows” company funds by forging Don’s signature to a check hoping that he can return the money before his actions are discovered. This betrayal of trust is unforgiveable in a partnership like SCDP and a potentially criminal offense that can only lead to disaster.
On the positive side, Pete continues to show some new business initiative and gets the agency on the short list for the Jaguar account. A second chance at the business that Pete smartly and quietly engineers and uses as leverage to push Don into rethinking his work ethic. The Yin and Yang of Mad Men. Lane’s bad judgment and actions jeopardizes SCDP’s financial stability and threatens to tear the partnership apart. A driven Pete and a fired up Don can ignite the flame needed to drive the agency forward. A collision is coming.
Bonuses Speak Louder Than Words
Holiday bonuses are very important at ad agencies on a number of levels. On a practical level it’s an opportunity for the partners to pull some cash out of their equity position, reward key employees and provide a tangible confirmation the agency is doing well. Emotionally, bonuses build staff morale and serve as an affirmation of an optimistic outlook for the year ahead. Unfortunately, Lane also sees it as a way to generate the immediate cash he needs to avoid a major financial and personal catastrophe in the UK.
On an operational level Lane initially goes about this in an orderly, manageable fashion. First, he checks with Harry on the media spending projections to reassure himself that revenue for the first quarter is reasonably safe. Next, Lane secures an additional line of credit so there is minimal effect on short term operating cash. Then he uses the credit line cash cushion as a way of providing bonuses to everyone. It’s been three years since the last bonus so Lane is sure that the partners will agree to establishing the bonus pool. Ultimately, circumstances force Lane to do the unthinkable and resort to forgery to access company cash without partner permission. With the help of a light box and a pen, Lane makes a risky financial bet and commits the cardinal sin of violating partner trust.
Here’s why Lane was initially confident he could pull this off. In the ‘60s, agency compensation was based on the 15 percent commission system. SCDP receives a 15 percent commission on all media dollars expended by the agency on behalf of their clients (paid for by the media). Furthermore, media commitments require long lead times and the agency generally knew what their revenue would be 3-4 months in advance. So when Harry told Lane he was reasonably confident in the projections, Lane felt he was taking a manageable short-term risk. Lane didn’t foresee Mohawk cancelling its first quarter advertising due to a machinist strike. Today the commission system has been replaced by fee based compensation programs based on hours expended for services delivered, supplemented by incentive compensation for positive performance. Faced with the same decisions today and with firm client contracts in hand, the partners would probably be a bit more willing to roll the dice on their bonuses.
Jaguar: From Pipedream To Pep Talk
Pete had worked hard to get the agency into the Jaguar pitch. He announces it to the partners and lets them know the agency is up against Foote Cone Belding, Ted Bates, and D’Arcy with the pitch scheduled for January. This is very tough competition and it will take a lot of work and a big idea to win the business. The partners’ reactions are lukewarm. Bert complains about the electrical system in the cars and Don lets Pete know that he thinks SCDP doesn’t have much of a chance. He calls it a “pipedream.” Pete is rightfully upset and chastises Don with some well deserved zingers about having to work past 5:30 some days.