Wednesday 26 June 2019

Sorrell's departure raises serious questions at WPP

Martin Sorrell. Photo: Justin Tallis/AFP/Getty Images
Martin Sorrell. Photo: Justin Tallis/AFP/Getty Images

John McGee

If you were to ask some of the best creative directors, PR practitioners and crisis management experts in the world to craft a story about the imminent departure of their boss, they might come up with something vaguely credible, possibly exciting or, at the very least, a farewell statement that might trigger a few tears.

Unfortunately for Martin Sorrell, the huge army of creative talent which he had at his disposal in WPP for the last 33 years would have struggled to put a positive spin on his swift and questionable departure from the company he founded.

Everything from the timing of his departure - which was announced late last Saturday night - right through to the scope of the investigation, its findings and the precise reasons for Sorrell's resignation remain shrouded in mystery. For a company that makes its money from advising other companies on how to communicate with the great unwashed, WPP has clearly chosen to ignore its own playbook.

What we do know is that earlier this month the board of the company announced that it was conducting an internal investigation into allegations of "personal misconduct" and misuse of company funds by Sorrell, something which he has vehemently denied. The company also said that the amounts involved were "not material" to WPP, whatever that means to a company that reported a turnover of £15.26bn in 2017.

The investigation was concluded last week, but its findings were not disclosed. Unless they are leaked - which is a distinct possibility - or shareholders demand that they are disclosed, they are likely to remain under lock and key, reinforced by watertight non-disclosure agreements, for the foreseeable future.

In his own carefully-worded statement, which was issued to staff late last Saturday evening, he said that "the current disruption we are experiencing is simply putting too much unnecessary pressure on the business, our over 200,000 people... that is why I have decided that in your interest, in the interest of our clients, in the interest of all shareowners, both big and small, and in the interest of all our other stakeholders, it is best for me to step aside".

For somebody who is well-known as a scrappy, defensive and often prickly individual who normally doesn't go down without a fight, quitting in such controversial circumstances has inevitably left many within the industry wondering what really transpired at a fateful meeting in London last weekend. To those who know him, quitting is not a word in his personal lexicon.

Many within the industry now think that it is difficult to envisage WPP without Martin Sorrell. While he has proved to be a divisive figure within the industry down through the years, he has to be respected for creating, acquisition by acquisition, a global marketing and communications powerhouse that employs thousands of hugely talented and committed professionals around the world, including Ireland where it has a sizeable footprint.

With the mind of an accountant and an ability to smooth-talk and charm clients, he also brought a financial discipline and rigour to the industry that, perhaps, was lacking in the 1980s. With a firm eye on the numbers flowing in every week from around the world, this often led to accusations about the media agencies within the group getting most of the love while the creatives took a back seat. When David Ogilvy, the godfather of modern advertising, once called him "an odious little jerk", it was a tag that hung around for a long time. Years later, Ogilvy changed his tune and, so the story goes, heaped praise on his diminutive boss.

One week on from the fall-out at WPP, the company's share price is down by 7pc and rumours of an imminent earnings downgrade accompanying its first quarter results later this month haven't helped. Some of the institutional shareholders which opposed Sorrell's generous remuneration packages in the past, now smell blood and one can be sure that some of giants of the private equity world have been running their slide rules over WPP over the past week.

Over the past year, however, the shares have declined by 34.4pc, a clearer indication of how the market perceives the company and the many challenges it faces. With a hefty net gearing of 63pc following a major acquisition binge over the last 10 years, many within the industry believe it may be forced to offload some of its businesses while ramping up its efforts to address its labyrinthine structure.

While the company has appointed Roberto Quarta as executive chairman and Mark Read and Andrew Scott as joint-COO, it seems unlikely that this interregnum will stave off some of the bigger questions that remain about the company's longer-term future.

With Sorrell now gone, the sale of some business units might well be an option but shareholders must surely also realise that, if it ever came to it, a break-up of WPP would raise considerably more than the £14bn at which it is currently capitalised.

And the irony in all of this is Sorrell will be one of the biggest beneficiaries.

Sunday Indo Business

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