WPP'S 40 million dollar man

Potential 40 million dollar bonuses aside, is WPP about to go shopping? And is Havas next on its list? Caroline Marshall asks the man in charge.

"I think WPP and Y&R would be a powerful combination," said Sir Martin Sorrell back in September 1999, employing the famous technique of wishful thinking out loud. The following year WPP bought Young & Rubicam in a $4.7 billion deal, one of the largest in advertising history.

Four years later, and Sorrell is sitting on an empire with a strong financial record. His is the second-largest advertising and marketing services group by market size and capitalisation behind Omnicom. Like everyone, WPP has been hit by recession with pre-tax profits falling by 50 per cent in 2002 to £205 million on revenues of £3.9 billion. Nonetheless, the group continues to expand, with Y&R, Tempus and Cordiant three recent purchases, and an increasingly firm eye on the Far East.

Many believe that the big acquisition phase in marketing services is totally played out. Combative as ever, Sorrell puts the doubters right: "It's naive to say there's nothing left to acquire. As clients, media owners and retailers continue to consolidate, inevitably it means the same for us."

Slapping what he calls a "a heavy health warning" on his answer, Sorrell runs through his shopping wishlist. Aegis is in there, some more VNU market research interests too. But two names stand out.

Havas. "Strategically, its position is vulnerable. Havas has to decide where it is, given what's happened client-wise. MPG wants to be a top-five media player. It has to decide how to get there."

Grey. "People continually ask questions about Grey, but I think Ed (Meyer)'s immortal. If I was Ed, I would carry on forever. He controls the business, he's great at what he does. When we hired Charlotte Beers, people said that she and Ed were the two CEOs of Procter & Gamble agencies who had the biggest share of voice in Cinncinati. Ten years on and Ed's still in that position."

This suggests Grey might be first on Sorrell's shopping list. Would Unilever, a leading WPP client, entertain the conflict with P&G? "There is nothing in the conflict policies of Unilever or P&G that would prevent the two coexisting in one group," Sorrell says.

His buying days are clearly not over. Are we therefore to assume that there is not enough organic growth in the agency business to offset declines in gross margins as fees and commissions continue to decline? "No, organic growth is the best way to bring value to our operation - it's the priority, in fact. WPP's big enough. We don't need another 69,000 people. We don't need to operate in another 102 countries. The issue is continuing to improve the quality of what we do."

Sorrell insists that the battle is not about being the biggest, but about being the best. Is this about client satisfaction or shareholder return?

"I want the Pavlovian instinct of any client or any person coming into the industry to be to want to join one of our tribes," he says.

Tribes seems a rather primitive term to describe companies seeking to attract intelligent and sophisticated employees. It certainly suggests competition on a pretty basic, even war-like level. In the business today, the equivalent to a tribesman's club is a price cut. Rivals accuse Sorrell of frequently competing on this basis, walking into client meetings and saying we will never be beaten on price. True? "No." Implicit in the way WPP operates? "No," he says, dismissing those who suggest it as "the devil who will quote scripture to his own purpose".

"Price," Sorrell says, "will always be at the bottom of the client agenda, even in the procurement age. Clients want ideas, thinking, work, then co-ordination and then price. Co-ordination has moved up the agenda but not surpassed the work."

With the goal of improving client service, WPP is busy appointing so-called Client Leaders to manage every aspect of key multinational accounts.

At present there are four: Mark Linder (BP), David Wheldon (outgoing, Vodafone), Satish Korde (Ford) and Tim Davis (Unilever). Unilever aside, most of these clients have a more or less exclusive relationship with WPP. A Ford Client Leader was appointed at the car-maker's behest because WPP's largest client got fed up with the in-fighting that went on as WPP agencies tried to outdo each other.

Sorrell will not confirm it but there are plans to expand the concept to as many as 20 of WPP's top clients. There are tensions galore, mostly because individual companies have separate P&Ls and are not always willing to look at things from a group standpoint. Also, operating companies often resist the idea of someone who does not report to them having an over-arching responsibility for that client's business. In theory, if the Client Leader felt that the WPP advertising agency assigned the business was not "best in class", he could demand that others be considered.

The tensions, Sorrell agrees, with obvious understatement, are "colossal".

It also seems to contradict his desire to encourage tribal values: "We want the WPP brand to be right in the background, we want it to be a stock market brand, nothing more."

