by Filipe Fonteles Cabral
September 01, 2009
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What is the CENP? If you are asking yourself this, the business relationship between your company and its advertising agency may be at risk for some unexpected changes in Brazil.
The CENP, or Conselho Executivo das Normas-Padrão (Executive Board of Standards), is a private entity created in 1998 by advertising agencies, communication vehicles and advertisers to regulate this segment’s business practices.
Do not mistake the CENP for CONAR. CONAR, the National Advertising Selfregulating Council, is responsible for reviewing the content of advertising campaigns, while the CENP is responsible for supervising and monitoring business relations between advertisers, agencies and communication vehicles.
The CENP’s activities include offering follow-up and incentive with regards to technical qualification on the part of advertising agencies, moving to block media bureau (seen as mere "money changers") from coming into Brazil and most importantly working to prevent predatory competition between advertising agencies.
Applying CONAR’s positive self-regulation role model, the CENP seeks to meet its objectives applying a set of rules governing the business practices of advertising agencies, communication vehicles and advertisers, known as standards.
The key standards are as follows:
a) the communication vehicles must apply a single price list to all advertisers;
b) the CENP will issue a certificate to advertising agencies meeting certain technical requirements;
c) the communication vehicles will offer a 20% discount on advertisements sent through advertising agencies certified by the CENP will issue a certificate to advertising agencies meeting certain the CENP, this discount being the agency’s compensation for its service to the advertiser; discounts for non-certified agencies are prohibited.
By standardizing vehicle pricing, conditioning discounts to the agency’s certification and establishing this very discount as the agency’s minimum compensation, the standards thwarts the practice of market dumping. On the other hand, the freedom of advertisers and agencies to negotiate is compromised. Furthermore, the use of so-called houses is restricted because this form of advertising service does not meet the requirements for obtaining CENP certification.
It is important to underscore that with the objective of ensuring compliance with the standards, the CENP conducts inspections of the advertising agencies to confirm that the compensation they receive is consistent with their media volume. If inspection reveals that compensation is short of that dictated by the standards, the CENP initiates proceedings before its Board of Ethics to analyze the case.
If the Board of Ethics documents violation of the standards, the CENP may:
As it is possible to verify, the CENP sanctions are directed at advertising agencies. However, if the effects of the CENP certification are suspended in a given business relationship, the communication vehicle will no longer grant the 20% discount on the media price for that advertiser’s campaigns. In other words, the advertiser will be forced to pay the full media price, and also to pay the agency’s fees separately.
To avoid this grievous effect, the advertiser must hastily pull together a service agreement that often took months to negotiate in the first place, so as to maintain the advertising campaign and its projected budget.
Restraint of trade? Violation of Antitrust Law? Some say yes, and for years proceedings related to the matter have been crawling through the Administrative Council for Economic Defense (CADE).
Until CADE issues an opinion, the CENP is strictly applying its rules. Of the 460 cases filed as of the end of 2008, around 260 judgments were issued (57%) demanding modifications in service agreements.
It is important to note that while on the one hand the standards are clear in that they fix the agency’s discount and the limits for passing the amount to the advertiser, on the other hand this code leaves room for alternative forms of payment and even exemption from some costs.
In order to avoid emergency restructuring of the service agreement between advertiser and advertising agency, which jeopardizes the parties’ understanding or the advertising campaign’s continuation, it is best to negotiate from the beginning keeping in mind the CENP rules and their exceptions.
In the final analysis, the CENP’s decisions have greater impact on the advertisers than on the actual agencies they inspect.