(Bloomberg) -- WPP Plc’s board is due to gather Tuesday at an office overlooking the Thames, following a dinner the night before at a private club in London’s West End. It’s a regularly scheduled meeting ahead of quarterly results, but there will be nothing ordinary about it.
WPP is likely to release findings next week of an investigation into allegations of personal misconduct and misuse of company assets facing Martin Sorrell, the 73-year-old chief executive officer who built an ad empire over three decades from a company that made wire shopping baskets. That could determine Sorrell’s future at the world’s largest advertising firm, under threat since the probe leaked earlier this month.
“The leadership of the company is at stake,” said Brian Wieser, a media analyst at Pivotal Research LLC considered one of the industry’s most influential pundits. “His fate may be sealed, one way or the other.”
The 12-member board, packed with Sorrell associates, has long supported him through shareholder criticisms about his lofty compensation. His grip on the company had become a topic of industry speculation even before the probe, however. WPP shares have lost a third of their value in the past year over multiple downward revisions by the company to its revenue outlook as it contended with a tough ad market.
Now, tensions are simmering between Sorrell and other directors amid media suggestions that the probe was started to force him out after a period of weak performance. Directors have denied it’s a setup, arguing in meetings that the allegations were serious and couldn’t be ignored. Sorrell has denied the allegations.
This account of the crisis inside WPP is based on interviews with more than a dozen individuals inside or close to the firm, all of whom asked not to be identified because of the sensitivity of the matter.
On Monday, the board has a reservation to dine at Annabel’s, a members-only club, in the opulent Flower Room that overlooks Berkeley Square in London’s West End neighborhood of Mayfair. The menu for the evening will have options including a tabbouleh salad to start, a main of wild sea bass, caviar and watercress and dessert of lemon, lime and mint pavlova.
The discussions are set to continue the following day on the 12th floor of Sea Containers, the South Bank office building which serves as the U.K. headquarters of one of WPP’s top creative agencies, Ogilvy & Mather, and where WPP media buying agency Wavemaker is based. Sorrell plans to attend the meetings.
The board has enough to talk about absent the allegations against Sorrell. WPP has seen its shares battered far more in the face of the industry’s existential threats than rivals including Publicis Groupe SA and Omnicom Group Inc., as its financial guidance has repeatedly proved too optimistic. The company on March 1 lowered its long-term profit outlook after reporting its worst annual performance since the financial crisis.
WPP clients like Unilever and Procter & Gamble Co. are spending less on marketing and the rising threat from digital rivals has prompted industry questions about whether Sorrell is still best placed to steer the sprawling network of more than 400 units spanning over 100 countries.
The probe has spurred queries from the heads of major WPP clients about the allegations, which agency executives can’t answer with the board closely guarding details. Meanwhile, shareholders have renewed calls for a defined succession plan at a company long seen by investors to have done too little to prepare.
Should Sorrell leave, the board is considering putting in place two internal successors to serve as co-CEOs on an interim basis -- Mark Read, the head of WPP digital agency Wunderman, and Andrew Scott, chief operating officer of WPP’s European business.
The two executives, who have each spent more than 15 years with WPP, both declined to comment to Bloomberg.
“WPP has always had a contingency plan for an emergency succession situation but we would not reveal the detail of that until we put it into action,” the company said.
A spokesman for Sorrell declined to comment.
Business as Usual
WPP management has tried to carry on as if it’s business as usual. Directors and executives have been meeting with shareholders. Meantime, Sorrell has behaved normally -- working from the office, holding meetings and keeping up with his typical practice of sending late-night and early-morning emails about client matters. A frequent guest on talk shows and at conferences, Sorrell gave a lecture on April 9 at the Yale School of Management in New Haven, Connecticut, telling students that developing countries offer the biggest business opportunities -- a view he often shares.
With a resolution to the probe still pending, there’s a sense internally among executives that the longer the uncertainty drags on, the more damaging it could be to WPP’s business.
“I’m sure there are factions on the board who might have been unhappy with the company or Sorrell,” said Pivotal Research analyst Wieser. “This has brought that into the daylight, at least inside the board.”
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