That seems a bit rich, given Sorrell's personal profile. "Perhaps the image of Martin Sorrell is stronger than that of WPP," he concedes. "Today WPP is 200 people sitting in London, New York, Sao Paulo and Hong Kong. It was two people in a room 18 years ago, so it's natural for people to focus on me. In 25 years I'm sure that won't be the case."

Which leads us to the topic of succession. Last time Campaign checked, Sorrell was still mortal. If he was tragically incapacitated, or called up to run a company higher up the FTSE 100, there is no glimmer of a successor. Investors worry about this. Shouldn't he?

The WPP chief executive, 59 this month, seems remarkably unruffled. However, word is that WPP's chairman, Philip Lader, the former US Ambassador to Britain, has introduced the topic to the boardroom where there are no fewer than nine non-executive directors. It's even said that Sorrell has lobbed a few names into the frame. But he stresses: "I want to carry on as long as I can physically and mentally. I'll carry on for the foreseeable."

Does Sorrell subscribe to the view that there's an acute shortage of talent in marketing communications? "I subscribe to the view that people in our industry do not care. When we launched the WPP Fellowship scheme seven years ago my biggest fear was that it would be imitated, yet nobody's done anything like it. In this business, people think they can pinch the talent when they need it."

Another of the unique things about WPP is its five-year incentive scheme, Leadership Equity Acquisition Plan (LEAP), introduced in September 1999.

It measures WPP's performance against its competitors in terms of total shareholder return. Participants - there are 22 in total - had to invest at least the equivalent of one year's salary of their own money into the scheme. If the targets are met Sorrell's $10 million personal investment could multiply by four times. Team it up with his other incentive plan and WPP's 40 million dollar man may more accurately be termed WPP's 100 million dollar man. When the scheme matures this October, will he put his feet up or try something entirely new? Neither, he says. Sorrell is having fun, lots of fun, and it's obvious for all the world to see. "When the first incentive scheme matured I did an accumulator, I put it all back in. One of my objectives is still to be build a large equity stake in the business," he says.

What will that business look like? Today, non-advertising revenues run at 52 per cent of the total. With TV advertising becoming more expensive as audiences continue to fragment, WPP wants to see non-advertising revenues at two-thirds of its business within ten years. Market research will be a key driver, as will direct and web-based marketing.

He also wants to see a move in the geographical spread of WPP's income. At the moment 45 per cent comes from the US, with 35 per cent from Europe and 20 per cent from Asia-Pacific.

The aim, stated year after year in WPP's impressive annual reports, is to have each at a third. WPP has its Y&R-Dentsu link, but given the importance of Asia to Sorrell's world view, is there an opportunity for an Asia-based network that is not in the grip of the Japanese? "We have two," he says.

"Bates relaunched at the end of 2003 and Batey, which is part of Red Cell, to some extent has a similar positioning."

Ah, Red Cell, WPP's youngest network, parent of HHCL & Partners.

Conceived in 2000 as a business defined by the quality of its product rather than the scale of its offering, Red Cell was supposed to attract clients willing to challenge normal marketing behaviour. But it is hardly the aggressive young network with a distinct creative culture to rival BBH or Fallon: its chief executive, Lee Daley, recently left by mutual agreement replaced by Andy Berlin; parts of the distinctly un-cutting edge Bates were bolted after the Cordiant acquisition.

Overall, however, WPP has weathered the recession well. By the standards of Interpublic's SEC investigations, Ogilvy's overbilling scandal (related to the Office of National Drug Control Policy in the US) counts as small beer. A big recent set-back was the loss of Boots from various WPP companies to a Mother-led alliance. If he wants WPP to be seen as a superb client service entity, losing that multi-agency £80 million account was surely a costly embarrassment.

Sorrell shrugs. It was a simple case of "we did not do a good enough job in the repitch".

Such resolute thinking suggests he never suffers from the self-doubts that plague mere mortals. And yet he's been on the receiving end of some pretty hurtful stuff over the years.

Resisting his purchase of Ogilvy &Mather in 1989, David Ogilvy called him an "odious little shit". Alain de Pouzilhac, the head of Havas, lost out to Sorrell in the battle for Tempus and said "there are good guys and bad guys in life, and I think Sorrell is in the second category". What Publicis chief Maurice Levy says about Sorrell after losing to him in the saga of the Cordiant sale is not printable in a family newspaper. It's all water off a duck's back.

Ask him to write his own eulogy and that iron-clad will shines through.

It would be "he originated the finest advertising and marketing services business in the world". He'd pick his late father to deliver it, or the historian Simon Schama; the pair have been friends since they were 11.

Say what you like, WPP is clearly in very safe hands.

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