The Ad Agency to End All Ad Agencies

St. Lukes, a rebellious young agency spun out of the once-revolutionary Chiat/Day, practices what it preaches -- the gospel of total ethics and common ownership.

It's lunchtime at St. Lukes, a one-year-old advertising agency on the edge of London's Bloomsbury district, and the daily battle for Ping-Pong supremacy has resumed in the corporate lunchroom. Today's employee-competitors are not Andy Smith and Vince Gant; true to the British fondness for nicknames they are "Smudger" and "Banco." Because the two contestants are more adept at graphic production and finance than Ping-Pong, a lob occasionally lands solidly, if unintentionally, in someone's plate of pasta. On a nearby shelf a boombox blasting Tchaikovskys "1812 Overture" sounds an appropriate anthem for this agency's explosively original experiment in ownership structure, management, and business philosophy.

Smudger and Banco, as well as all of the diners -- every single one of the 55 employees of St. Lukes -- own the company. Not the token percentage that accompanies the traditional corporate stock participation program -- they own it all. Everyone holds equal shares -- from the people who answer the switchboard to the creative director. St. Luke's was created with an obscure communal ownership structure, established by the British Parliament, called a "Qualifying Employee Shareholder Trust." The acronym has a heroic ring: it is referred to as a QUEST.

A five-member council governs the firm. Rather than call itself a "Board" -- which smacked too much of pinstripes and privilege -- the group borrowed the acronym to call itself the Quest. Two seats on the Quest are elected by the employees; they are now occupied by a print production manager and an account executive, positions that at any other ad agency would be decidedly low in the management food chain. All financial decisions are debated publicly and voted on by a treasury committee made up of everyone in the company who commits money on behalf of the agency or its clients.

But the Quest is more than a name for the firm's ownership structure and governing council. It also fits the sense of mission that infuses the work of the men and women of St. Luke's, who see themselves on a larger quest to offer a profoundly different model of what the advertising industry must become: honest, ethical advertising that represents a company's Total Role in Society. Advertising, in short, that takes the advertising out of advertising.

In case anyone needs a reminder about this corporate mission, placards in the company's hallways proclaim St. Luke's crusade:

Profit Is Like Health.

You Need It, But It Is Not What You Live For.

The Treasury Monitors the Profit We Need.

The Quest Monitors the Lives We Lead.

The sentiments seem vaguely Orwellian, mildly messianic, and absolutely alien. But it is part of St. Luke's distinctive heritage : this agency is a revolutionary child of Chiat/Day, in its time the most revolutionary of ad agencies. In fact, St. Luke's was born at the moment that Chiat/Day ceased to exist as an independent, questing firm.

Now the young agency has picked up the torch, seeking to redefine what advertising is and how it works. The implications, according to the people at St. Luke's, go beyond advertising to the heart and soul of business.

It is an industry of alchemists.

Copywriters and art directors routinely use the sorcery of slogans and images to turn toothpaste into a sexual lure, athletic shoes into a totem of hipness, and gasoline into an expression of manliness. Yet despite its ability to transmute the base metal of human insecurity into gold on behalf of others, the advertising industry has been stuck with a decidedly leaden image of its own. A 1995 Gallup poll asked Americans to rank more than two-dozen occupations in terms of honesty and ethics. Advertising executives were narrowly defeated for last place by members of Congress and used-car salesmen.

The code of St. Lukes, in contrast to this pervasive image, is positively chivalrous. Andy Law, the firm's chairman, is a vicars son with a degree in Greek and Latin literature. He has been known to interrupt a discussion of a client's marketing problem with a tangential anecdote of how the hexameter meter of Homer's "Iliad" approximates the sound of hoofbeats approaching Troy.

Sitting at a table on the perimeter of the St. Luke's "refectory" (the company cafeteria for those working on the other side of the Atlantic), Law sweeps an upraised palm over the room as if consecrating the diners. "I'm just working with the raw material I have," he claims, as he explains the genesis of St. Luke's. "These people were all teenagers when Thatcher came to power. These people were adolescents when AIDS reared its head. Their interests are self-motivation, personal growth, and working for a company they're proud of."

