By Nick Kostov
WPP PLC is facing shareholder unrest after its handling of
founder Martin Sorrell's resignation, in a sign of how the
advertising giant is straining to turn the page on its former chief
executive.
Shareholders attending their first annual meeting without Mr.
Sorrell at the helm showed unusually narrow support for Chairman
Roberto Quarta, who was re-elected with 84.5% of votes, compared
with nearly 98% last year.
More than 27% of shareholders voted against WPP's remuneration
report, which includes the board's decision to retire Mr. Sorrell
under "good leaver" status. That allows him to collect a long-term
share award of up to GBP20 million ($26.7 million) over the next
five years.
The votes are an apparent measure of shareholders' frustration
with how the company managed the sudden exit of the 73 year-old
founder. For years, the company insisted it had taken steps to
identify possible successors for Mr. Sorrell, only to be broadsided
by his resignation.
"Given the lack of confirmed information about the reasons for
the former CEO's departure, we do not believe we can assess whether
his termination package is appropriate," said Pauline Lecoursonnois
of Hermes Equity Ownership Services, which advises some of WPP's
largest institutional shareholders. She suggested shareholders
should vote for the re-election of the chairman, but against the
compensation report.
Mr. Sorrell stepped down after The Wall Street Journal reported
in April that WPP's board was looking into an allegation of
improper personal behavior and whether its chief executive had
misused company assets, and that the board had retained a law firm
for a probe.
WPP said at the time the allegation didn't involve sums that
were material to the company. Mr. Sorrell said then that he
rejected the allegation "unreservedly."
On Saturday, The Wall Street Journal reported the board's
investigation addressed whether Mr. Sorrell used company money for
a prostitute.
A spokesman for Mr. Sorrell reiterated Wednesday that the former
CEO "strenuously denied" the accusations and would be making no
further comment at this time. He noted that Mr. Sorrell had signed
a nondisclosure agreement that precluded him from discussing the
circumstances surrounding his departure.
It is unclear what the board-instigated probe determined, the
Journal reported Saturday. Mr. Quarta told shareholders Wednesday
that data protection laws prohibited the company from disclosing
details of the allegation of personal misconduct. He reiterated
that the allegation didn't involve sums that were material to the
company.
Mr. Quarta said WPP was required to grant Mr. Sorrell good
leaver status after the board received legal advice saying the
executive's behavior didn't meet his contract's definition of gross
misconduct.
"I appreciate that some will find this unsatisfactory.
Nonetheless, I believe that the board has acted appropriately
through this process," Mr. Quarta told shareholders.
The board treated Mr. Sorrell "just was any other employee would
have been treated in the same circumstances," Mr. Quarta added.
On Tuesday, co-Chief Operating Officer Mark Read sent an email
to staff promising to review how the company implements its code of
conduct.
For decades, Mr. Sorrell was the center of WPP's empire,
extending its reach across the globe through frenzied deal-making
that positioned him as an oracle to advertisers hungry for advice
on how to reach far-flung consumers. Digital disruption eroded that
model as advertisers began going directly to Facebook and Google to
better target consumers, using the tech giants' oceans of consumer
data.
David Herro, chief investment officer at Harris Associates,
WPP's largest investor, said he received a call from Mr. Quarta
shortly after Mr. Sorrell resigned.
"A destabilizing event has hit this company," Mr. Herro said he
told the chairman. "What's the plan to make sure that you don't
have defections of either key staff or clients?"
Mr. Quarta responded by promoting two of Mr. Sorrell's
lieutenants to run the company. Meanwhile, the chairman cast a wide
net in search of a chief executive who could straddle the worlds of
Madison Avenue and Silicon Valley. Mr. Quarta said he has whittled
the field down to a dozen candidates.
Mr. Sorrell, who didn't have a noncompete clause in his
contract, has founded a new ad firm, fueling investor fears that he
will draw WPP clients away.
WPP shareholder Paul Walker told Mr. Quarta he hopes Mr. Sorrell
"has a very good retirement and that he doesn't build his company
into too great a peanut with which to fire at the rump of this WPP
elephant."
In a recent interview, Mr. Quarta said he was unable to have a
successor in place until he had agreed a date with Mr. Sorrell for
him to step down.
"He always said to me: 'Look Roberto, as long as performance is
there, my health, my ability to do the job, as long as you and the
board and the shareholders wish me to stay, I'm staying,'" Mr.
Quarta said.
A spokesman for Mr. Sorrell declined to comment.
Even before Mr. Sorrell's departure, investors had concerns
about the health of WPP's business. In corralling rival agencies
into one holding company, WPP has allowed the agencies to operate
as fiefs for years. That structure has made it hard for WPP and
other ad giants to pool resources across the organization and slash
costs.
At the same time, clients are demanding increasingly bespoke
campaigns that will allow them to target consumers across the
internet.
"We do need to get out of the financial model that prevents WPP
from organizing our assets more seamlessly," said one WPP
executive. "Right now everyone is fighting over the same bonus pool
and no one wants to give anything up."
On Wednesday, WPP reported that revenue fell 3.4% to GBP4.82
billion in the first four months of the year. Net sales rose
"marginally" on a like-for-like basis.
Suzanne Vranica
in New York contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
June 13, 2018 11:39 ET (15:39 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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