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Madison Avenue Faces New Curve After WPP Cuts Ties With Martin Sorrell

Analysis: Sir Martin's exile from the company he built seems like the clearest signal of how new consumer patterns are disrupting the ad business

Martin Sorrell in 1985 invested in a small British manufacturer of wire shopping baskets, and began a process that would result in the construction of the giant marketing-services holding company WPP. Now that the company has cut ties with its founder, many wonder if the era of empire-building on Madison Avenue has come to an end.

The advertising industry is largely carved up among six or seven major holding companies: WPP; Interpublic Group and Omnicom Group of the U.S.; Publicis Groupe and Havas of France; and Dentsu and Hakuhodo in Japan. The companies were created by buying sprees set in motion in the 1980s and 1990s that put giant ad agencies and a litany of smaller, entrepreneur-driven shops under the holding companies’ aegis.  In a different timeline, ad agencies like BBDO, Deutsch or Young & Rubicam might still operate under their own power, rather than being lumped into a hodgepodge of firms assimilated under one corporate banner to serve up everything from clever jingles to in-store promotions to everyone from Apple to Zyrtec. And the constant spate of acquisitions masked any issues the bigger companies might have in managing dozens and dozens of small-to-large shops.

Sorrell’s exile from WPP, set in motion this weekend, calls that model into question. Sorrell, who spent a career building WPP with daring acquisitions of J. Walter Thompson, Young & Rubicam and Ogilvy and Mather and a slew of investments in everything from Fullscreen to the Weinstein Company to Vice Media, retired from WPP this weekend after its board of directors had begun a probe into allegations of misconduct by its founder and CEO. “The previously announced investigation into an allegation of misconduct against Sir Martin has concluded,” the company said in a statement. “The allegation did not involve amounts that are material.” WPP has yet to confirm details about what it was investigating.

Shares of WPP dropped significantly Monday. The company’s American Depositary Receipts fell more than 6% in early trading, a sign that WPP without the executive who has guided it for three decades has a cloudy future ahead of it. “On its face, Sorrell’s departure is negative considering how involved he has been in the company and how instrumental he has been in assembling the assets WPP has today,” said Brian Wieser of Pivotal Research, in a note issued this weekend. “Any executive filling Sorrell’s shoes needs to orchestrate assets across the holding company and doing so is a challenge in a fragmented federation of businesses such as those which exist within WPP.”

WPP had been facing tough challenges. In March, after cutting its financial outlook several times, the company acknowledged it had set 2018 budgets as if it would see no growth in revenue or net sales.

Whether the holding companies should still exist in their current form remains to be seen. Big advertisers like Procter & Gamble, Unilever and Ford Motor – all WPP clients, by the way – have begun focusing on the money they spend with companies like WPP, trying to winnow down not only the number of firms they work with but the fees they pay them.  They are also able to purchase media time and collect consumer information more easily on their own. Procter recently noted that it would create its own “agency” of sorts, out of employees from a host of rivals for its fabric-care business. The new unit will consist of employees from Omnicom’s Hearts & Sciences buying agency and Marina Maher public-relations agency; Publicis Groupe’s Saatchi & Saatchi; and WPP’s Grey.

If big advertisers have enough leverage to create their own agencies, the holding company model – designed to provide one-stop shopping to big-spending marketers – makes less sense. Consider the case of Wieden + Kennedy, one of the few remaining large independent U.S. agencies. Its work for Coca-Cola, Bud Light and TurboTax was spotted during NBC’s recent broadcast of Super Bowl LII.

There’s also the question of how much new forms of media are disrupting the ad-agency business. It’s not enough to devise a few print ads and some TV commercials. Ad companies must now be ready to accumulate and sift through reams of consumer data and determine the places where a company’s most likely customers can be found. And they must then use technology to place tailored pitches in the most price-effective manner possible. For those who still view the ad industry through the lens of the AMC series “Mad Men,” there can be no dispute: Roger Sterling has left the building.

Sorrell is not likely to leave the field of play. He has no non-compete agreement with WPP and his salary has been one of the industry’s highest. WPP is treating his departure as a retirement and is slated to continue to pay him hefty outlays in the form of company stock.  He is eligible to receive a maximum of about 1.6 million shares from various incentive programs. If one uses the current prices of WPP stock, the sum could be more than $20 million.

He is a driven overseer, never afraid to call WPP employees directly to find out what was happening, or to quiz journalists relentlessly via phone or email. To impress Sorrell, an ad agency worker or reporter would have to do something often difficult to accomplish – deliver to him a piece of information he didn’t already know. He has long been a consigliere to any number of big advertisers and has deep contacts in the media world as well. He could well find another small manufacturer of wire baskets and start anew, with considerably more capital than he had at his disposal in the 1980s.

And yet, a number of big players in the ad industry have also left the stage. Irwin Gotlieb, perhaps the industry’s most prominent media-buying executive and longtime chairman of WPP’s large GroupM media-buying unit, said earlier this month that he would take on a senior advisory role and leave his chairmanship. Maurice Levy, a longtime Sorrell rival and former CEO of Publicis Groupe, ceded that role to Arthur Sadoun in early 2017, though he remains intimately involved with that company.

Whether Sorrell chooses to play or leave, one thing is for certain: WPP won’t be the same without him.

 

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