Edelman staff cuts reflect an industry at a crossroads

Richard Edelman’s decision to cut 5.3% of the workforce at his eponymous firm and lay off 330 employees was a tough one to make.

As a private, family-owned business, Edelman isn’t necessarily under the same pressures as a holding company agency or one that is backed by private equity.

But as he told PRWeek when the news was announced: “I don’t like to do this. I’ve held off as long as I can. If I were running a public company this would have happened months ago. But I need to run a business and that’s the job.”

Edelman reflected that when he said: “I want to thank the people who are parting ways with Edelman for their service to the firm and our clients.”

The big question is whether this is a sign of a fundamental reckoning within the PR industry, especially the agency sector, or whether it is one agency suffering advanced growing pains — albeit the biggest and best-known firm in the world.

Edelman’s big holding company rivals are all in different stages of evolution as agencies restructure for the AI world we’ve moved into and confront the ever-increasing challenges facing global business, governments and organizations.

Interpublic Group’s The Weber Shandwick Collective and Golin are on something of a roll, with the former claiming double-digit year-over-year revenue increases and the latter in the mid- to high-single-digit growth region.

Burson still gets a bit of a pass for the ongoing process of integrating BCW and Hill & Knowlton together — but that won’t last forever. Omnicom’s shops have had a steady year bolstered by its expanded public affairs and DC chops and media buying around the general election by its biggest agency FleishmanHillard’s subsidiary GMMB.

One definite trend is that staffers are staying put much more this year than they have been, with employee turnover levels way down due to economic uncertainty. That’s actually a good thing for clients frustrated by the constant turnover of people working their accounts and lack of facetime with senior execs once the pitch or annual review has wrapped.

It’s never nice when people lose their jobs, especially good people who have spent decades at their employer contributing to the agency and working on behalf of its clients. This is the latest in a number of layoffs at Edelman spanning COVID-19 and then the rebuilding afterward. There has been an outpouring of support on social networks such as LinkedIn from former Edelman employees or people wanting to help those impacted by the layoffs.

In an interview for The PR Week podcast in early July, when the agency was riding high from a successful performance at the Cannes International Festival of Creativity, CEO Edelman said the U.S. market was starting to turn back in his firm’s favor after a tough 2023 when revenues in its biggest market fell 9%.

He said healthcare and tech business had rallied and that the agency’s pipeline was stronger by far than it was last fall. He expressed confidence in the firm’s ability to bounce back and predicted modest global growth of 1-2% in 2024 overall and a small decline in the U.S. “It won’t be a drop again,” he added. “Edelman is 45% tech and health, so how those go, we go. But some of those clients are giving us budgets.”

Clearly, in the interim that outlook has changed. Edelman told us he expects his firm’s 2024 revenue to be down 8% in the U.S. and 3% globally. In 2024, numerous senior people have left, retired or been poached by competitors, and clients with multiple-decades-long relationships with Edelman have also departed.

Along with the U.S., Asia has also been a poor performer, and around 50 of the layoffs are from that region. The U.K., EMEA, LatAm and Canada are all doing well and cuts haven’t yet impacted these parts of the world.

Edelman is also restructuring amid the layoffs and shuttering most of its specialty agencies and conflict shops, centering the firm around five key areas of health, technology, food and beverage, financial services and energy transition.

Its food and beverage subsidiary, Edible, won the multimillion-dollar account for Florida Citrus back in 2015, but that was one of the clients that departed this year. CEO Karmen Johnson left Edible in September.

Edelman emphasized that the job cuts were split equally between people at VP and above level and AAE and senior account supervisors, possibly to counteract any impression that the layoffs were preempted by AI.

Most firms and in-house teams will eventually require fewer junior people because some of the “grunt work” associated with PR will migrate to AI, while the belief is that any savings will be reinvested in people doing more strategic and creative work at the top of the funnel. In the meantime, most firms are still in heavy investment mode around tech platforms, tools and systems that will be required to get the best out of AI.

The PR profession is at an inflection point in that its practitioners have achieved their aim of being considered senior advisers to CEOs and the C-suite, but are now being held to account for delivering on this increased responsibility.

At the same time, their budgets are under pressure as businesses go through the process of transformation, retool themselves for an AI future, and deal with the ongoing challenges of geopolitical and economic uncertainty while at the same time navigating the complex waters of the evolving DE&I and ESG impact agenda.

Edelman insists he has the right strategy and a “really strong” team but is not making sufficient margins. He reiterated that while he’s running a family business, it’s still a business and one that needs “significant” investment in AI. He is all in on the agency’s Action Earns Trust, Trust Drives Growth philosophy.

One thing’s for sure, the people who remain will all be required to spend significant time on client work. “We must remain nimble and agile in delivering on our clients’ needs with senior people leading every engagement,” said Richard Edelman in his communication with staffers yesterday.

It’s worth noting that, even with this round of cuts, the agency is still the largest in the world and will continue to achieve global revenue in excess of $1 billion if Edelman’s minus 3% prediction for 2024 comes about. Clients don’t care about that, of course. They just want great service from clever people who add value to their in-house teams.

Edelman will debut its 25th Trust Barometer report in Davos in January, a piece of IP that is mentioned consistently in boardrooms and has become the de facto reference point for discussions about trust in business, governments, institutions and cultures around the world. Having said that, Edelman told me the PR industry still has to do a better job of making the case for its effectiveness to company CEOs and CFOs and underline its larger importance.

The firm produces excellent creative work that is at least on a par with the best of other major PR and creative agencies, and the style of creative is effective in producing real business results and changes in behavior.

Examples include The Move to Minus 15 for DP World, which was adopted by a majority of the global shipping industry and won a Titanium Lion at Cannes; Beer Can Chicken for Perdue that caused a 7% rise in sales; Code My Crown for Dove, which was adopted by Activision Gaming; and Second-Hand Tax for IKEA Canada, which resulted in a 192% increase in second-hand sales.

This has clearly been a tough couple of years for Edelman, especially in the U.S. But it is still the largest PR firm in the world and pushes on relentlessly under the leadership of its formidable CEO.

No matter the travails it is going through at the moment, it would be foolish to underestimate the agency or its leader in retooling its offerings to meet the challenges and opportunities of the next generation of PR outlined above.