WPP Founder and CEO Martin Sorrell Resigns: What Does the Exit of the 4A Ad World's Last Titan Mean?

Martin Sorrell, 73, is a workaholic who believes in the value of scale and collaboration.

What Martin Sorrell has meant to the advertising business began with the figure of a disruptor, and ends with a “disruptor” of another kind.

Whether the second will set off changes as deep as the first is still anyone's guess. On the evening of April 14, WPP, the world's largest advertising group, abruptly announced that Sorrell had resigned as the group's CEO after the close of an internal investigation into allegations of “personal misconduct.”

The episode leaves two things murky. The first is what the alleged “misconduct” actually was. The statement disclosed no details of the investigation, and some insiders think the allegation doesn't hold up: Sorrell's pay and bonuses over the past five years came to more than £200 million, making him one of Britain's highest-paid CEOs, so he had no reason to “misappropriate company assets.”

WPP's statement said Sorrell's departure would be treated as a retirement and that he would receive the corresponding equity awards; the investigation had already concluded that it did not “involve a material amount.” WPP named no clear successor — Roberto Quarta, the current chairman, will serve as executive chairman until a new CEO is appointed.

The more important question, of course, is where advertising goes now that Sorrell is gone.

Sorrell led WPP for 33 years and holds enormous sway over today's advertising business — a function of the sheer size of the empire he built and controlled. WPP owns 406 independent agencies in 112 countries, employs more than 200,000 people, and manages over $100 billion in client billings. That money ends up as one-fifth of the content in a $558 billion global advertising market, stuffing modern heads with phrases and pictures.

Part of what keeps this vast group running is his control over every detail, as famous in the industry as his appetite for work. Sorrell is sharp-eyed and tireless, and the speed at which he answers email on his two BlackBerries — in a board meeting, at a private dinner, at a ball game — is the stuff of legend.

Tom Denford, founder of the media consultancy ID Comms, said Sorrell didn't merely micromanage WPP; he managed it at the nano level. “The companies underneath him effectively ‘lost’ their own leadership, because he was involved in everything — agencies, client communications, every pitch.” In 2005, Sorrell flew from London to New York and straight back for no other reason than to tell Jim Stengel, then P&G's global CMO, that the $1.8 billion acquisition of Grey he had just completed would not affect Grey's contract with P&G. According to the Financial Times, when Sorrell flew from London to Asia by way of New York, he would sometimes squeeze in dinner with a client during the layover.

It All Began With Acquisitions, and Scale Bred Efficiency

WPP is unusually large and its shareholding unusually tangled, yet Sorrell still owns 1.4% of the group. Look back over his four decades in the business and the WPP he now calls a matter of “life and death” — and the advertising industry itself — are bound up with the landscape he built as a disruptor all those years ago.

The son of a first-generation Jewish immigrant to Britain, and a graduate of Cambridge and Harvard, Sorrell saw early that advertising was going global, because big companies wanted to sell their products and brands in many markets at once. He quit his job as finance director at Saatchi & Saatchi and in 1985, with a partner, bought a controlling stake in WPP, then a listed British company whose full name, Wire and Plastic Products, described exactly what it made. Sorrell set out to turn a maker of shopping carts into a multinational advertising group.

At the time every agency on Madison Avenue charged clients high fees on the strength of its creative directors' brilliance, and that money let the agencies raise salaries, add staff, hand out bonuses, and throw parties without restraint. Sorrell looked at J. Walter Thompson's thin 4% profit margin and read it as proof that creativity cost too much — and that there was plenty of room to cut.

With $1.4 billion borrowed from the Bank of England, Sorrell bought J. Walter Thompson and then Ogilvy & Mather, at the time the two best agencies on Madison Avenue.

David Ogilvy, the 77-year-old “godfather of advertising,” called the 44-year-old Sorrell an “odious little shit,” because Sorrell was planning an $864 million hostile takeover of his company. The press called Sorrell “the Ogre of Madison Avenue.” Under him, WPP tore through one acquisition after another and became the world's largest advertising group in just five years.

After news of his resignation broke, people on Twitter were still bringing up Beans and Pearls, the speech Sorrell gave at the D&AD (Design and Art Design) design and advertising festival in London in 1996. In it he quoted economists and artists alike, trying to convince ad people that creativity needs a complete process before it can deliver value and raise efficiency. In 1997, the media units of Ogilvy and J. Walter Thompson were split off and combined into Mindshare, a new company devoted to media buying and the seed of what became WPP's media group, GroupM. Separating creative work from media buying for the first time meant a consolidated advertising group could use the size of its transactions to bargain for better prices.

The wave of mergers that began in advertising in the 1990s changed how the mad men worked and set the industry's tone for the next 30 years: pull every specialized link in the marketing chain — creative, PR, production, media buying — under one enormous roof and sell clients a faster, one-stop service. The world's five big advertising groups took their present shape in those years.

