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MarketScreener Homepage  >  Equities  >  London Stock Exchange  >  WPP Group    WPP   JE00B8KF9B49

WPP GROUP (WPP)
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WPP : Inquiry Sped WPP Chief's Exit -- WSJ

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04/16/2018 | 08:48am CEST

By Nick Kostov and Suzanne Vranica

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 16, 2018).

Before resigning as chief executive of WPP PLC, Martin Sorrell faced a choice: risk enduring an investigation into an allegation of personal misconduct, or leave the advertising giant he founded three decades ago, say people familiar with the board and Mr. Sorrell.

On Saturday, the 73-year-old executive said he was stepping down after what his associates and people close WPP's board described as a weekslong effort to carry on at the company and conduct business as usual. WPP said a probe into the allegation had concluded and its findings would remain confidential.

"He got to the situation where it was much better not to have any of these allegations in the public and move on," said a person close to the board.

A person close to Mr. Sorrell said he left because of exasperation with the handling of the probe, not because he was worried about its details becoming public. The person said Mr. Sorrell's contract with the company didn't include a noncompete clause.

"The current disruption" was "simply putting too much unnecessary pressure on the business," Mr. Sorrell said in a letter to WPP employees on Saturday. Earlier this month he said in a statement he rejected the allegation "unreservedly," while adding that he recognized the company had a duty to investigate the complaint.

His exit marks a stunning turn of events for a man who had become one of the oracles of the advertising business. Mr. Sorrell had been at the helm since he founded the company in 1986, helping to transform a little-known U.K. wire-shopping-basket maker called Wire & Plastic Products into the largest advertising holding company in the world. WPP boasts a host of blue-chip creative agencies such as J. Walter Thompson and Young & Rubicam, as well as powerhouse media buyer GroupM.

Mr. Sorrell's departure comes at a time of tumult both for the advertising industry and WPP.

Marketers are pressuring agency holding companies like WPP -- essentially advertising and communication-services conglomerates -- to revamp organizational structures seen as out of step with the digital age. At the same time, marketing clients are cutting back on the fees they pay for ad services or taking more of the work in-house to save money and give themselves greater control.

Moreover, ad companies have grappled with a scandal over the transparency of the industry's ad-buying practices, and the sector is dealing with the newfound and formidable power of tech giants Facebook Inc. and Alphabet Inc.'s Google, which offer brands the ability to bypass agencies when buying digital advertising.

WPP's stock has dropped more than 30% over the past 12 months following a string of disappointing financial results. 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.

With Mr. Sorrell's departure, Roberto Quarta, chairman of WPP's board, will take on the role of executive chairman until a new CEO is appointed, the company said. Mark Read, chief executive of WPP agency Wunderman, and Andrew Scott, WPP's corporate development director and chief operating officer for Europe, have been appointed as joint-chief operating officers of WPP.

Mr. Sorrell's exit is expected to leave a void in the company, as Mr. Sorrell has embedded himself into every aspect of the business from coming up with M&A targets to wooing marketers.

"It's hard to imagine WPP without Martin. Everything that we do has his stamp on it," one WPP executive said. The company said Mr. Sorrell would be available to assist through the transition.

Mr. Sorrell didn't pen jingles or craft TV commercials, but the cerebral, finance-minded executive rose to the top of Madison Avenue by being an astute serial buyer, acquiring up firms across advertising, marketing, public relations, media, research and technology.

In late March, the board informed Mr. Sorrell that a complaint had been lodged against him, according to a person familiar with the matter. The board hired WilmerHale, a top U.S. law firm, to investigate the allegation on its behalf. Mr. Sorrell wasn't provided with details underlying the complaint, said the person close to Mr. Sorrell.

On March 29, Mr. Sorrell met a team of WilmerHale attorneys in Central London without bringing his own lawyer, the person close to Mr. Sorrell said. It was in that meeting, the person said, that Mr. Sorrell learned that the law firm was conducting a formal investigation into the allegation. He was questioned for about three hours, the person said.

After the meeting, Mr. Sorrell hired two law firms to represent him at his own expense, according to people familiar with the matter. Then he attempted to go about life as normal, flying to Rome with his wife Cristiana Falcone to celebrate their 10-year wedding anniversary.

On April 3, The Wall Street Journal reported the existence of the probe, and that the board was looking into whether Mr. Sorrell had misused company assets. WPP said the amounts at issue weren't material to the company.

Mr. Sorrell at the time issued his own statement denying any financial impropriety.

In private, Mr. Sorrell expressed grievances that news of the probe had come out in the Journal, according to people familiar with the matter.

Mr. Sorrell and his wife left their young daughter with Ms. Falcone's parents in Rome and flew to WPP's offices in New York.

Back at the office, Mr. Sorrell showed determination to remain in his post and conduct "business as usual," according to the people familiar with the matter. He sent memos out to WPP leadership, reminding staff to send in more award submissions for the Cannes Lions festival, Madison Avenue's version of the Oscars.

He also delivered a speech at Yale School of Management in New Haven, Conn., on the need for future business leaders to look beyond Western economies for growth.

"If there had to be a language everyone should be focused on, I'd say it should be Chinese and code," Mr. Sorrell told the students.

Meanwhile, investigators at WilmerHale were briefing board members on an almost daily basis, according to a person close to the board. Mr. Sorrell was a board member, but he didn't have access to the briefings and was instead being kept informed of developments by his lawyers, the person close to Mr. Sorrell said. Mr. Quarta, the company's chairman, and WWP's senior independent director Nicole Seligman, who had been general counsel at Sony Corp., would regularly review the findings and report back to the board, according to people familiar with the matter.

As a board meeting -- scheduled for Tuesday long before the investigation -- approached, Mr. Sorrell made his decision.

"He felt sitting around the boardroom table and looking at those guys in the eyes after what he'd been put through was not a particularly attractive option," the person close to Mr. Sorrell said. "He's fairly pissed off, to tell you the truth."

Under the terms of his departure, Mr. Sorrell will retire from the company. He will remain eligible to receive a maximum of about 1.6 million shares from various long-term incentives programs. At WPP's current share price of GBP11.88, the awards are worth as much as GBP19 million ($27 million).

"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, " Mr. Sorrell wrote in his farewell note to staff.

Write to Nick Kostov at Nick.Kostov@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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Financials (GBP)
Sales 2018 12 954 M
EBIT 2018 2 138 M
Net income 2018 1 390 M
Debt 2018 4 252 M
Yield 2018 5,19%
P/E ratio 2018 10,32
P/E ratio 2019 10,23
EV / Sales 2018 1,44x
EV / Sales 2019 1,38x
Capitalization 14 466 M
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Mean consensus HOLD
Number of Analysts 27
Average target price 13,7  GBP
Spread / Average Target 19%
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NameTitle
Mark Julian Read Chief Executive Officer & Executive Director
Roberto Quarta Non-Executive Chairman
Andrew Grant Balfour Scott Chief Operating Officer
Paul W. G. Richardson Executive Director & Group Finance Director
Rui Gang Li Non-Executive Director
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