About a year ago, "these people" also worked at another ad agency, one with its own reputation for eccentricity. That's because in a previous incarnation St. Lukes was the London office of Chiat/Day.

This lineage is instructive. During their orbit as the London satellite of the wildly gyrating planet known as Chiat/Day, the people who would eventually form St. Luke's acquired their penchant for antithesis and their taste for risk. And it is ultimately the decay of Chiat/Day's gravitational field which triggered the birth of this unique new agency, for St. Luke's is fashioned from fragments rescued from a culture in collapse.

In the New Testament, the third book, the gospel of Luke, tells the parable of the son who wastes his wealth through riotous living. In the history of this St. Luke's, the story is reversed; here it is the prodigality of the parent on which the allegory spins.

Founded in 1968 by Jay Chiat and Guy Day, Chiat/Day flourished for decades as an agency marked by equal parts creativity and arrogance. In the early 1990s its billings reached $1.1 billion; Advertising Age called Chiat/Day the "Agency of the Decade." By 1992, Chiat/Day had become one of the most famous -- and infamous brand-names in the advertising business. It created perhaps the most recognized commercial of all time -- the Apple Super Bowl-halftime "1984" ad -- and launched the Energizer bunny. Its quirky creative work in the 1980s for Nike, Reebok, and other big name clients earned it a cult-like status within the industry.

Chiat/Days provocative work for its clients was matched by its frequent reinvention of itself. Long before the concept of the open-plan office had become popular, chairman Jay Chiat had demolished office doors in order to shatter hierarchies. Later, boasting that he had stripped employees "of all their ego needs," he banished desks entirely and implemented one of the country's first "virtual offices." The company's quixotic culture bred a pious devotion among Chiat/Day's employees. A company T-shirt proclaimed the revolutionary corporate creed: "We're the pirates, not the navy."

By the early 1990s, Jay Chiat had become convinced that the ad industry was an elephant lumbering toward its graveyard. The process of producing advertising had become convoluted, requiring a huge support staff, which Chiat saw as extraneous, even detrimental, to the creative process.

In 1992, with characteristic fanfare, Chiat announced his intention to create "The Agency of the Future." In 1992 he assembled a hand-picked team representing each of the agency's core disciplines and asked them to figure out where the advertising industry was going and what Chiat/Day needed to do to get there first. From the London office Andy Law and David Abraham, an account director, were brought in to participate.

From the beginning the omens were dark.

On May 3, 1992, the members flew into Los Angeles for their first meeting -- only to find the city in flames. A full-scale riot had erupted in the wake of the Rodney King verdict; the entire city was on alert, braced for much worse. Whisked off to the Ritz-Carlton in Laguna Niguel for three days of meetings, the group began its work, dubbed itself "The Chrysalis Committee" as a sign of regeneration, and sought to invent the future.

Getting to work, the Chrysalis group focused nervously on the micro-issues that most agency's grapple with. Should Chiat/Day spin its media department off as separate unit? How should the agency approach the Net and its impacts on the communication stream between clients and customers? How could the agency get paid to do more strategic thinking -- which is fun -- and less execution -- which isn't?

Over a series of meetings that stretched into the next year, the Chrysalis committee began to suspect the real crisis facing Chiat/Day -- and the entire corporate world -- was that there was something wrong with business itself. Something systemic.

One afternoon, Law and Abraham walked into a Chrysalis meeting, propped up a picture of Aristotle on an easel and drew a single word on the chalkboard:

"It's a Greek word," Law told the group. "It means 'ethics.' And we think this is what we've been looking for."

Law and Abraham proposed that Chiat/Day, which had successfully managed to eliminate doors and desks, had one more anachronism it needed to dispose of: advertising. If the engine of 20th-century economic growth had been marketing, they argued, the successful companies of the 21st century would prosper through the willful application of a set of principles first described 2,500 years ago by Aristotle: ethics.

In an increasingly balkanized world of communications, a corporation's interaction with its stakeholders ultimately would become its most powerful communications medium. Ethics would not be an option, but a requirement.

