Print Published 9th Apr 2018, 14:06

WPP in the spotlight – for all the wrong reasons

The allegation of personal misconduct that has been levelled at WPP’s founder and chief executive Sir Martin Sorrell has yet to be proven (see WPP’s Sir Martin Sorrell denies allegations of misconduct) and hopefully will be found to be without justification, doubtless to the great relief of Sir Martin who has already issued a fervent denial.

But, bogus or not, the allegation has brought WPP into sharp focus and inevitably drawn attention to its recent performance and its leadership style.  Its stature may never be the same again.

WPP has become the biggest marketing group in the world.  Its past track record as a commercially successful entity enhanced the status of the marketing business sector among the investment community, a community that has always been a little twitchy about assets that come and go in the lift each day.  It would probably not be going too far to say that WPP has been good for British business. Until now.

No fair minded person would deny the scale of Sir Martin’s achievement, albeit anyone who achieves such a pinnacle of power will have detractors as well as fans.

Indeed some of the criticism may be well deserved.  A browse through the pages of Marketing Services Financial Intelligence reminds us that WPP’s relationship with Asatsu-DK soured in a big way.  WPP’s financial performance is under serious scrutiny, perhaps prompting the recent consolidation of its myriad companies into a leaner group of operating units (see Abnormal gains flatter WPP’s flat performance in 2017 and Now WPP consolidates Cohn & Wolfe with Burson-Marsteller).

Its share price has fallen substantially (see chart and WPP’s share price hits three year low).  Its chief executive’s rewards are considered by some to be excessive. And just what does the company have in mind to ensure stable succession whenever that may be appropriate?

Has WPP become too complacent, or even arrogant, in its dealings with the wider world?

Why did the Japanese marketing group Asatsu-DK (ADK) decide that it would prefer to partner with a private equity investor Bain Capital than build on its existing relationship with WPP?   Did WPP push too hard to expand its influence when ADK was seeking a buyer for its stake in the Japanese Digital Advertising Consortium (DAC) in 2011?  WPP says that it offered a higher price than was eventually accepted by ADK (see WPP and ADK in open conflict: ADK’s management slated).   But what else was on the table for discussion at that time?   Did WPP seek to exploit the situation to its further advantage?  If so, it failed, and has had to sell its share stake to Bain and will need to rethink its Japanese business strategy.

If WPP’s negotiating behaviour in its dealings with Chime Communications is anything to go by, there is an opportunist streak in its culture that is both healthy and potentially harmful, particularly when it is inclined to seek a better deal than some might believe it deserves.

When Chime bought Just Marketing in October 2013, part of the purchase consideration was in the form of shares – an arrangement that would have diluted WPP’s percentage stake in Chime. Despite offering to make good any dilutive impact, Chime was faced with a demand for an increased stake in Chime beyond the previous percentage (see Chime’s $70m US motorsport acquisition prompts tension with WPP).   The demand was accompanied by a threat by WPP to put its entire shareholding in Chime Communications on the market.   Eventually an accommodation was arrived at and WPP remained a minority shareholder.  But did its aggressive style harm relationships?

Turning to the rash of recent sector consolidations within the group, WPP may argue that it is simply good housekeeping and that it is not bothered by the arrival of agitating investors like Harris Associates on its share register (see Agitating fund manager stalks WPP but lowers stake in Interpublic).  Time will tell.   But no-one has ever explained why the group is so wedded to its low-yielding market research businesses.

Perhaps the most provocative issue has been Sir Martin’s performance package.  While performance based share schemes have a valuable role to play, it is important to maintain a sense of proportion (see Sorrell’s share stake in WPP slips to £215m after disposals and price fall).  If someone starts a business with a sizeable shareholding, that shareholder will benefit from the profitable growth of the business as it enhances the share value. Why seek more free shares?  WPP is not alone in seeming besotted with the United States culture which dishes out shares like confetti.

WPP is very big, so big that almost inevitably it will face internal management challenges.  Its size and accompanying corporate discipline may constrain the encouragement of entrepreneurial flair.  And it may prove more difficult to continue to grow at the pace it has often achieved in the past.

How it will maintain the respect it has earned and when it will need a change at the helm are seriously important issues that will affect not only WPP’s employees and shareholders, but the global marketing industry as a whole.