admin April 19, 2018


DURING his spectacular rise from London beancounter to the globe-trotting boss of WPP, the advertising powerhouse he created out of a backstreet wire-basket and trolley company, Sir Martin Sorrell was rarely sentimental. The man who helped turn a ramshackle but chic industry into a global force poached accounts mercilessly and often pitted his own firms against each other in the quest for clients.

Not for nothing did the late David Ogilvy, one of the industry’s founding patriarchs, reputedly describe him as an “odious little shit” when WPP came after the Ogilvy Group in the late 1980s at the dawn of its decades-long acquisition spree (see chart). But Ogilvy later became WPP’s non-executive chairman, and the company turned into the world’s largest marketing conglomerate with more than $20bn in annual revenues. In business, Sir Martin charmed as well as cajoled.

On April 14th Sir Martin’s 32-year reign over the company ended. He quit following an inquiry commissioned by WPP’s board into a whistle-blower’s allegation of “personal misconduct” and misuse of company assets, accusations that he has denied. The shock departure came with very little public explanation. The investigation, which was conducted by WilmerHale, a law firm, came to light only because of a report in the Wall Street Journal, which led to a public confirmation by WPP but no further details.

The board has since remained tight-lipped about the alleged misconduct, stating only that Sir Martin resigned after the investigation had concluded. (He said he quit in protest at how the investigation was handled.) The lack of transparency came as little surprise. The board had previously been criticised for coddling its superstar CEO, awarding him overgenerous pay packages—£70m ($107m) in 2015. Even as the company lost about a third of its value in the year up to Sir Martin’s departure, it made no succession plans. Only now has it begun the hunt for a permanent replacement, while putting its chairman, Roberto Quarta, in charge, and appointing two senior WPP executives, Mark Read and Andrew Scott, as joint chief operating officers.

WPP is struggling to find a new leader just as upheaval in the industry calls for a radical shake-up. Tech platforms have made it easier and cheaper for companies to appeal directly to customers, without needing the services of an upscale ad agency. Upstart consumer brands have been taking on the world’s biggest advertisers, such as Procter & Gamble, which have in turn pressed WPP (and its rivals) to cut their fees. Marketing via social media has eclipsed the lucrative 30-second television spot. Last year WPP suffered its worst year since the financial crisis.

Principal-agency problem

Some wonder if the company will survive without its talismanic boss. Whatever happens, WPP faces the loss of some business. “I have no doubt every competitor is getting ready to swoop [in on its clients],” says a senior executive at a rival advertising giant. Even before Sir Martin stepped down, multiple large clients said they would be formally reviewing their relationships with WPP this year. They included HSBC, a bank, Royal Dutch Shell, an oil firm, and Mars, a chocolate-maker. Informally, Ford Motor Company is considered the largest account at risk. Without Sir Martin to sweet-talk clients into keeping their business with him, investors and creditors are worried. On April 16th WPP shares dropped by nearly 7%; Moody’s, a ratings agency, downgraded its outlook on the firm from “stable” to “negative”.

But some current and former insiders at WPP say that Sir Martin’s departure could actually be a blessing in disguise. He micromanaged his empire, and was loth to sell companies or fire loyal lieutenants, even when they deserved it. WPP has become unwieldy, with more than 400 companies and 200,000 employees in more than 100 countries. The common business model is huge fixed contracts with clients, locking them into long-term relationships with multiple agencies, whose activities range from media-buying to public relations. As the speed and precision of digital advertising has increased, that model is looking increasingly dated, complex and costly. Critics wondered if Sir Martin had become too sentimental about the firm he built to remake it again.

WPP needs to become nimbler, leaner and better able to serve clients at competitive prices, they say. It could combine agencies that Sir Martin once had at each other’s throats. It could sell off Kantar, its large but stagnant data-research business, to a similar company looking for scale (like Nielsen). It could shift its focus to digital services, such as app design and the personalisation of customer service, provided by consultancies-cum-rivals like Deloitte and Accenture. That would reduce its excessive reliance on conventional advertising, which Sir Martin believed would surely make a comeback.

Sir Martin was always a buyer of businesses, not a seller. Yet some analysts estimate the break-up value of WPP is greater than its market capitalisation of £14bn ($20bn). WPP, via its advertisements, has hawked countless products. It may now be time to start selling itself.



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