“His legacy is that he made advertising agencies behave like a business, rather than a bunch of mercurial people,” the CEO of one WPP-owned company told Ad Age.

By coincidence, on April 5, 2018, WPP announced a policy requiring all its agencies to keep alcohol in designated areas and to hold drinking outside working hours to “generally no more than two hours.” Some joked that the last of the Mad Men era was vanishing from the 4A agencies, and that Sorrell's resignation was the first walkout against the drinking ban.

It should be said that Sorrell did not invent the “advertising holding company.” Marion Harper, president of McCann Erickson, was the first to gather agencies into a holding company. But Sorrell built a giant group in the shortest time and in the most dramatic way the business had ever seen.

Why Did Scale Once Matter So Much to the 4A Agencies?

For one thing, the outsized leveraged buyouts on Wall Street in the years before the financial crisis pushed advertising toward consolidation. For another, advertising is tied closely to business expansion, and in an age of economic globalization it served clients who wanted new markets. Today you can find a Chinese name on the business card of nearly every multinational's Asia-Pacific chief: P&G's Matthew Price (Ma Ruisi), Adidas's Colin Currie (Gao Jiali)... WPP held its first board meeting in China in 1989, and Martin Sorrell gave himself the Chinese name Su Mingtian.

Sorrell is one of the few people in the world most qualified to talk about mergers, and buying things became his habitual answer to any problem, whether a new market or a changing environment. According to Capital IQ, WPP has bought some 300 companies since 2010, more than 40 a year on average, many of them so small that this enormous enterprise didn't even have to disclose the financial details.

At the first press conference after the Ogilvy acquisition in 1989, Sorrell told the Financial Times, “It's not a question of size, it's a question of quality.” Yet he never stopped wanting to run the biggest company in the business. In 2013, when word broke that Publicis and Omnicom — the world's second- and third-largest advertising groups — planned to merge, and the deal then collapsed, Sorrell could barely contain his delight: “Maurice Saatchi [editor's note: one of the founders of Saatchi & Saatchi] once said that if you're the best, you become the biggest. I agree with that.”

He thought constantly about taking markets. In a 2013 interview with the Harvard Business Review, he said: “I'm not worried about any particular technology. I'm more worried about geographic change. Myanmar suddenly dropped out of the sky [editor's note: a reference to the loosening of economic controls in 2012, after Myanmar's 2010 democratic reforms] — a market of 60 million people, right? A ‘little Vietnam.’ We had to move fast to capitalize on it, and we bought an agency there. What if Cuba or North Korea is next? What worries me more is what we can do in Chinese cities with populations over a million.”

His old enemy, Maurice Lévy, former chairman and CEO of Publicis, the world's second-largest advertising group, said his relationship with Sorrell “soured” when Publicis and WPP bid against each other for Young & Rubicam, the venerable American creative agency, and “collapsed” during the 2003 fight for Cordiant Communications. Marc Mendoza, former CEO of Havas Media, called Sorrell “a ruthless, hyper-focused person. He needs to know every detail of everything, and as far as I know, he answers all his own emails, day and night.”

At an advertising group the size of WPP, “collaboration” (horizontality) sits at the center of the work. When the business runs into trouble, the first instinct is to invest in platforms that make communication and staff movement easier (as Publicis did last year), or to move employees from every subsidiary into one building (as WPP did at the Dabang Collaboration Plaza in Shanghai).

That brought discipline, and it also sanded down individuality. Sorrell once said: “The problem my employees face is that the better they are, the less they collaborate with each other.” Strong personalities once drove advertising forward, but a good holding company may not need irreplaceable employees.

“Once you standardize something, it becomes a cost. Advertising used to be an investment; now it's treated as a cost,” he said at Advertising Week New York in 2017.

How Did a Group This Big Lose Its Grip on the Market?

WPP's main clients include Ford, Unilever, and P&G. A third of the group's revenue comes from consumer-goods companies, and P&G, the world's largest advertiser, has cut its marketing spending by $750 million in recent years and plans to cut another $400 million over the next three.

At WPP's annual earnings call this March, Sorrell blamed the group's 2017 slowdown on “zero-based budgeting, activist investors, and private equity.”

Under pressure from activist investors and private-equity funds, the agencies' biggest clients began using zero-based budgeting: planning the ad budget from zero every year instead of adjusting last year's spending, which amounts to a cut by another name.

But clients cutting their spending was not the cause of WPP's decline. It was the result — of Sorrell leaning too hard on cost-cutting to produce profit, until clients lost confidence in the group. Agencies usually meet a squeezed budget by laying people off, which starts a spiral of talent leaving and clients leaving with them.

Behind the change of attitude among these clients, most of them in the real economy, is the shrinking of globalization. Since Britain's 2016 Brexit vote and the arrival of the protectionist Donald Trump, world trade has kept falling as a share of GDP, which means trade is growing more slowly than the economy and markets are pulling apart rather than merging. Local markets are complicated and varied, and a huge multinational advertising group struggles to handle every consumer with one simple message — or to beat nimbler local rivals.

