Advertising giant WPP Plc is a sprawling colossus of 130,000 employees at hundreds of agencies in 112 countries, but it’s still synonymous with one name: Martin Sorrell. Today, as ad spending shifts to the internet, Sorrell’s iron grip looks increasingly shaky — a threat that was laid bare with reports of alleged personal misconduct and misuse of company assets.
Law firm Wilmer Hale, which WPP hired to investigate the issue, first interviewed Sorrell on March 29, according to a person familiar with the matter, who asked not to be identified as the details are private. Though the 73-year-old chief executive has denied the allegations and remains in his position, the board has an interim internal successor in mind in the event that he leaves the company, the person said.
The probe puts fresh scrutiny on the scale of Sorrell’s control at the company, which includes top global agencies such as Ogilvy & Mather, J. Walter Thompson, Y&R and Grey. As the industry struggles with reduced spending from clients like Unilever and Procter & Gamble Co. and rising competition from the likes of Google and Facebook Inc., some observers ponder whether it’s time for new management at WPP.
“The announcement draws attention, once again, to the issues that can arise when an individual has too much power,” said Guy Jubb, an honorary professor at the University of Edinburgh business school and frequent critic of WPP’s opaque corporate governance. “In my view, today’s announcement is the tipping point,” Jubb said in an email.
Senior managers at WPP haven’t been briefed on details of the allegations, first reported by the Wall Street Journal, according to one executive who asked not to be identified discussing internal matters. In a statement, the company said it is investigating the matter, but said that the amount of money in question wouldn’t have a material effect on WPP, which had revenue of 15.3 billion pounds ($21.5 billion) last year.
In a separate statement, Sorrell acknowledged that an investigation is ongoing, but denied any impropriety. “Obviously, I shall play no part in the management of the investigation,” Sorrell said. “As a significant share owner, my commitment to the company, which I founded over 30 years ago, remains absolute.”
At least one major investor is backing Sorrell for now. “Unless we hear that Sir Martin has committed material offenses, we believe he is the correct person to lead WPP at this unique and challenging period in the firm’s — which he founded — history,” said David Herro, a partner at Harris Associates, in an email. He said Harris owns about 8 percent of WPP, putting it among the company’s biggest investors.
Sorrell built London-based WPP from an investment in a shopping-basket manufacturer into the owner of blue-chip agencies. But as he has struggled to appease worried investors, WPP has lost a third of its market value over the past 12 months. Sorrell is one of the largest shareholders, with a 1.46 percent stake, according to data compiled by Bloomberg.
WPP shares fell 8.2 percent on March 1 when the company reported its worst annual performance since the financial crisis. In the report, the company gave a bleak outlook for the current year, predicting that long-term earnings growth will be as little as 5 percent and twice that at best, compared with a forecast of as much as 15 percent previously. On Wednesday, WPP fell 2 percent in London trading, giving the company a market value of about 14 billion pounds.
Sorrell, who has frequently topped Britain’s annual executive-pay lists, has in recent years become the focus of investor criticism over CEO compensation. After a dismal 2017, the CEO faces a huge cut in his pay package and increasing questions about what might happen when he steps down.
“What we would like as a house is to see a clear step of succession planning,” said Ketan Patel, a fund manager at Edentree Investment Management Ltd., a WPP shareholder. “Who’s coming through? In Sorrell’s case, he hasn’t identified or even brought in the people or a layer of management where you feel, if he did leave, they’d be ready to take over.”
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