Four lessons from the WPP debacle

The media conglomerate has been left rudderless after years of drift, says Matthew Lynn. Here’s how big companies can avoid repeating the mistakes.

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Mad Men: advertising's golden age is over

The media conglomerate has been left rudderless after years of drift. Here's how to avoid its mistakes.

It was the worst possible end to one of the most glittering careers in British business. After three decades building WPP from nothing into the world's largest advertising and media conglomerate, and one of the UK's few genuinely world-class companies, Martin Sorrell could have expected to leave the company amid accolades for his drive, ambition and hard work. Instead, he found himself bundled out the back door after allegations over his personal use of company funds were made public. It was a sad end. But there are lessons the City should learn from the whole debacle.

1. Don't leave it too late

First, don't leave it too late. There had been signs of trouble at WPP for a year at least and possibly longer than that. Clients and key executives had been defecting. The strains within the conglomerate were becoming increasingly clear, and Sorrell himself was retreating into clichs when talking about his strategy for the business. Thirty-three years is a heck of a long time to be running anything, never mind a major FTSE company. The shareholders should have called time after a quarter-century, and possibly before then. If they had, WPP would be in far better shape today. Instead, they let the situation drag on and on until a crisis was unavoidable.

2. Insist on succession planning

Now that Sorrell has departed, no one has any idea who should take over. It is hardly surprising the shares dropped sharply again on Monday morning. WPP looks rudderless, with the chairman Roberto Quarta taking over temporary day-to-day control until a new CEO is found. But a successor should have been lined up a long time ago. Powerful CEOs are reluctant to put proper succession planning in place for the simple reason that it makes it easier to get rid of them. But shareholders should insist it is done, and done properly. Every company should have someone ready to step into the top job.

3. Stamp down on excess

Sorrell's pay package was extraordinary even by the standards of giant FTSE companies. In 2015 it came to £70m. In 2016, it was a slightly more modest £48m. Since 2012 he was paid more than £200m by WPP. There were a string of shareholder revolts against his lavish remuneration. In 2012, that managed to muster more than 60% of the votes at the AGM and in every year since then at least 20% of the shareholders voted against his pay package. But Sorrell was shameless, pocketing tens of millions year after year regardless of what shareholders thought. The City's major institutions took a stand, but it was not firm enough. They should have organised themselves to vote the pay packages down, and forced Sorrell's resignation if he would not accept that. They were a clear sign of a CEO who needed reining in and the City let him get away with it.

4. Bring in fresh eyes

Finally, although it is too late to do anything about the mess WPP now finds itself in, the shareholders should insist that an outsider is brought in to sort the company out. After allowing a single man to dominate the group for so long, its culture, systems and strategy need a shake up, and that can only be done by an outsider with a fresh perspective. Just as importantly, with more than 400 operating units, WPP is a battleground of competing fiefdoms. Sorrell might have been able to control that but his replacement will need clean hands to make sure a turf battle doesn't damage the business beyond repair.

In truth, a company the size of WPP should never have been allowed to get to the stage where the same man had been in charge for three decades, could treat it as a personal fiefdom, and could only be forced out acrimoniously. Sorrell should have been bought under control and a succession plan put in place far earlier. The City should learn the lessons of that or else it will end up with a lot more WPPs.

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