Advertising: Damage And Destruction

EVERYONE WHO HAS READ JOSEPHINE Hart's best-selling novel Damage remembers the opening lines: "Damaged people are dangerous. They know they can survive." Those words came to life last week for Hart's husband, the British advertising mogul Maurice Saatchi. Wounded by his ouster last month as chairman of Saatchi & Saatchi, the agency he started in 1970, which grew to be one of the largest in the world, Saatchi struck back hard. He announced he would start a rival advertising firm that will probably spirit away some of Saatchi & Saatchi's biggest clients. To add to the retribution, at least seven of the London-based agency's top executives resigned, with three saying they would join their old boss's new enterprise.

Saatchi's moves sent the advertising world into an uproar and Saatchi & Saatchi stock into a nosedive; it ended last week at 102p on the London Stock Exchange, around 35% below its price in mid-December. Some analysts think that with its charismatic chairman gone, its executive suite half empty and its client list endangered, Maurice's original firm could break up.

Saatchi & Saatchi CEO Charles Scott and his backers scrambled to put the best face on the setback. After three Saatchi loyalists, including acting chairman Jeremy Sinclair, walked out early in the week, Scott issued a statement saying that "if the departure of Mr. Saatchi is included, it's just four people out of 11,500."

But Scott's denial that the resignations injured the firm were later belied when Saatchi & Saatchi filed suit in London High Court, charging a conspiracy to injure the company, demanding damages, and seeking to enforce clauses in the three departing managers' employment contracts forbidding them to work for a competing firm for at least a year.

Feelings were bitter on all sides, with Sinclair charging that "the company is in the grip of people who do not understand the business." A number of important clients agreed. By week's end four major companies had pulled out or announced they were reviewing their accounts. The most important defector may be British Airways, whose $125 million annual advertising spending earned Saatchi & Saatchi $9 million in profits last year. Other companies reconsidering their advertising deals include the candymaker Mars and the Mirror media group. In announcing that he too was thinking of closing his account, Stanley Kalms, head of the British electronics retail chain Dixons, called the Saatchi affair one of the "worst examples of corporate governance" he had ever seen.