In the hours since WPP confirmed its investigation into CEO Martin Sorrell for an alleged personal conduct, questions arose about who would succeed him if he left, how the news will affect an already wounded WPP and what exactly the allegations comprise.
On that last front, at least, a person familiar with the matter said the various mentions of alleged "personal misconduct" and "financial impropriety" in statements Tuesday by WPP and Sorrell referred to the same thing. The agency giant is looking into an allegation of personal misconduct "which may have some minor financial implications," the person said.
Sorrell said in his statement that he rejects the allegation "unreservedly."
But the bulk of the questions looked likely to deepen in the early going.
Hours after WPP's vague statement confirming a Wall Street Journal report of the probe, Chairman Roberto Quarta told global CEOs and other leaders at the agency holding company that it couldn't yet share further details.
Quarta urged executives to present a message of "business as usual" to WPP's marketer clients and roughly 200,000 employees. "Our work for clients is unaffected and continues uninterrupted," Quarta said.
The situation in some ways brought back memories of the trouble at a much smaller agency holding company, MDC Partners, in 2015. Its CEO, Miles Nadal, stepped down amid an SEC investigation into the company's accounting practices. Last year, the SEC announced that Nadal had agreed to pay $5.5 million to settle claims that his perks were not properly disclosed to shareholders.
Observers don't expect WPP to face that scenario. The company said in its statement that the allegations "do not involve amounts which are material to WPP."
The alleged misconduct itself may not be a big problem, investment bank Liberum said in a note about the news. But the mere investigation could have ripple effects.
"Given his high profile, the accusations are bound to attract a lot of attention and, given he is the face of WPP to many, there is likely to be a negative impact on sentiment today," Liberum said. "However, he has denied the claims, there has been no move to suspend him etc. so the way it is being handled does not suggest a major issue. One thing this may do is intensify talk about Sir Martin's successor at WPP, which has been an issue lurking in the background."
An iconic leader
Unlike the broadly-telegraphed succession process at Publicis Groupe, which saw Arthur Sadoun take over as CEO for Maurice Levy last year, WPP's plans for an eventual successor to Sorrell remain opaque.
"There's not any one person you point at and say, well, that's the obvious person," Pivotal Research analyst Brian Wieser says.
In the short term, Wieser says, so many leaders are involved for any one client that Sorrell's exit wouldn't much impact day-to-day business with marketers. "I think it's really at the strategic level and at the level of bringing assets across the company to work together, that's where you would notice a difference," he says.
Though the holding company has a "deep bench of managerial talent," Wieser said in a memo that "to the extent that broader strategic shifts will be needed from the company there is some risk that a new leader may find it more difficult to execute on those shifts. Of course, those risks only exist because there is no clearly identified #2 in the company today."
Though the news is negative "on the headline risk alone," Pivotal said WPP is undervalued at current levels and maintains a buy rating.
Sorrell built WPP into the world's largest agency company and has not publicly identified possible successors, but that doesn't mean he's irreplaceable, suggests Karen Brenner, a clinical professor of business at the Leonard N. Stern School of Business at NYU.
"Think about companies where you have iconic CEOs who are so closely associated with the company," Brenner says. Outsiders frequently believe such companies will suffer without that CEO at the helm, she says, citing the example of Steve Jobs and Apple.
"Not surprisingly, the company had within its ranks more than capable talent," Brenner says. "It could continue on and enhance the growth of the company going forward."
"He may be the public face of the company," she says. But "no one person runs a company."
What's "material" to WPP is no more certain than who would follow Sorrell.
WPP's note that the allegations don't involve amounts "material" to the company suggests that they aren't that big a deal.
But there's no specific rule to calculate whether something is "material," a determination that depends largely on the size of the company but not only that. What matters is whether it could alter an investor's judgment about the company, according to John Coffee, Jr., the director of the Center on Corporate Governance at Columbia Law School.
"What would the reasonable investor objectively put significant weight on in making an investment decision?" Coffee says.
If a CEO steals relatively small amounts of money, for example, an investor might still take it as evidence that the CEO isn't fit to lead, Coffee says. Even misconduct involving only $50,000 could be seen as material to a leader's ability to serve a company's shareholders.