As the economic fallout from the Covid-19 pandemic comes into focus, the PR industry will not escape unscathed. That much was brought home by the PRovoke/ICCO survey which ran on Monday, revealing that 77% of agency heads expect a loss of earnings. 

WPP, meanwhile, has cut discretionary spending, reduced salaries and implemented a hiring freeze. Other holding groups have suspended financial guidance, underlining the uncertainty that has gripped the marketing communications world. 

"As you would expect, the hardest-hit sector is travel and hospitality, but, as your survey confirms, even diversified agencies experienced some level of immediate drop-off," says PR Council CEO Kim Sample. "Leaders who saw their business hold flat through March as they shifted to support crisis-related needs are anticipating some decline this month."

"The responses seemed overly optimistic in general," warned a senior European PR leader at one of the big four holding groups. "It’s going to be a very grim year."

For many in the industry, more accustomed to the rampant positivity that often defines PR practice, the idea that the survey results are too optimistic will be a tough pill to swallow. And, to be clear, there are many agency heads who still retain a belief in the opportunities on offer to their PR firms. 

"I would not be surprised to see different results if this same survey were re-fielded next week given the speed of change related to this pandemic," argues BCW global CEO Donna Imperato.

“We are seeing some understandable delays for consumer/CPG work, yet an increase in activity focused on internal/employee communications, issues management and executive positioning (internal and, in some cases, external)," she adds. 

"I do agree that this is the overall expectation," notes MSL Asia-Pacific CEO Margaret Key of the survey findings, "but I also believe that this is opportunity.  While marketing and advertising spend is cut (as is seen happening everywhere), it is PR that typically remains.  In addition, clients need us more than ever as they navigate new issues and stakeholder communications especially employees."

But there are plenty of others who are considerably less bullish, too. "I agree with the findings that a very large number of PR firms will experience loss of revenue," says Madan Bahal, CEO of Adfactors, India's biggest PR firm. "The degree of impact may vary based on factors like the practice/offerings mix as well as the scale of disease in different markets. Agencies with large consumer portfolios will be impacted more, those focused on reputation, crisis, internal communication may be impacted less. Agencies in China/ ASEAN may be impacted less."

"I think for us, it’s still too early to determine the exact impact," adds Allison+Partners CEO Scott Allison, who points to "a strong uptick of work in Asia."

"I anticipate by the end of April, we will all have a better understanding of short term impact on business," continues Allison. "I do believe the economy will bounce back quickly once we’ve achieved a level of containment on the virus."

The notion that some agencies — perhaps those focused on corporate and crisis — will emerge as winners from this pandemic, must be a beguiling one. But not everyone is convinced. "Maybe in the short term," says the European PR leader. "But for every new dollar of work there, I see three to four falling out of budgets for the rest of the year."

"Even when we had the first month or two of being used for issues and crisis management, there’s only so much uptick before missing out on events, activations and brand launches that are being pushed into Q3 and even Q4," confirms Havas Red CEO James Wright.

"The biggest factor affecting business now and in the next months is cash flow, and profit is taking a back seat as we need to pay wages," continues Wright. "We’ve made a lot of tough decisions on pulling back on marketing, sponsorship, travel, freelancers and contractors. We’re having to accept, like many agencies, that 2020 is a bit of a write off in terms of driving growth. The crucial factor is to get to the end of the year in a place where 2021 is set up for success."
"We don’t know what’s on the other side" Perhaps the biggest problem for agency heads right now is the sheer level of uncertainty. 

"I think we all are tempted to try to confirm our assumptions now — better to be small or large, independent or public, etc — when the truth is we don’t know what’s on the other side," explains the European PR leader.

Accordingly, it may be that bigger firms, supported by stronger cash balances and diversified practices, are best positioned to ride out this storm, despite years of low growth. Or perhaps midsize agencies, having outperformed the industry over the past decade, will emerge less shaken from this crisis. Some (perhaps not many) might suggest that small firms can defy conventional wisdom and use their pronounced agility, bolstered by government support, to prosper while others fail.

Or maybe independents, less concerned about double-digit margins, are best placed to weather the downturn. Edelman CEO Richard Edelman, well versed in the art of slashing profitability during previous recessions, would probably agree — after assuring his agency's 5,500+ workforce that there will not be any coronavirus-related job cuts.

What we do know is that crisis communications remains in demand  — “through the roof” as one senior agency executive puts it. And that much is borne out by the research too.

“We’ve had clients pull the plug on short-term stuff in March, but this has been replaced by urgent needs in areas like employee engagement, crisis and politics," says the head of a major UK independent. "We have seen a whole load of forecast revenue drop out, some medium-term Q2 and early Q3 projects are on hold, deferred and delayed, although we haven’t seen a lot of cancellations yet."

Companies rolling out coronavirus-related initiatives, from helping patients to manufacturing necessities like masks in short supply, are turning to comms agencies for guidance, as are those in need of particularly level heads.

Dukas Linden Public Relations, for instance, wound up keeping a client that had given notice after convincing leaders of the professional services firm to scale back plans to lay off 50 people and institute “very draconian salary decreases for everyone.”

