Who will suc­ceed Martin Sor­rell at WPP?

Martin Sor­rell is not mov­ing on as WPP’s chief ex­ec­u­tive, nor have any share­hold­ers called for his re­moval. But he is 72 and in­vestors in the world’s largest ad­ver­tis­ing com­pany want to know about suc­ces­sion ar­range­ments, David Hel­lier and Joe Mayes re­por

The National - News - Business - - Front Page -

At the multi­na­tional ad­ver­tis­ing agency WPP, the suc­ces­sion elephant is about to re-en­ter the room. In the months lead­ing up to this week’s an­nual re­port, the chair­man, Roberto Quarta, has been meet­ing in­vestors in the world’s largest ad­ver­tis­ing com­pany to hear their concerns about plan­ning for life af­ter Martin Sor­rell, the only chief ex­ec­u­tive the com­pany has known, even­tu­ally de­parts the scene.

Mr Sor­rell, 72, who founded WPP in the 1980s, is the sec­ond-long­est serv­ing chief ex­ec­u­tive among FTSE 100 com­pa­nies and shows no sign of slow­ing down. Mr Quarta and his pre­de­ces­sor, Philip Lader, have ad­dressed suc­ces­sion gin­gerly, as­sur­ing share­hold­ers in each of the past two an­nual reports that the board has a “rig­or­ous and com­pre­hen­sive” process in place yet tak­ing pains not to sig­nal any ef­fort to push Mr Sor­rell into re­tire­ment.

The topic, never easy for a board, is even touch­ier at WPP given Mr Sor­rell’s sin­gu­lar role in trans­form­ing the com­pany from a man­u­fac­turer of wire shop­ping bas­kets to what it is to­day: an ad­ver­tis­ing, me­dia-buy­ing and pub­lic-re­la­tions be­he­moth with an­nual rev­enue of £14.4 bil­lion (Dh67.78bn) and agen­cies such as Grey, Young & Ru­bi­cam and Ogilvy & Mather.

Af­ter 31 years at the helm, Mr Sor­rell is in­te­gral not only to WPP’s op­er­a­tion, but also its iden­tity. He is also the big­gest in­di­vid­ual share­holder, with stock val­ued at £365.9 mil­lion.

“I don’t know any­body strong enough to take over from him and only he knows what’s inside the group,” said Claire Bar­baret, an an­a­lyst at In­vest Se­cu­ri­ties in Paris. “Martin Sor­rell is the king.”

Mr Sor­rell said the suc­ces­sion plan is “all clearly laid out in the an­nual reports for sev­eral years”. The next ver­sion is due out to­mor­row.

WPP and its Paris-based coun­ter­part, Publi­cis, have been run by the same two men for decades, an al­most ironic feat in an in­dus­try ob­sessed with con­stant trans­for­ma­tion, chas­ing trends and keep­ing the fin­ger on the pulse of the youth­ful con­sumer.

Pulling off a suc­cess­ful tran­si­tion is es­sen­tial for WPP and its in­vestors. Changes to the in­dus­try have worked to un­der­mine the full-ser­vice model Mr Sor­rell pi­o­neered at WPP through dozens of ac­qui­si­tions.

Me­dia con­sump­tion has shifted away from the tra­di­tional ad repos­i­to­ries of mag­a­zines, news­pa­pers and TV; au­to­mated sales have taken over chunks of the mar­ket and pro­pelled online com­peti­tors such as Google; and big clients such as Unilever are cut­ting back on mar­ket­ing plans as they re­think their port­fo­lios.

WPP is­sued a profit warn­ing last month, which caused its shares to fall 8 per cent in one day, the most since Novem­ber 2008. The loss of busi­ness with two big clients, Volk­swa­gen and AT&T, last year, was also a blow. While WPP has of­fered mostly pos­i­tive re­turns over the years, this year is look­ing chop­pier, with the stock down by 5.3 per cent so far.

In­vestors in­clud­ing Stan­dard Life In­vest­ments have called for more trans­parency on how the board is con­fronting what Mr Lader, the former chair­man, called the “suc­ces­sion elephant”. Royal Lon­don Asset Man­age­ment, which has about £100bn un­der man­age­ment, said it is in discussions with WPP about its suc­ces­sion plans but de­clined to com­ment on those con­ver­sa­tions. A fund man­ager at an­other com­pany that is one of WPP’s largest share­hold­ers said its discussions with Mr Quarta were use­ful be­cause they al­lowed the chair­man to express views that can­not be writ­ten down in the an­nual re­port. The in­vestor, who asked not to be named, wants the suc­ces­sion issue to be re­solved be­fore Mr Sor­rell slows down or loses in­ter­est in the job.

