At WPP, Chairman Advocates Overhaul -- WSJ

By Nick Kostov 

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 (June 8, 2018).

The chairman of WPP PLC is pushing for an overhaul of the world's biggest advertising conglomerate now that Martin Sorrell, its architect, has left the firm.

In an interview, Chairman Roberto Quarta said there will be "no sacred cows" in deciding how to restructure the company. Mr. Quarta said he expects some minority stakes WPP holds in other firms to be sold in the second half of the year, and he didn't rule out merging some of the ad giant's flagship creative agencies, such as Young & Rubicam.

The business model that Mr. Sorrell pioneered -- amassing an alphabet soup of ad agencies under one holding company -- "worked for a number of years but since then things have moved on," Mr. Quarta said. "We are going to revisit all of this."

Mr. Quarta's remarks are a message to investors and others ahead of next week's annual meeting of WPP shareholders who are due to vote on whether to re-elect Mr. Quarta, who joined WPP in the summer of 2015. The meeting already was shaping up as a referendum on Mr. Sorrell's legacy after prominent shareholder-advisory groups recommended that shareholders vote against Mr. Quarta, citing a lack of transparency over the handling of Mr. Sorrell's departure and concerns over succession planning.

In April, Mr. Sorrell resigned as chief executive after an investigation into allegations of personal misconduct and misuse of company assets. WPP has declined to disclose the findings of the probe, citing data-privacy law. The company said amounts involved weren't material to WPP. Mr. Sorrell denied financial impropriety.

Mr. Sorrell, 73 years old, had led WPP since he founded the company in 1986, helping to transform a little-known U.K. wire-shopping-basket maker called Wire & Plastic Products into a colossus spanning the worlds of public relations, consulting and creative advertising.

Mr. Sorrell, who didn't have a noncompete clause in his contract, has stirred investor worries that he will cherry-pick WPP's business, according to some of the company's major shareholders. In May he announced plans to create a rival advertising firm after saying that clients were looking for firms like WPP to be "more agile, more responsive, less layered, less bureaucratic, less heavy." Institutional shareholders have made nonbinding commitments to contribute more than GBP150 million, or about $200 million, to the new firm, S4 Capital.

Mr. Sorrell's new venture is "a distraction," Mr. Quarta said. "Beware, I would hope that he would not want to jeopardize his good leaver" status, he added. "We're watching."

In order for Mr. Sorrell's long-term stock options to vest, the founder is bound by confidentiality agreements that cover his deep knowledge of company operations, its clients and acquisitions it explored on his watch, according to Mr. Quarta.

"He's not going to do anything that will risk his long-term benefits," a person close to Mr. Sorrell said, adding that S4 Capital was too small to be considered a competitor to WPP. This person also said Mr. Sorrell told some of WPP's largest investors in recent weeks that he wouldn't do anything to damage his investment in the company. Mr. Sorrell still owns almost 2% of WPP.

If Mr. Quarta is re-elected, his first order of business will be hiring a new CEO. Mr. Quarta said he currently has a dozen candidates to succeed Mr. Sorrell and will winnow that number down further before presenting the candidates to the board.

Complicating the hunt, Mr. Quarta said, is the technological disruption the ad business is experiencing. Marketers are shifting their ad dollars online, where Facebook Inc. and Google parent Alphabet Inc. wield enormous clout as media sellers.

"If you were appointing a CEO for a business which was pretty much moving at a normal pace the challenge would be a little bit different," Mr. Quarta said. "Here you have a sector that is undergoing some major changes; major transformations."

Mr. Quarta said it also was "challenging" to recruit top talent to run a global firm based in London, where remuneration is typically lower than in the U.S. WPP was criticized by shareholders for the healthy sums it once paid Mr. Sorrell.

For years, Mr. Sorrell was among the U.K.'s best paid executives, receiving GBP70.4 million in 2015 and GBP48.1 million in 2016. At the time, WPP said Mr. Sorrell's pay was commensurate reward for masterminding acquisitions.

Mr. Quarta says WPP's size is now weighing on the firm. He has put an end to Mr. Sorrell's strategy of "horizontality." That involved plucking talent from across the company's myriad agencies and assigning them to work together on a single account, although standalone client agencies that exist for clients such as Ford Motor Co. and oil giant BP PLC won't go away.

"You won't hear that word being used anymore," Mr. Quarta said. After Mr. Sorrell left, management teams told Mr. Quarta the strategy wasn't working, in part because they weren't incentivized to share the same goals.

Underperforming WPP agencies will be merged into stronger ones or put on the sales block if they can't be turned around, Mr. Quarta said.

"We have no sacred cows," he said. "On that basis, we'll be very objective in looking at the business and we're looking at it through the lens of our clients."

Mr. Quarta has tasked Co-Chief Operating Officer Andrew Scott and Chief Financial Officer Paul Richardson with reviewing the company's roster of minority investments in digital, media and marketing companies, including in Vice Media LLC and ad-tech firm AppNexus Inc. He said he expects some of the stakes to be sold in the second half of the year to bring down the company's debt-to-earnings ratio.

"It's probably something that Martin would have done, but it's always easier for those who haven't put it together to look at it objectively than for those who put it together," he said.

Write to Nick Kostov at [e-mail]

(END) Dow Jones Newswires

June 08, 2018 02:47 ET (06:47 GMT)

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