Misconduct Probe Makes Martin Sorrell's Grip on WPP Look Shaky

(Bloomberg) -- An advertising colossus of 130,000 employees at hundreds of agencies in 112 countries, WPP Plc is still synonymous with Martin Sorrell. Now, as ad spending shifts online, the chief executive’s grip looks shaky after allegations of personal misconduct and misuse of company assets.

Law firm Wilmer Hale, which WPP hired to investigate the issue, first interviewed Sorrell on March 29, according to a person familiar with the matter, who asked not to be identified as the details are private. Though the 73-year-old founder has denied the allegations and remains in his position, the board has an interim internal successor in mind in the event that he leaves the company, the person said.

Misconduct Probe Makes Martin Sorrell's Grip on WPP Look Shaky

The probe puts fresh scrutiny on the extent of Sorrell’s control at the company, which includes top global agencies such as Ogilvy & Mather, J. Walter Thompson, Y&R and Grey. At the same time, reduced spending from clients like Unilever and Procter & Gamble Co. and rising competition with Google and Facebook Inc., have added to pressure on and scrutiny of Sorrell.

“The announcement draws attention, once again, to the issues that can arise when an individual has too much power,” said Guy Jubb, an honorary professor at the University of Edinburgh business school and frequent critic of WPP’s opaque corporate governance. The announcement of a probe into possible misconduct “is the tipping point,” Jubb said in an email.

Senior managers at WPP haven’t been briefed on details of the allegations, first reported by the Wall Street Journal, according to one executive who asked not to be identified discussing internal matters. In a statement, the company said it is investigating the matter and that the allegations don’t involve amounts that are material to WPP. The company had revenue of 15.3 billion pounds ($21.5 billion) last year.

Misconduct Probe Makes Martin Sorrell's Grip on WPP Look Shaky

In a separate statement, Sorrell acknowledged that an investigation is ongoing and denied any impropriety. “Obviously, I shall play no part in the management of the investigation,” Sorrell said. “As a significant share owner, my commitment to the company, which I founded over 30 years ago, remains absolute.”

At least one major investor is backing Sorrell for now.

“Unless we hear that Sir Martin has committed material offenses, we believe he is the correct person to lead WPP at this unique and challenging period in the firm’s -- which he founded -- history,” said David Herro, a partner at Harris Associates, in an email. He said Harris owns about 8 percent of WPP, putting it among the company’s biggest investors.

Sorrell built London-based WPP from an investment in a shopping-basket manufacturer into the owner of blue-chip agencies. But as he has struggled to appease worried investors, WPP has lost a third of its market value over the past 12 months. Sorrell is one of the largest shareholders, with a 1.46 percent stake, according to data compiled by Bloomberg.

WPP shares fell 8.2 percent on March 1 when the company reported its worst annual performance since the financial crisis. In the report, the company gave a bleak outlook for the current year, predicting that long-term earnings growth will be as little as 5 percent and twice that at best, compared with a forecast of as much as 15 percent previously. On Wednesday, WPP fell 2 percent in London trading, giving the company a market value of about 14 billion pounds.

Sorrell, who has frequently topped Britain’s annual executive-pay lists, has in recent years become the focus of investor criticism over CEO compensation. After a dismal 2017, the CEO faces a huge cut in pay and questions about what might happen when he steps down.

“What we would like as a house is to see a clear step of succession planning,” said Ketan Patel, a fund manager at Edentree Investment Management Ltd., a WPP shareholder. “Who’s coming through? In Sorrell’s case, he hasn’t identified or even brought in the people or a layer of management where you feel, if he did leave, they’d be ready to take over.”

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