LONDON (Reuters) - PR agency Bell Pottinger lost its contract with banking giant HSBC and saw its second-biggest shareholder walk away on Tuesday after it was thrown out of an industry body for running a racially-charged campaign in South Africa.
The firm, which provides crisis management to governments and corporations, is now caught up in a scandal of its own because of its campaign, seen as exploiting sensitive race relations to support President Jacob Zuma and his ruling party.
Clients are now distancing themselves following its expulsion from the Public Relations and Communications Association (PRCA) for work the body described as “reprehensible”.
HSBC said it would no longer work with the firm following the news, while the Bank of Ireland said it was also reviewing their relationship.
Bell Pottinger’s second-largest shareholder, marketing agency Chime, walked away from the firm after giving up on trying to sell its stake, valued at around 5 million pounds ($6.51 million) and worth around 25 percent of the company.
Chime instead wrote off its investment and handed its holding back. “We can confirm that we no longer have a stake in Bell Pottinger,” a Chime spokesman said in a statement.
Clients South African investment bank Investec, mining company Acacia, luxury goods firm Richemont, UK construction company Carillion and smaller UK bank CYBG have also dropped their Bell Pottinger accounts recently.
The firm’s troubles began when South Africa’s main opposition party, the Democratic Alliance, complained to the PRCA that Bell Pottinger’s campaign was trying to “divide and conquer” the South African public in order to keep Zuma and his party in power.
The campaign portrayed opponents of Zuma as agents of “white monopoly capital”, with slogans referring to “economic apartheid”. These gained traction in a country where the white minority still wields disproportionate economic power, two decades after the end of apartheid.
The PRCA, which represents 400 businesses and 20,000 individuals, said the firm had purposely played on frayed race relations.
“The view of the PRCA board was that Bell Pottinger’s actions were deliberately intended to create exactly the result they did -- stirring up racial hatred in a very sensitive area of the world,” Francis Ingham, PRCA director general, said.
Bell Pottinger was paid 100,000 pounds a month by Oakbay, the holding company of the Indian-born Gupta family, which has been accused of using its closeness to Zuma to win government contracts. Zuma and the Guptas deny any wrongdoing.
The expulsion came into effect on Tuesday for a minimum of five years, after which the firm can reapply. It is the harshest sanction possible and unprecedented for such a prominent member.
In a statement, Bell Pottinger said it accepted there were lessons to be learned from its South Africa campaign but disputed “the basis on which the (PRCA) ruling was made”.
It said it would continue to abide by the PRCA’s code of ethics.
While Bell Pottinger can continue to operate, the ruling will take its toll in an industry that trades on reputation.
In July, the firm’s chief executive James Henderson issued an “unequivocal and absolute” apology to anyone affected, fired the lead partner involved in the campaign and suspended another partner and two other employees.
It also commissioned an independent report by law firm Herbert Smith Freehills, which found some of the campaign’s material was potentially racially divisive and offensive, but rejected allegations that the company backed so-called Twitterbots to artificially amplify apparent public support.
On Monday, after reading the independent report, Henderson resigned. He said while he had ultimate responsibility for Bell Pottinger, he had been “misled” over the campaign by colleagues.
Tim Bell, co-founder of Bell Pottinger and the PR veteran who made his name by advising Britain’s Margaret Thatcher, said it was “close to the end” for the agency.
He said one reason he resigned as chairman of the firm in August 2016 was because of its work in South Africa -- although he had played a part in securing the Oakbay account.
“It was inevitable, and I‘m not surprised,” he said of the PRCA expulsion. “I think it’s very sad that something that I ran for years and years has been destroyed in less than a year,” he told Reuters by telephone.
Reporting by Emma Rumney; additonal reporting by Tiisetso Motsoeneng in Johannesburg, Lawrence White and Ben Martin in London and Padraic Halpin in Ireland; editing by Jeremy Gaunt