Martin Sorrell of WPP is in Hot Water Again

By - CTL
April 4, 2018

By Marcus Honesta.

Well things just keep getting worse for Sir Martin Sorrell, CEO of WPP plc. In a statement issued recently by the Board of the company said: it’s looking into allegations of personal misconduct by Chief Executive Officer Martin Sorrell involving possible misuse of company assets”.

The board of the world’s largest advertising company is investigating the claim, according to a statement Tuesday. The company said the amounts involved aren’t material

The board has hired a law firm to investigate “an allegation of personal misconduct against Sir Martin Sorrell,” according to the statement. The Wall Street Journal reported on the matter earlier Tuesday, saying the investigation involved personal behaviour and possible misuse of assets.

Sorrell, 73, is an icon in the advertising industry, having built WPP from an early investment in a British shopping-basket manufacturer. The London-based company had billings of $74 billion and 2017 revenue of more than $19 billion.

In a statement released a short time later, Sir Martin denied financial impropriety. “I reject the allegation unreservedly but recognise that the company has to investigate it. I understand that this process will be completed shortly. Obviously, I shall play no part in the management of the investigation under way.” And he added: As a significant share owner, my commitment to the company, which I founded over thirty years ago, remains absolute — to our people, our clients, our shareholders and all of our many stakeholders.”

The development comes at a rough time for Sir Martin as WPP shares have fallen 27 per cent over the past year because of lower spending by the biggest advertisers. The question mark over its chief executive’s future sent them tumbling by a further 4.8 per cent in after-hours trading in the US, where the company has listed American depositary receipts.

Although he sits on the board of WPP, the chairmanship is held by Roberto Quarta, the former chief executive of the industrial group BBA.

Sir Martin has been WPP chief executive since 1986, having joined what was then a listed plastics company with a plan to transform it into an advertising giant through a series of acquisitions. He was knighted in 2000 but in recent years has become a symbol of high executive compensation. In 2015, he earned £70m, the largest ever payout made to a FTSE 100 boss. Insiders described a company in shock at the opening of the investigation into his conduct. WPP, which owns agencies such a J Walter Thompson, Group M and Ogilvy & Mather, was already reeling from one of its bleakest years, as investors voiced concerns about the company’s unwieldy structure and its ability to adapt to an evolving digital landscape.

WPP shares have dramatically fallen as a result a of the tough climate ad agencies face as clients trim spending and companies like Google and Facebook Inc. gobble up an ever-larger share of corporate marketing budgets. Other major advertising companies, including Interpublic Group of Cos. and Omnicom Group Inc., have also declined.

WPP shares fell 8.2 precent on March 1 when the company reported its worst annual performance since the financial crisis and gave a bleak outlook for the current year. They closed down 1.3-precent Tuesday in London before the allegations were reported. 

2018 Forecast

The company said 2018 would be flat and that long-term earnings growth will be as little as 5 precent and twice that at best, compared with a prediction of as much as 15 precent previously. The year got off to a “slow start,” WPP said in early March, continuing a trend from 2017 that saw flat margins and sales. Sorrell said the outlook is deliberately cautious.

Some WPP watchers have been highly critical about what they perceive to be an over-reliance by the company on Sorrell and have claimed there has been a lack of succession planning. Guy Jubb, who led the charge while he was head of corporate governance at Standard Life and is now an academic, spoke before Tuesday’s developments.

“Sorrell’s succession is a key risk for WPP,” Jubb said in an email. “The board has a responsibility to demonstrate convincingly that it is on the case. Failure to do so will inevitably impact on investor confidence and open the door for activists.”

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