PR Giant Bell Pottinger Faces Collapse as South Africa Scandal Rages On

Internationally renowned public relations firm Bell Pottinger could end up in administration within a week, after its financial plight worsened significantly in the wake of widespread outrage over its secret campaign to stir up racial tensions in South Africa.

​The PR agency — founded by Margaret Thatcher's favorite PR adviser Lord Bell along with Piers Pottinger in 1987 — has asked accountancy firm BDO to find a buyer in a bid to evade closure, although time is rapidly running out — and given the damage inflicted on the firm's reputation by the scandal, it's perhaps unlikely a buyer will be forthcoming.

The Scandal

On September 4, the Public Relations and Communications Association (PRCA), the UK PR industry trade association, banned the firm from membership for at least five years after investigating a complaint from the Democratic Alliance, South Africa's main opposition party, that the PR firm sought to stir up anger about "white monopoly capital" and "economic apartheid" in South Africa, on behalf of client Oakbay Capital.

​It was the most severe punishment ever handed down by the body, and only the second time a firm has ever been excluded.

PRCA General Director Francis Ingham, said the firm had brought the PR and communications industry into disrepute with its actions, and had received the "harshest possible" sanctions as a result.

"The PRCA has never before passed down such a damning indictment of an agency's behaviour. This outcome reflects the huge importance the PRCA places on the protection of ethical standards in the business of PR and communications," Ingham explained.

​Bell Pottinger was found to have "exploited racial divisions" on behalf of Oakbay, the holding company of the wealthy Gupta family, who have been accused of benefiting financially from their close links to the South African president, Jacob Zuma.

The campaign's content, the PRCA judged, was by any reasonable standard of judgement "likely to inflame racial discord in South Africa" and appears to have done "exactly that."

The committee did not find Bell Pottinger's defense — that the theme of the campaign and its consequences were unintentional — plausible.

Certain aspects of the campaign fell so far short of expected standards an apology was issued by James Henderson, then-Chief Executive, in which he described the social media campaign highlighting economic emancipation to be "inappropriate and offensive."

Sinking Ship

As a result of the fiasco, the firm's clients are deserting in droves — a dozen big-name clients, including HSBC, TalkTalk, Investec and Acacia, have all headed for the door. Tobacco major Imperial Brands, owner of Gauloises, John Player and Winston are but two high-value clients is said to be considering fleeing the sinking ship.

Moreover Bell Pottinger's second largest investor, Chime (owned by US firm Providence and Martin Sorrell's renowned international advertising network WPP) handed back its 27 percent stake in the firm for free, after failing to find a buyer.

Such is the company's financial fragility, its 250 staff were informed September 7 they could have their employment terminated immediately.

The scramble to find a buyer or other forms of finance is in part because of a US$6.6 million debt partly built up over payouts to Lord Bell, the co-founder, who departed in 2016, and other top staff whose stakes in the company have been bought out.

James Henderson, the largest shareholder, resigned as chief executive a day prior to the PRCA's bruising decision, before the scale of the punishment became clear. Other key figures have also departed since the Association's ruling, including John Sunnucks, chair of the firm's corporate and financial division.

Some observers may be surprised Bell Pottinger has not faced industry censure and financial ruin for its previous activities.

For instance, in October 2016 it was revealed the firm had been paid over US$500 million from the US public purse to spearhead a top-secret propaganda campaign in Iraq, creating fake videos that appeared to be the work of al-Qaida. It also created news stories that looked as though they were produced by Arab media outlets, and distributed them through Middle Eastern news networks.

The propaganda videos were personally approved by General David Petraeus — then the commander of US-led coalition forces in Iraq. On some occasions, the White House signed off directly on the propaganda materials.