In the Chrysalis groups imagined narrative, Chiat/Day would become a strategic consultantcy helping clients understand and design their "TRS" -- their Total Role in Society. To Chiat, the appeal of graduating from merely communicating a client's ethos to designing it was irresistible. He decided to move the Chrysalis group from the philosophical to the practical by joining the committee himself.

His membership lasted three hours.

With an impatient Chiat sitting at one end of the conference room table, the group timidly identified a company whose TRS was in need of repair: Chiat/Day. The employees were worn out and the creative work had long ago become pedestrian. There was widespread lack of employee faith in a stock participation program which had tilted huge blocks of shares toward the agency's top management. Before presuming to articulate and fix a clients Total Role in Society, the group suggested, Chiat/Day needed to heal its own.

This was not a diagnosis Jay Chiat wanted to hear. As famous for his temper as for his vision, Chiat went ballistic, grabbing his coat and storming from the room. The Agency of the Future was history. As far as its life at Chiat/Day was concerned, Chrysalis would never get past the larval stage.

While the task force had been musing over the future, the agency's board of directors had been confronting the firm's past. Queasy with debt from a failed acquisition binge, Chiat/Day faced massive repayments. There was only one way for the board simultaneously to relieve the debt and realize the value of the stock they had all amassed. A show of hands sealed the agency's fate.

In January1995, Omnicom, the communications conglomerate, announced that it would buy Chiat/Day and merge the rebel with TBWA, a larger agency with a reputation for dependable, if somewhat stolid, work.

As for Chiat/Day, the pirates were exhausted. After a voyage of 25 years, it was time to join the navy.

News that they were to be merged with TBWA flared like a backdraft through the halls of the London office of Chiat/Day. To employees who had been indoctrinated in the belief that they were creatively superior, the thought of marriage with the stodgy TBWA was repellent. Called for a comment by "Campaign," the industry's weekly trade magazine, Andy Law publicly announced that he had no intention of being eaten by the omnivorous Omnicom.

A hasty peace conference was arranged with the owners-to-be, who were anxious for the acquisition to proceed without any public signs of discord.

Law was convinced that a merger with TBWA would effectively mean spiritual death for his employees. "I knew we'd all end up in the basement of TBWA," said Law. He returned from the meeting with Omnicom and drew a line across a small corner of the office.

"I'm leaving," he told the others in the London office. "I don't want to unduly influence you, so I'm going to work over here and you can decide what you want to do." After a stunned silence, first one, then another, and finally all the employees crossed the line to Laws side. It was a mutiny -- the pirates were still afloat.

Law made calls that night to all his clients. None particularly cared who owned the company, as long as the quality of the work didn't suffer. With the employees and clients behind him, Law called Omnicom and told them there would be no merger with TBWA as far as London was concerned. "You have nothing over here," Law told TBWA President Bill Tragos, "Nothing."

Tragos was furious. But Omnicom soon realized there was only one public position that would calm stockholders and the hungry trade press: the sale of the London office of Chiat/Day to Law and his associates. A deal was struck. A seven-year payback based on a percentage of profits -- plus one U.S. dollar.

Andy Law had bought himself an ad agency.

Within a matter of weeks, he gave it away.

Once the adrenaline from the mutiny had subsided, Law and Abraham realized they now had sole responsibility for the paychecks of their fellow employees. They were no longer the London office of a multinational mothership -- they were just one more tiny, independent ad agency in one of advertising's toughest towns.

Since all the employees had joined in the decision to jump ship, Law felt they should all have a voice in the design of the new vessel. They locked the doors of the agency, and the entire company sequestered itself for three days to invent their own future. Law sat back and listened as the group spoke of the corporation not as a disembodied third-person, but as a container for their own personal values. They wanted to go beyond the boosterism of the typical corporate mission statement with its call for "team structures" and "flat hierarchies." They wanted a concrete mechanism for universal commitment and contribution -- and they wanted it deeply and permanently imbedded into the structure of the company.

To Law and Abraham, the lament sounded familiar. It echoed the issues with which they had struggled on the Chrysalis committee -- and once again, it appeared as if Aristotle and his ethics might provide a solution.