“We said to them, ‘Not only are you going to kill morale but if it gets out clients are going to think it’s a sinking ship’,” chairman and CEO Richard Dukas said. “It goes to show you how people panic.”

Firms serving particular sectors, such as B2B technology, have also staved off early losses, as they tend to feel the effects of economic downturns later than those serving consumer brands. Agencies have reported an uptick in business in technologies like telemedicine that have gone from peripheral to critical in a few short weeks.

"This is going to go in waves," said Method Communications CEO David Parkinson. "The first wave has hit direct to consumer companies hard, while a lot of B2B companies are trying to figure out what the impact to them will be long-term. We'll also likely see domino effects — for example, the impact of reduced advertising spend on newsrooms around the globe. I think there will be few companies who won't see some impact, even if we can't yet say exactly what that will be."

"The situation is changing fast, but as it stands we're expecting revenues to hold firm for the foreseeable future," adds Clarity CEO Sami McCabe. "It's actually likely we'll see some growth in the coming months: certain tech categories are flourishing, and we're seeing a lot of new business opportunity as a result."

McCabe is surely not alone in spying another opportunity for entrepreneurial agency heads. "We see lots of potential opportunity for M&A in the coming few months: consolidation will begin to look like a sensible strategy for lots of agencies, we think. We're also expecting to see a lot of exceptional talent come onto the market – particularly at senior levels. We'll be looking to take advantage of that wherever possible."
"Nobody is hiring speculatively.” Yet, with no end to the shutdown in site, few believe that any part of the industry will be spared from blows to business, with the first serious cuts coming in early April, when brands are likely to start slashing their marketing bills — or run out of money to pay them. In turn, firms are making contingency plans for worst-case scenarios, including layoffs, should the weeks-long shutdown turn into months.

“Any industry sector where the business model is predicated on somebody paying to go in it, get on it, experience it in person is going to stop for at least eight to 12 weeks and that would create immediate issues for in that sector,” an agency head said.

Firms are already feeling that. A PR agency that specializes in the restaurant industry, for instance, reports that business has already dried up, a phenomenon affecting travel specialists as well. Small companies and startups with limited budgets started cutting marketing spend as soon as lockdowns went into effect, while project spend has also been slashed. 

An agency head at one of New York's biggest PR firms points out that she is "two weeks away" from making layoffs. In turn, executives at flusher firms are seeing a spike in interest from job seekers, including talent who, just weeks ago, would be content to stay put.

Jamie McLaughlin, a longtime PR recruiter and Institute for Public Relations board member, said he is seeing fewer layoffs than expected under current conditions. “A few PR firms made drastic cuts two weeks ago, but I am skeptical if this was a direct result of the pandemic or just an 'opportune' time to bury bad news. There are a lot more cuts taking place outside of PR — and I believe this trend at the creative agencies will continue. Out of any of the 'marketing consultancies' PR is best positioned, with its ear of the CEO, to weather the storm,” he said.

He also expects hiring to resume. “The majority of PR agencies have hit pause on recruitment until April, which probably sounded like a long time away when they made the decision but now that date is nearly upon us. There is still hiring happening at agencies, particularly those aligned with corporate communications work, but again, nobody is hiring speculatively.”

The US’ $2 trillion stimulus package, signed into law on Friday, could have a positive effect on the industry, as it includes benefits for companies that keep their staff employed, said Michael Lasky, chair David & Gilbert’s public relations law practice group.

“Through the loan forgiveness program of the stimulus law, the government is giving firms a meaningful incentive not to lay off employees before at least June 30, when hopefully there is more certainty in business and customary business activity level has been restored,” Lasky said. “Every employee who loses a job would be another person filing for unemployment insurance —which itself would be a government expense. So, the government believes that it is much better to incentive firms to retain staff with this loan forgiveness program and keep more money in the economy.”
"Leadership with empathy and optimism is crucial" In the meantime, agency leaders are shifting gears to make it through the shutdown without having to let people go. CEOs report reducing or forgoing their own salaries to keep employees on the payroll, while others are furloughing staff or looking at shorter working weeks and unpaid leave. 

Unsurprisingly, agency heads — accustomed to a decade of growth — are being tested like never before, putting a premium on the kind of leadership that is as much about empathy and emotional intelligence as it is about number crunching. 

“It’s a real privilege to lead an agency right now," says Wright at Havas Red. "It’s the ultimate test of leadership and character, what you stand for, your business acumen and soft skills. We need leaders to lead: every action we take now as leadership teams, and all the behaviour around our decisions, will define the future of the agency and its culture. Leadership with empathy and optimism is crucial: we need to provide the energy to get us through, and it can’t all be doom and gloom."

“If any communications leader is saying their organisation will be unaffected by this unprecedented time they are delusional," adds Ketchum UK CEO Jo-ann Robertson. "This is a global crisis that is impacting every person personally and economically. Of course businesses in different markets, of different sizes, and with different strengths will all be impacted in different ways. We must be resolute in our collective desire to prioritise and look after our people, be true partners to our clients, and to showcase our craft as being business critical during times of crisis."

Additional reporting by Aarti Shah, Diana Marszalek and Maja Pawinska Sims.