If the only competitors were the new digital agencies, the problem would not be hard to solve. At roughly 40 acquisitions a year, the advertising groups were investing in digital well ahead of their clients. After buying the hot digital agency AKQA in 2012, WPP owned four of the seven biggest digital marketing companies in the world as ranked by Forrester, and Sorrell said he had had his eye on AKQA for six or seven years.

The consolidated 4A business looks weak today because a fragmented digital media landscape has produced new disruptors. Google and Facebook never meant to turn advertising into a business model, and like Sorrell 30 years ago — the man David Ogilvy said had “never written a line of copy” — they behave like outsiders: they ignore the industry's “rules” and deal with clients directly, and they have shown no sense of themselves as media channels. Look at the recent uproar around the two companies and it is clear they never saw any of this coming.

Two things in 2013 revealed the structural shift under way. The first: digital ad spending in the United States reached $42.8 billion and passed television for the first time. The second: WPP spent $2.5 billion of client budgets on Google, making Google — not Rupert Murdoch's News Corp — WPP's largest media partner.

Tech companies siphoning ad budgets straight from clients is only a small part of what troubles the WPPs of the world. Sorrell called the relationship “friend and foe,” or “flexible friends.” What really overturned everything is the data the tech companies hold, which destroyed the professional authority the 4A agencies had lived on for decades.

“My business exists in a state of complete anarchy. You can't control it, you can only react to it,” Sorrell told Think With Google in 2013. “People's traditional control over information has vanished. Look at WikiLeaks — you have to assume anything you write could end up as a headline.” Over the past two years he has repeatedly called in public for Facebook and Google to accept government regulation and to accept their role as media companies.

In August 2017, P&G announced with some fanfare that cutting $100 million from its digital ad budget the previous quarter had made no difference to sales — and the data that exposed this came from the tech companies themselves. In a digital ad market ruled by clicks, even the standards of creativity once held by ad people must submit to a different system's test.

In other words, when algorithms and real-time bidding are what count, becoming the world's largest advertising group in order to get lower prices matters less.

Sorrell was not blind to this. Over the past year WPP went through round after round of internal consolidation, hoping to prove the value of “collaboration” all over again. In February 2017, the sub-brands under WPP's Ogilvy Group — Ogilvy PR, Ogilvy Advertising, OgilvyOne and the rest — were folded into a single brand, Ogilvy. In June, MEC and Maxus, both part of the media-buying group GroupM, merged into Wavemaker. In July and September, two of its digital marketing companies merged, as did five of its brand consultancies. This February, Burson-Marsteller and Cohn & Wolfe combined into a new company, Burson Cohn & Wolfe. WPP also launched its first group-level brand, WPP Health & Wellness, in February 2017, to handle healthcare clients.

In 2016, the American advertising industry opened investigations into transparency in the media supply chain, and clients began demanding simpler, faster service and results they could verify. By Sorrell's own account to the Harvard Business Review, £5.8 billion of WPP's £13 billion in 2016 revenue came from fees the parent company charged for coordinating its various agencies — and clients were asking: why should I pay you to solve your own efficiency problem?

So What Happens to Advertising Now?

Some have turned Sorrell's departure into a symbol of an industry in decline, which is partly just a way for people in the business to let off steam. But WPP's share price did fall 6.6% straight away, and analysts believe his exit will bring chaos.

“The odds of a big chunk of the business being sold off have increased sharply. Before, Sir Martin was a kind of glue holding most of WPP's companies together,” Ian Whittaker, an analyst at the London investment bank Liberum, wrote on Monday. Kantar, WPP's data management division, whose revenue growth has consistently lagged the group average, is the likeliest thing to be sold.

Sorrell's departure will speed up change at WPP and at rival groups such as Publicis and Omnicom, and may set off further mergers and consolidation.

Two executives have been named joint chief operating officers for the transition: Mark Read, current CEO of WPP Digital and Wunderman, and Andrew Scott, WPP's director of corporate development and COO for Europe. Sorrell proposed both as successors in his farewell letter. But as noted above, no one else has his drive or his vision, and replacing him will be hard.

Sorrell leaving does not mean advertising is finished. As long as consumerism exists, advertising will take part in mainstream culture and shape it.

In the words of the American historian Jacques Barzun, advertising is an unwritten chapter of cultural history: “... And so there arose the strange industry of advertising, a legalized form of deception. Since technology keeps pushing production forward, both old and newly created appetites for consumption must be kept high, which leaves rich and poor alike living with a sense of scarcity — there must always be some new necessity.”

Advertising will last. The way it exists may change a great deal.

Sorrell wrote at the end of his farewell letter: “As founder, I can say that WPP's problems now are not merely a matter of life and death — they were, are, and always will be more important than that. Good luck to you all... Now, ‘Back to the Future.’”

Cover image via arabian business, unbound