"There will be the same equality between the shares as between the persons," Aristotle had observed in his commentaries on what he called "distributive justice." Law now took those words, not as a definition, but as a command. Chiat/Days culture had been dissolved by the world's most effective solvent: money. Law was determined not to make the same mistake. He asked the company's attorneys to devise a corporate structure that would divide the ownership of the new company equally among its employees.

St. Luke's is owned by a trust, and its affairs governed by a five-member council. By law, one trustee must be an outside attorney; the other four trustees are divided equally between representatives of the firm's senior managers and it's "rank-and-file" employees. To fill their two slots, the employees hold an election.

On the day St. Luke's was founded, 25% of the trust's shares were distributed equally among the employees. Those who leave must sell their shares back to the trust. The government forgives any gain in share value as long as the proceeds are used to make a major capital investment such as a house or car. But employees need not leave to realize the value of their shares. They may sell part, but not all, of their shares at any time -- a guarantee that all employees are always stockholders.

St. Lukes is revalued every year, along with its share price, and a new block of shares is awarded, again equally, to all employees. So, for example, a new creative superstar who joins St. Luke's will be awarded shares -- but will have fewer shares than a receptionist who's been with the agency since the beginning. "That's the way we get rid of ego and greed," says Law.

Visitors entering St. Lukes have the tendency to gape with the slack-jaws of pilgrims -- this is a company where the physical design matches the philosophy. For openers, the company has no desks. Employees have traded personal workspaces for "brand rooms," large client-specific, glass-enclosed conference rooms where the team for that account meets, generates ideas, and stores work-in-progress. Between meetings and visits to clients, employees take a seat at any one of dozens of computers that they share communally.

"You should see the young people come and visit the company," says David Abraham. "You can see in their eyes this feeling of, 'God.' This isn't utopia, but we've taken away a lot of the things that are wrong about agencies, a lot of the emperors new clothes."

St. Lukes, just one year old, generates annual billings of 45 million pounds ($72 million). It's the fasted growing agency in London, meeting its 1996 revenue target in just the first for months. Clients include the Midland Bank, BBC One Radio, and a line of cosmetics for Boots, a chain of drugstores. Last spring, Ikea awarded its U.K. account to St. Lukes, as did Eurostar, the struggling English Channel rail system.

The walls and shelves of most agencies are abundantly bric-a-bracked with the trophies they've bagged at industry award shows. St. Lukes wins no contests -- for the simple, stubborn reason that the agency refuses to enter any.

Law points to what he considers to be a more convincing expression of industry acclamation: envy. A recent "Impact" magazine poll asked London's art directors and copywriters where they would most like to work. Tiny St. Lukes took third position.

Four blocks south of St. Lukes, a sign in the greasy window of a hotel cafe peddles "Virginia Woolf Burgers." A plaque hovering above a nearby sandwich shop directs eyes to a garret which once sheltered Yeats. A mansion was Keynes's, an office was Eliot's. This is Bloomsbury, ground-zero in the post-Victorian revolt in literature, painting, and morality. The real estate here continues to stimulate dissent.

"We've turned our backs on the advertising village," says Andy Law. The "village," specifically, is the London advertising community, which appears to be equally keen on ignoring St. Lukes.

"The other agencies in town paid attention for about one nanosecond," says Isabel Bird, whose team-building consultancy, The Coaching House, works with many of London's most senior ad executives. "They thought the name sounded silly, like a hospital."

But Bird also senses a deep unease within the industry. "Every single agency I've been to is looking for a new process, because people are dead. They all kind of grab bits of money and success hurls them back. The fun isn't there any more. The Saatchis are calling it 'Dare to Be Different, Creativity in Everything We Do, Every Single Department Has To Be Creative.' Leo Burnett is saying, 'Were in the Idea Business -- Everybody's Going to Be Coming Up With Ideas.' It's the same thing. Every agency is talking about process. And how 'our process should be creative.' St. Lukes is doing it."

To Andy Law and David Abraham, their efforts are a general restorative for business as a whole. They evangelize the power of ethics in business, a message they first articulated on the Chrysalis committee and which they have now instantiated in their own company.

