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WPP Probe Marks Rare Public Scrutiny of CEO
Martin Sorrell benefited from generous perks and paychecks at the company he helped build into a global advertising empire
Martin Sorrell founded WPP in 1986 and has long been regarded as an oracle of the ad industry.
Martin Sorrell founded WPP in 1986 and has long been regarded as an oracle of the ad industry. Photo: brendan mcdermid/Reuters
By Nick Kostov
Updated April 4, 2018 7:24 p.m. ET
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WPP PLC’s probe of Chief Executive Martin Sorrell marks a rare public attempt by the advertising giant’s board to scrutinize an executive who has largely been given free rein over the empire he built.
Mr. Sorrell is under investigation for alleged
personal misconduct. In addition, the board is looking into whether he misused company assets, according to people familiar with the matter. The executive has denied any suggestion of wrongdoing.
Long-regarded as an oracle of the ad industry, Mr. Sorrell helped transform the little-known British manufacturer of wire shopping carts called Wire & Plastic Products into a global advertising empire. His outsize influence on the industry and company led to a symbiotic relationship with the board, on which the 73-year-old sits, and generous perks and paychecks.
The board’s decision to hire an outside law firm to investigate Mr. Sorrell has broken the bonhomie, according to a person familiar with the relationship.
Investors have long criticized the board for being too lax, particularly when it came to CEO compensation. Those voices have become stronger in recent months amid lackluster financial results, as WPP strains under the force of digital disruption from tech giants like Facebook Inc. and Alphabet Inc.’s Google, which now dominate the roughly $230 billion global digital advertising market.
The board is also under pressure to solve what many investors consider one of WPP’s biggest long-term liabilities: the lack of a clear successor to Mr. Sorrell.
“In the eyes of many investors, Martin Sorrell and WPP are indistinguishable,” said Conor O’Shea, an analyst at Kepler Cheuvreux. “Shareholders seem to want more transparency on succession, particularly at a time when the company is no longer delivering the growth it has in the past.”
News of the probe came as shock to many at the company, where many top executives are fiercely loyal to Mr. Sorrell, according to insiders. But details remained scarce. One agency executive said he was bracing himself for lots of questions—none of which he would be able to answer.
Related
WPP Is Looking at CEO Martin Sorrell’s Possible Misuse of Assets and Allegations of Improper Behavior (April 4)
WPP Settles Suit Alleging Misconduct by Former Ad-Agency Head (April 4)
Ad Industry’s Digital Upheaval Rocks WPP (March 1,
Advertising’s ‘Mad Men’ Bristle at Digital Revolution (Jan. 19)
Mr. Sorrell has weathered previous scrutiny of his personal and professional life. More than a decade ago, he acknowledged having an affair with Daniela Weber, WPP’s chief operating officer in Italy at the time, and sued two former employees for allegedly writing about the relationship in anonymous blogs. The former employees denied the allegation and reached a settlement with Mr. Sorrell.
The episode didn’t have any lasting impact on Mr. Sorrell’s standing in the company. The executive moved on to notch up some of the ad industry’s biggest payouts—£70.4 million ($99 million) in 2015 and £48.1 million in 2016—due in part to a generous, long-term incentive stock awards, which make up most of Mr. Sorrell’s compensation. The pay package was approved by shareholders in 2009, when WPP was reeling from the financial crisis. As economic growth recovered, the package vested, leading to the large payouts.
Shareholder groups railed against those payments, as well as Mr. Sorrell’s benefits, which in 2016 included £37,000 in car benefits, £68,000 in health care, an £86,000 accommodation allowance and £37,000 in “other expenses,” according to WPP’s annual report. In 2014, shareholder groups sharply criticized him for receiving a £274,000 allowance for “spousal travel,” allowing his wife Cristiana Falcone to travel with him on business trips around the world.
WPP has consistently defended Mr. Sorrell’s compensation, saying the vast majority of it is based on the company’s performance.
An accelerating erosion of WPP’s business model over the past year, however, has forced a reckoning at the company.
Tech giants have elbowed their way into the advertising market and large advertisers like Procter & Gamble Co. have shifted some spending away from the traditional agencies that anchor WPP. Trust between ad giants and advertisers took a hit in 2016 after an Association of National Advertisers report found that ad agencies were accepting rebates from media companies without clients’ knowledge. Big ad companies, including WPP, denied wrongdoing.
In its most recent quarter, WPP logged its worst performance since the financial crisis, as net sales fell slightly compared with a year earlier. The firm said it is setting budgets for 2018 on the assumption of no growth in revenue and net sales.
Disappointing financial results have helped push WPP’s stock about 35% lower over the past 12 months. Shares were down 2% Wednesday, their first day of trading after The Wall Street Journal reported on the probe.
“It’s the perfect storm of WPP on the cusp of a downward spiral, and then you have the CEO investigated by the board,” said an executive at one of WPP’s largest agencies.
The question of who will eventually succeed Mr. Sorrell, who has been at the helm of WPP since 1986, has become a perennial topic for attendees of the company’s annual shareholder meeting.
Though Mr. Sorrell hasn’t indicated any plans to step back, WPP said it has taken steps to identify possible successors. In the latest annual report, board chairman Roberto Quarta noted that the company held three detailed senior management and CEO succession planning reviews in 2016. He said the company had an “exceptional team of potential candidates” from which to draw.
—Lara O’Reilly and Alexandra Bruell contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com
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