Patriotism may be the last refuge of scoundrels. And politics may be the last refuge of CEOs whose companies miss their earnings. In a call Tuesday, Michael Roth, CEO of the giant advertising agency Interpublic, blamed the firm’s disappointing earnings—which sent the shares down 12 percent—on nonexistent political happenings. “Our results in the quarter reflect the fact that macro uncertainty and political gridlock are affecting spending, particularly in the U.S., with clients demonstrating caution in terms of releasing budgets,” Roth said during the company’s earnings call.
By blaming Washington, Roth misdiagnoses both the impact of macroeconomic uncertainty and political gridlock.
Life and the economy are always uncertain. That’s why businesspeople like Roth get paid lots of money to navigate their large firms—Interpublic is one of the four giant global ad agencies—through the choppy waters. Sure, there is lots of uncertainty about policy. What will happen with health care? The debt ceiling? Brexit? And, yes, that has the capacity to affect some advertising campaigns. But overall the climate for marketing firms is quite benign. The U.S. economy is entering its ninth year of expansion. Employment is at record levels, as are the stock market and corporate profits. Retail sales continue to rise. Sure, some significant sectors that are big advertising and marketing spenders are suffering—i.e., department stores, automakers, and apparel makers. But many others are chugging along quite nicely, including travel, leisure, restaurants, technology, home improvement, and housing.
What’s more, the U.S. is definitively not suffering from gridlock—at least as typically defined. Usually, gridlock happens when one party controls the White House and the other party controls one or more houses of Congress. When this occurs, partisan rancor and continual positioning—the constant desire to deny the other team a win—tends to bring progress to a halt on major initiatives and leads to legislative hostage-taking, threats, and crisis. That is emphatically not what is happening in Washington. One party controls the White House, the Senate, and the House of Representatives. It’s just that the party, the GOP, is unable to govern, debate issues rationally, develop plans, or conduct even the most basic components of legislating like passing a budget, raising the debt ceiling, or passing an infrastructure bill. (In 2009, the scenario was reversed, with Democrats controlling the White House and both houses of Congress, and there was a flurry of important activity that helped the economy, most notably a huge and far-reaching stimulus package.)
Roth is simply taking the type of shorthand CEOs often use when talking about politics to the next level. CEOs of large, highly visible companies often try to avoid blaming particular players in politics by name, or by party. Doing so makes it harder to lobby in the future and, in the current environment, could invite a nasty tweetstorm. And so you generally hear them blame “Washington,” or “politics,” or “partisan politics.”
But of course, today blaming Washington or politics would, in effect, mean calling out Republicans and President Trump by name, since they control the levers of power. (Yes, I know Democrats can filibuster legislation in the Senate. But until now, there has been virtually no legislation for them to filibuster.) So the next logical step, when casting about for an excuse, is to invoke gridlock, which, by definition, is a naturally bipartisan phenomenon.
The real problem for Interpublic isn’t gridlock or macroeconomic uncertainty. The company’s revenue fell $32 million in the most recent quarter compared with last year in part because its pipeline of big projects wasn’t quite as robust as it had been. “In the second quarter, we were missing some of these larger projects to replace the ones that have run off,” Roth said.
Got that? Giant ad agencies depend on selling big clients on big projects or big ad campaigns. And in the most recent quarter, Interpublic’s Don Draperses were marginally less successful than they were in the year before in sealing major deals.
That’s not gridlock. That’s just a marginal loss in market share.