By Lara O'Reilly and Alexandra Bruell
The exit of Martin Sorrell as chief executive of WPP PLC has the
advertising sector reeling, as questions loom about the future
strategy of the world's largest advertising company without the man
who shaped the course of the industry over the past 33 years.
The 73-year-old executive abruptly stepped down on Saturday,
amid a board probe into an allegation of personal misconduct. Mr.
Sorrell said earlier this month that he denied the allegation
"unreservedly."
His departure is stoking existing anxieties about the health of
WPP's business, after the company recently posted its worst sales
performance since the financial crisis and projected no revenue
growth for the year. Its stock price has dipped almost 35% over the
past year, including a 6.5% drop on Monday.
The absence of Mr. Sorrell presents the board and his eventual
successor with a rare opportunity to set a new course for WPP as
the company contends with a rapidly changing digital advertising
landscape and pressure from clients who are slashing their
marketing expenditures.
WPP has said it is conducting an internal and external search
for a successor. Industry rivals, analysts and executives within
the company are debating what the future of WPP will be under new
leadership, with speculation ranging from asset sales to a full
breakup.
Mr. Sorrell was known for his meticulous micromanagement of
everything from client relationships to identifying deal targets.
He was the go-to figure for perspective on the global advertising
business, and his commentary was seen as a bellwether for the
health of economies around the world. He built WPP into a
conglomerate of more than 400 companies through frenetic deal
making, including the acquisition of ad agencies such as Ogilvy
& Mather.
"It's a seismic blow for WPP, but one that will also have
massive ramifications for the entire advertising industry," said
David Jones, the former CEO of Havas from 2011 to 2014 and the
founder of brand technology company You & Mr Jones. Mr. Sorrell
was one of the few figures who fought for the whole industry,
including taking on technology companies such as Facebook Inc. and
Alphabet Inc.'s Google, he said.
Maurice Lévy, who stepped aside last year as the CEO of ad
holding company Publicis Groupe SA after three decades, said he
"didn't open a bottle of champagne or even a bottle of Perrier"
when he found out that Mr. Sorrell had stepped aside, despite the
fierce clashes between the rivals over the years.
Still, Mr. Lévy, who remains chairman, acknowledged Mr.
Sorrell's passion for WPP. "He built WPP into what it is today and
it's sad to see him leave by a back door," Mr. Lévy said.
Mr. Sorrell's strategy was largely driven by acquisitions, which
paid dividends over the years by giving the ad giant protection
from ad spending declines in certain geographical areas or
downturns in different marketing disciplines.
He was ruthlessly competitive when it came to securing a deal.
In 2007, on hearing rival ad firm Havas SA was close to signing a
deal with U.K. marketing agency CHI & Partners, Mr. Sorrell
repeatedly rang CHI & Partners CEO Johnny Hornby and contacted
his friends to warn him he was making a mistake, Mr. Hornby
said.
Mr. Sorrell even tracked him down at a London opera and tapped
him on the shoulder during the intermission. Still under a
nondisclosure agreement with Havas, Mr. Hornby declined to
talk.
When the nondisclosure agreement came to an end, Mr. Sorrell
jumped on a plane from San Francisco to meet Mr. Hornby at the
Geneva airport, near the ski area where he was vacationing with his
family. An hour later, WPP had signed a deal to acquire 49.9% of
CHI & Partners.
"Martin will go down as one of the biggest names in business of
this century and what he built and how he built it is probably
never going to be repeated, so it's definitely the end of an era,"
said Mr. Hornby.
WPP's response to its unwieldy collection of businesses has been
to push so called horizontality, which is to get various agencies
across the company to work together and offer clients a simpler
structure that integrates marketing functions such as data,
digital, creative advertising and media buying.
However, several WPP executives said this strategy has faced
resistance internally and hasn't been effective. That is, in part,
because of how executives are paid. Agencies are incentivized to
generate revenue for their specific shops, which encourages
competition with sister agencies.
"We are asked to behave in one way, but we are paid to behave in
a different way," said one WPP executive.
Mr. Sorrell's exit has raised bigger questions about WPP's
future, with analysts including Alex DeGroote of Cenkos suggesting
that the company should be broken up and sold in pieces. Mr.
DeGroote estimates that separating the company's digital,
advertising, market research and other assets could lead to a 40%
rise in the share price.
WPP could raise GBP3.5 billion ($5 billion) from the sale of its
data-investment assets, including Kantar Media, Liberum analysts
wrote in a research note Monday. If new management "wanted to go
further," Liberum said that WPP's public-relations assets could
also be sold.
"Without question, WPP, as well as all of the big [advertising]
holding companies, are going through a period where they are going
to need radical change," said Mr. Hornby.
--Nick Kostov and Suzanne Vranica contributed to this
article.
Write to Lara O'Reilly at lara.o'reilly@wsj.com and Alexandra
Bruell at alexandra.bruell@wsj.com
(END) Dow Jones Newswires
April 16, 2018 16:21 ET (20:21 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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