Sorrell's decades-long grip on WPP weakened by misconduct probe

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Martin Sorrell
Martin Sorrell Credit: Simon Dawson/Bloomberg

Martin Sorrell's once-undisputed control of the advertising giant he's assembled over more than 30 years may be slipping away.

The firm, WPP Plc, is investigating allegations of personal misconduct by the 73-year-old Sorrell. The company statement Tuesday -- along with a denial by Sorrell -- was released after news of the probe was leaked to the Wall Street Journal, which reported that the accusations involved possible misuse of company assets.

The probe adds to mounting pressure facing the chief executive officer as the ad industry combats reduced spending from clients like Unilever and Procter & Gamble Co. and rising competition from web giants including Google and Facebook Inc., which are gobbling up an ever-larger share of corporate marketing budgets. It also highlights concerns of how the fate of a 130,000-employee operation is so closely identified with one person.

"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."

Senior management at WPP haven't been given details of the allegations, according to one executive who declined to be identified discussing internal matters, saying staff were shocked by the revelations.

An icon in the industry, Sorrell built London-based WPP from an investment in a shopping-basket manufacturer into the owner of blue-chip agencies Ogilvy & Mather, J. Walter Thompson, Y&R and Grey, but has struggled to appease investors worried about market headwinds. WPP has lost a third of its market value over the past 12 months. He's 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 and 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. They fell 1 percent as of 10:52 a.m. in London, giving the company a market value of 14 billion pounds.

Some WPP watchers have been highly critical about what they perceive to be an over-reliance on Sorrell and have claimed there has been a lack of planning for the day when he steps aside.

"Obviously, I shall play no part in the management of the investigation under way," Sorrell said in his own statement. "As a significant share owner, my commitment to the company, which I founded over 30 years ago, remains absolute -- to our people, our clients, our shareholders and all of our many stakeholders."

In an internal memo to top WPP executives, the company said it can't share further details about the ongoing probe. It said the amounts implicated aren't material to the company, which had revenue of 15.3 billion pounds ($21.5 billion) last year.

'Business as usual'

"The message for our people and clients is one of business as usual within our operating companies and client teams," the company said in the memo, according to two WPP employees who received it, who asked not to be identified as the document isn't public. "Our work for clients is unaffected and continues uninterrupted."

Sorrell, who has topped Britain's annual executive-pay lists on several years including 2014 and 2015, 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.

'Never good'

"It's never good when your CEO or any part of the leadership team is being investigated," Edentree's Patel said. "That's a negative, full stop. Just to be accused of it is going to taint him and the share price in the near-term."

The probe could hasten Sorrell's departure from WPP, said Guy Jubb, who criticized the lack of succession planning at the company while he was head of corporate governance at Standard Life.

"From a corporate governance perspective, the announcement draws attention, once again, to the issues that can arise when an individual has too much power," Jubb, who is now an honorary professor at the University of Edinburgh business school, said in an email. "In my view, today's announcement is 'is the tipping point.'"

-- Bloomberg Media

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