TBWA has responded quickly to his resignation on Monday morning and promoted Andrew McGuinness, 32, the managing director, to fill Lace's role. Jonathan Mildenhall and Matt Shepherd-Smith will rise from managing partners to become joint managing directors.
Lace's decision has surprised the industry; TBWA is one of the most successful and creatively renowned agencies in London, while Grey's output is based on international clients such as Procter & Gamble, Glaxo SmithKline and Mars.
One of his first tasks will be to hire a new creative director at Grey in a bid to turn around its lacklustre creative reputation. Tim Mellors, Grey's chairman and chief creative officer, is expected to leave in the next six months.
Lace said: "Finding my creative partners is priority number one. Grey is a fantastic challenge and I am looking forward to creating another success story."
Carolyn Carter, the president of Grey Europe, has trawled the London agency scene in her search for a successor for Martin Smith, who the agency ousted 18 months ago. She said: "Garry's credentials speak for themselves. He has a great track record for dynamic leadership and creative pedigree. He's successful at mobilising a team, which is very important at Grey."
Lace, 35, has been the chief executive at TBWA for 18 months.
Paul Bainsfair, TBWA's president of northern Europe, announced the restructure to the agency on Tuesday. He said: "We have the quality and depth of management we need within TBWA and we prefer to use that. I'm very confident that these guys will not only be good in their new positions, but that they get on well together as well as understand the culture of TBWA."
McGuinness joined the agency in February 2000 and was promoted to managing director in June 2001. Sources suggest that TBWA feared once Lace was established at Grey he would attempt to poach McGuinness.
Shepherd-Smith joined TBWA in 1998 to run its Nissan business. He was promoted to head of account management in March 2000 and made a managing partner in 2001 when the agency took on a group structure.
Mildenhall joined as a managing partner from HHCL & Partners in September 2001. He looks after the Five, News International, Nissan and Marlboro accounts.