"Everyone will think differently about the planet in the year 2000," says Abraham, "and suddenly a lot of pennies will drop and a lot of opinions and political climates will change and a lot more thinking will have been done about business and society generally. Well no longer be seen as all that revolutionary."

An open window in the St. Lukes library leads to a narrow patch of tar-papered terrace. A few of the employees have crawled through the narrow opening and onto the roof to enjoy a moment of sunshine on what feels like the first Spring day.

"We can keep explaining it," says David Abraham as he looks out over the London rooftops, "but this is just us, this is the company we are, this is the company we want to run, this is what we want to do."

Stevan Alburty (alburty@earthlink.net) is a freelance writer based in New York City and former MIS director for Chiat/Day.

Sidebar: The Law of St. Luke's

Chairman Andy Law's Observations on the Future of Advertising.

Cultural Resonance

Our goal is to produce communications that bear no resemblance to any advertising genre. Advertising is an artifact outside of real life; what we produce becomes part of everyday life itself. We're looking for cultural resonance. For example, we produced a piece of work for Ikea, the large furniture retailer, that's actually a protest song: women protesting having to have chintz in their homes. We're encouraging them to chuck it out. Now this campaign has entered everyday life -- it's in politics, it's in all the papers, it's on television. People are talking about it because it taps into what's going on right now.

We don't even call ourselves an advertising agency. We call ourselves a communications resource office. The truth about companies has more energy than any fabricated advertising slogans. Every company has its own truths. It's even more true on the Net, a modern version of the old marketplace. There will still be people bullshitting on it, but the people who are putting honest communication across will succeed.

Inventive Early

We use a process that we call "get inventive early." It sounds long, but it's actually faster than the normal process. There are fewer mistakes and the client is part of the team.

We start by gathering everyone around the table as equals, and they think in free-form about the problem they've been given. There's no rule about who's got the greatest ability to contribute. The idea is king. Rather than having one person whose job is to write the creative brief for a project, we have a creative feeding frenzy among the whole group.

Then about a week later we have a strategic work session. We get the client in to combine its knowledge of the market with our creative input. We tell the client, "We're not magicians here. We want to know what you know. You may not even know what it is you know. So we're going to get it out of your heads." Together we write the brief.

Two weeks after that, we have a creative work session. We have a room with hundreds of pieces of paper, or bits of film, or photographs -- all sorts of things that are the project team's first thoughts. The client comes into the room, and we say, "Nothing's for sale. Don't tell us what you like or don't like." What we want to discuss is the most culturally resonant idea. Only then do we return with something that we think will work.

Ego and Greed

The only thing that changes people's lives is when you change the fundamental structure of ownership. Most advertising agencies are groups of entrepreneurial, self-employed people who get together to make themselves a million bucks. But if you create an agency designed to make you rich, the same thing always happens. You put all your energy into years one, two, and three. By year four you've got lots of people working for you. Then they start having a few ideas themselves and asking for option schemes and shares. By years five and six you're already thinking how to get your money out, and in years seven and eight, you sell the company. It's the most uncreative form of business you can imagine -- you destroy the thing you created in order to make it successful for you.

We've created this company to live beyond us. We're just renting resources. Remember that we're a collective here -- everybody is equal. What's disappeared are ego and greed, the two major driving forces behind the advertising business.

Tough Utopia

Our challenge is, How do we maintain this culture as we get bigger? Every October 18, we go away and reinvent the company for the people who are in it that day -- not for the people in the past. This isn't a company that lives on the great heroic deeds of how we went to Madison Avenue and bought the company. That's irrelevant. What's relevant are the people in it today, their ambitions for it, and how they can make it work.

A lot of people say this is Utopia. It is a different way of working, but it's not some kind of hippie, freeloading operation. For example, we have two reviews a year. And the reviews are tough. Before we hire new people, each department head has to decide if they need another person. They then find a series of candidates who have to be interviewed by at least four other people from other departments. It's very time-consuming. But if you're going to give away a piece of the company to somebody, you want to make sure you get the right person.

And our advertising has to work. Our clients are tough. They're big businesses here; we don't have any small clients. So the advertising has to work -- and it does. It's more resonant. It goes further and deeper in the way it communicates.

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