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Ad giant WPP investigating its CEO for 'personal misconduct'
[LONDON] WPP is probing allegations of personal misconduct by chief executive officer Martin Sorrell involving possible misuse of company assets.
The board has hired a law firm to look into "an allegation of personal misconduct" against Mr Sorrell, according to a statement on Tuesday. The world's largest advertising company said the amounts involved aren't material to WPP. Mr Sorrell rejected the allegation while recognizing the company has to investigate."Obviously, I shall play no part in the management of the investigation under way," he said in his own statement.
Mr Sorrell, 73, is an icon in the advertising industry, having built London-based WPP from an early investment in a British shopping-basket manufacturer. WPP, which owns ad agencies Ogilvy & Mather, JWT, Y&R and Grey, had revenue of more than US$19 billion last year, but has lost a third of its market value over the past 12 months. That decline is a reflection of the tough climate ad agencies face as clients trim spending and companies like Google and Facebook gobble up an ever-larger share of corporate marketing budgets.
Some WPP watchers have been highly critical about what they perceive to be an over-reliance by the company on Mr Sorrell and have claimed there has been a lack of succession planning. Guy Jubb, who led the charge while he was head of corporate governance at Standard Life and is now an academic, spoke before Tuesday's developments.
"Sorrell's succession is a key risk for WPP," Mr Jubb said in an email. "The board has a responsibility to demonstrate convincingly that it is on the case. Failure to do so will inevitably impact on investor confidence and open the door for activists."
The investigation into Mr Sorrell comes at a pivotal time for WPP and the wider advertising industry. Major clients like Unilever and Procter & Gamble have been cutting marketing costs under pressure from activist investors, while companies disrupted by new technologies have been shaving their advertising budgets. Industry headwinds have taken a smaller toll on Publicis Groupe and Omnicom Group.
The Wall Street Journal reported on the matter earlier, saying the investigation involved personal behavior and possible misuse of assets.
WPP shares fell 8.2 per cent on March 1 when the company reported its worst annual performance since the financial crisis and gave a bleak outlook for the current year. They closed down 1.3 per cent on Tuesday in London before the allegations were reported, giving the company a market value of £14.2 billion (S$26.22 billion).
Mr Sorrell, who has topped Britain's annual executive-pay lists on several years including 2014 and 2015, has recently become the focus of investor criticism over CEO compensation. After a dismal year, the CEO faces a huge cut in his pay package.
The company said 2018 would be flat and that long-term earnings growth will be as little as 5 per cent and twice that at best, compared with a prediction of as much as 15 per cent previously. The year got off to a "slow start," WPP said in early March, continuing a trend from 2017 that saw flat margins and sales. Sorrell said the outlook is deliberately cautious.