WORD FROM THE CITY
In the rollercoaster world of business, some truths are eternal.
One of the biggest challenges facing any company – regardless of size or sector – is planning for the day when the founder finally heads off to retirement.
Succession planning is a neglected art. It’s one of the reasons so many firms struggle when a single, dominant personality calls it a day.
Suddenly, the organisation could face an existential crisis. Why does it exist now the driving force has gone? And what does it do next?
The abrupt departure of Sir Martin Sorrell from the helm at WPP, the world’s largest advertising company, highlights the dangers of failing to have a clear succession plan.
Shares in WPP dipped after Sir Martin, who has been at the head of the firm for 33 years, stepped down over the weekend in the wake of allegations of personal misconduct.
The advertising firm carried out an inquiry into allegations that Sir Martin misused company funds, but said the amounts involved were not material.
Sir Martin, who has denied any wrongdoing, resigned on Saturday evening, saying the allegations were “putting too much unnecessary pressure on the business”.
In a note to staff, he said: “That is why I have decided that, in your interest, in the interest of our clients, in the interest of all shareowners, both big and small, and in the interest of all our other stakeholders, it is best for me to step aside.”
Sir Martin has been the driving force behind WPP’s expansion and it’s unsurprising that some analysts fear WPP could start to drift off course without him in charge.
Roddy Davidson, analyst at Shore Capital, said: “This is a disappointing end to Sir Martin’s illustrious career at WPP which saw him build the world’s largest marketing services group and deliver substantial value to shareholders over three decades.
“It also highlights the apparent lack of detailed succession planning that has troubled us and many other observers for some time.”
“It is not clear whether the current margin targets or dividend payout will survive management change,” Citi analysts said in a note, adding that the stock’s loss of a third of its value in the past year could attract “value” investors.
Analysts have speculated that the group, which was being restructured after a year of lower spending from some clients, could now sell some assets if it is led by a new management team.
This type of speculation is extremely unsettling for staff and clients.
“Sorrell’s departure is negative considering ... how instrumental he has been in assembling the assets WPP has today,” said Pivotal Research analyst Brian Wieser.
WPP said that chairman Roberto Quarta will step up to
be executive chairman while its digital boss Mark Read and Andrew Scott, the chief operating officer of WPP Europe who oversaw acquisitions, become joint chief operating officers.
Sir Martin’s successor will have big shoes to fill at a time when WPP faces challenges. In March WPP published its weakest results since the financial crisis.
There’s also the possibility that Sir Martin could set up a rival advertising business. It’s hard to avoid the conclusion that much of this damaging uncertainty would have been avoided if a clear succession plan had been put in place. It’s a sobering reminder that companies of all sizes must spend more time contemplating the day when their founder exits the stage.