Bigger story behind ad chief’s exit

Over 33 years, Martin Sorrell turned Wire and Plastic Products (WPP), a maker of shopping baskets, into an advertising company with a market value of £14bn and 200,000 employees. It is a great success story of British business.

That Sir Martin has resigned from WPP after a whistleblower complaint concerning his personal conduct and use of company funds, the nature of which has not been revealed, may seem like a sorry denouement.

This is, however, a bigger story than just a CE leaving amid accusations of misbehaviour. It involves seismic changes in the advertising industry, and big questions about the governance of companies that are closely identified with their founder/leaders.

In the minds of many, the pressure on the advertising conglomerates (WPP also has market research and public relations divisions) is due to the rise of digital advertising.

Facebook and Google capture most of the profit to be had from online advertising. But they are only part of the problem. The big consumer goods companies, from Procter & Gamble (P&G) to Unilever to Nestlé, are under pressure from activists and leaner competitors. They are cutting spending and looking at advertising costs in particular. P&G, the world’s largest advertiser, has cut $750m from its external advertising spending over the past three years, more than 5% of the total, and it is not finished cutting yet. It says that it once worked with 6,000 agencies, now works with 2,500 and aims to cut that figure in half.

This, in turn, raises questions about the business strategy that Sir Martin built into WPP. It is a confederation of companies, where several might bid for a single customer’s business and where several, with different specialities, might serve a single client. Clients seeking simplicity and efficiency may be tiring of this approach. This is one reason for the speculation that, with its leading light gone, WPP may be broken up, with its data analytics and public relations businesses going first. London, April 17