In the 2015 an­nual re­port, is­sued last April, Mr Quarta as­sured share­hold­ers that the board was fo­cused on iden­ti­fy­ing po­ten­tial suc­ces­sors to Mr Sor­rell, inside and out­side the com­pany. “Share own­ers should have no doubt that we al­ready have a strong pool of in­ter­nal and ex­ter­nal can­di­dates to draw from,” Mr Quarta said then.

This month Mr Quarta said the board has iden­ti­fied in­ter­nal can­di­dates who could step in as the chief ex­ec­u­tive in case of emer­gency. But he said he has not dis­cussed re­tire­ment with Mr Sor­rell and said the board is wait­ing for a sig­nal from the chief ex­ec­u­tive be­fore en­gag­ing in the type of planned tran­si­tion that would in­volve eval­u­at­ing ex­ter­nal can­di­dates.

“We ob­vi­ously reg­u­larly re­view as a board ex­actly what steps would be taken and how we would over­lay ex­ter­nal ta­lent eval­u­a­tion to our al­ready iden­ti­fied in­ter­nal ta­lent pool,” Mr Quarta said. “The engagement in such a com­pre­hen­sive process would await a de­ci­sion regarding the CEO’s re­tire­ment, when­ever that may be.”

Mr Sor­rell has not in­di­cated he wants to move on, nor has a sin­gle share­holder called for his re­moval, Mr Quarta said. Sec­ond to the Aberdeen Asset Man­age­ment co-founder Martin Gil­bert among long­est-serv­ing FTSE 100 chiefs, Mr Sor­rell is still firmly in charge at WPP. He re­cently be­came a new father and states his opin­ion reg­u­larly on tele­vi­sion about world events. In Novem­ber, he was ranked sec­ond on the Har­vard Busi­ness Re­view’s list of the world’s best-per­form­ing chief ex­ec­u­tives.

“We’re very well pre­pared for an emer­gency and have strong vis­i­bil­ity over in­ter­nal can­di­dates who could step into the role at short no­tice,” Mr Quarta said.

In­vestors in pub­lic com­pa­nies want “re­as­sur­ance that the com­pany board is on top of this ma­te­rial risk”, said An­drew Ninian, the di­rec­tor of stew­ard­ship and gov­er­nance of the In­vest­ment As­so­ci­a­tion, whose mem­bers man­age more than £5.7 tril­lion on be­half of clients glob­ally. “This means in­for­ma­tion about how the com­pany is iden­ti­fy­ing in­ter­nal and ex­ter­nal can­di­dates, what plans are be­ing put to­gether to help de­velop can­di­dates so they could do the job.” Guy Jubb, who stood up at WPP’s June 2015 an­nual meet­ing and crit­i­cised the board over its suc­ces­sion short­com­ings when he was the head of gov­er­nance and stew­ard­ship at Stan­dard Life In­vest­ments, said di­rec­tors should pro­vide in­creas­ingly in­ti­mate in­sights into the suc­ces­sion-plan­ning process to re­as­sure share­hold­ers and WPP’s 205,000 em­ploy­ees.

Mr Jubb, who has since re­tired, is now an hon­orary pro­fes­sor at Ed­in­burgh Univer­sity.

Get­ting the suc­ces­sion right is not unique to WPP and Mr Sor­rell. Across the Chan­nel, in Paris, the process was messy at Publi­cis, the Paris-based com­pany where Mau­rice Levy, 75, bat­tled Mr Sor­rell for three decades. Af­ter much back and forth, Mr Levy is pre­par­ing to hand over the chief ex­ec­u­tive job over­see­ing agen­cies in­clud­ing Leo Bur­nett, Saatchi & Saatchi and Bar­tle Bogle Hagerty, and step into the chair­man’s role in June.

“Like Mau­rice, Martin will want to carry on and be in­volved in this com­pany for a long time and has said so very clearly,” said Richard Pin­der, the chief ex­ec­u­tive of the ad agency Crispin Porter + Bo­gusky and a former chief op­er­at­ing of­fi­cer at Publi­cis.

Mr Sor­rell him­self re­cently made a wist­ful ref­er­ence to the success of com­pa­nies run by dom­i­nant share­hold­ers, saying they of­ten per­formed bet­ter over the long term, de­spite cor­po­rate struc­tures that run con­trary to com­mon stan­dards of good gov­er­nance.

“Con­trolled com­pa­nies like the Mur­dochs’ News Corp and Fox or the Roberts’ Com­cast or Zucker­berg’s Face­book or Brin and Page’s Google or, now, Spiegel’s Snap may pro­vide the con­fi­dence and sta­bil­ity needed to take the ap­pro­pri­ate level of risk,” he wrote in a state­ment with WPP’s 2016 re­sults.

I don’t know any­body strong enough to take over from him and only he knows what’s inside the group

Claire Bar­baret an­a­lyst at In­vest Se­cu­ri­ties

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