Five things we learned about WPP’s future from its first investor call without Sorrell

WPP's joint chief operating officer Mark Read led today's results update

WPP’s new-look leadership team today (30 April) addressed investors for the first time since Sir Martin Sorrell’s departure as chief executive. What they said at the first quarter results presentation (as well as what they didn’t) offered a glimpse into what the future will hold for the company without its long-standing leader.

From the runners and riders to succeed Sorrell, to whether the business will continue with its erstwhile boss’s aggressive consolidation strategy – here are five things we learned from the meeting.

The new chief exec will not be a supreme leader like Sorrell

Sorrell may have been an autocrat – or at least perceived as one by some of his colleagues – but there is no danger of WPP’s board affording the same absolute power to his successor.

Executive chairman Roberto Quarta confirmed that both internal and external candidates are being considered for the chief executive role and that he hoped to conclude the search quickly.

But things got more interesting when he was pressed by an investor on what the implications of a new arrival would be, since Mark Read and Andrew Scott have already been elevated to joint chief operating officers and given responsibility for devising the group’s business strategy.

Wouldn’t the new boss want to create and implement their own strategy?

“Strategy is not just management’s responsibility, it is [the] board’s responsibility,” Quarta said. “And as markets have developed over the last 24 months, the board and management have had I would say lots of interaction, and what you’re seeing rolled out here is basically the strategy that we believe is appropriate for what’s happening now.

“Certainly any chief executive – and I’ve been there in my lifetime – has an opportunity to come in and give his or her view and we will certainly be happy to listen to what they have to say. But that doesn’t mean there’s going to be a second strategy. I think there will be an evolving strategy which will benefit from input from inside or outside.”

Read, who gave an assured performance for investors as he mounts his own bid for the chief executive role, stressed the point further. “We put the foundations in place and whether it’s us or someone that comes after us, [the new CEO] will build on what we’ve done but in an evolutionary way,” he said.

This new-found collegial spirit within WPP was symbolised by five managers sharing the stage during today’s trading update – finance chief Paul Richardson, chief transformation officer Lindsay Pattison, Scott, Read and Quarta. The days of the one man show are over.

There's more than one path to 'simplification'

Throughout 2017’s trading updates, Sorrell repeatedly hammered home the need to “simplify” WPP’s unwieldy structure in order to satisfy clients who are increasingly demanding more straightforward relationships with their agencies.

Accordingly, the merging of WPP brands became one of the biggest talking points of last year. It was not a defining feature of today’s conversation, however.

While continued simplification was mentioned in Read’s “preview” of his strategy for the group, he made it clear he was exploring a range of options to find new ways of servicing clients.

“I think we have to get our media and creative agencies to work more closely together,” he said. “I don’t think that means we need to merge them. We need to get all parts of the group to work more closely together and I’m not convinced that going back to the old way [of creative and media agencies operating under one roof] is necessarily the right way.

“In many ways you want media and digital to work more closely together. It might make more sense to merge a Group M agency with a digital agency than it would a creative agency. I don’t think just slamming the media and creative agencies together is going to be helpful.”

Earlier this month Publicis chief Arthur Sadoun talked up his group's ‘Power of One’ model – which gives clients access to a range of agency services but under one P&L – as one of the reasons for its successful first quarter.

But Pattison, whose transformation role makes her a key figure in the restructuring of WPP, recoiled at the suggestion that WPP is lagging behind its Paris-based rival.

“We launched the concept of horizontality – we may RIP that word [sic] – 15 years ago, so we have been leaders in that field,” she said. “I think where we are behind – if we’re being hard on ourselves – is in the narrative around that.”

Pattison did concede that WPP needs to find a more “fluid” way of bringing its 200,000 staff spread across a plethora of individual agency brands together, however.

“What clients want is access – ‘I just want access to the best people’,” she said. “We need to be more agile in how we run P&Ls at a client level. We’re looking at a range of new models.”

Creative renaissance and North America turnaround key to WPP’s financial future

With like-for-like sales down only 0.1%, WPP’s first quarter performance surpassed analysts’ more pessimistic expectations. But with group reported revenue down 4% at £3.6bn and reported net sales down 5.1% at just under £3bn, there is still much work to do to return the world’s biggest advertising group to growth.

Much of that turnaround will hinge on whether it can re-energise its operations in North America, where like-for-like sales were down 2.4% for the first quarter.

“We are still not seeing in our case a significantly improved performance coming out of North America,” said group finance director Richardson. “I think that is what we have to focus on and the key to turning around the topline performance of the business.”

Read attributed its sluggish performance in the US to “a number of issues”. He said: “Our creative agencies are more challenged structurally there. The more traditional parts of Kantar have been more badly hit in North America. A number of factors in North America mean we need to give it more focus and more attention.”

WPP faces a tough task to maintain its creative margins, which Read admitted are “under challenge” from clients keen to cut budgets. “We have to be more radical,” he said. “[Our clients] don’t want a television commercial that used to be done for a million dollars being done for $500,000, they want it done for $50,000 or $20,000.”

A Kantar sale is in play, but full breakup of WPP will be resisted at all costs

Today’s call followed a weekend of speculation that WPP’s market research and data arm, Kantar, could be about to split from its parent company – potentially as part of a management buyout. Some analysts will see this as a validation of their forecasts that the entire WPP group is on course to be broken up into its component parts.

Today there was no outright refusal from WPP's top team that Kantar could be sold – only a lukewarm appraisal of its importance to the business. “Kantar is an important source of data; it’s not the only source of data,” said Read.

His counterpart Scott was much more adamant that WPP will not be broken up. “We’ve said publicly we don’t think a break-up of the group into pieces makes sense. Our clients want an integrated offer from us and we need to have a portfolio that is capable of delivering that.”

But neither Scott nor any of his colleagues would rule out the sale of Kantar, or any other business within WPP, altogether. As Quarta put it: "We will be keeping an open-mind and will always go where the value is for shareholders, but the starting point is not a break-up. It is much too early to speculate about specific asset sales."

We won't find out what Sorrell did, or didn’t, do

Today’s session began with Quarta thanking Sorrell for his “huge contribution” towards building WPP into the business it is today. By the end, he’d had to testily bat away a question about why the company didn't make public exactly what Sorrell had been accused of.

“Martin resigned – Martin was not terminated," he said. "This came about at the end of the investigation; when the results of the investigation were known, Martin decided to resign before the board had taken into consideration the outcome of the investigation and determined whether or not it was appropriate to take action.

“We have no requirement to disclose or necessity to disclose.

“The matter surrounding personal misconduct – highlighting the word personal – is really what we consider to be a matter of privacy and therefore is a matter for Martin, and hence the reason why we did not disclose.”

So, if we're ever to know why Sorrell's 32-year reign had to come to an end, we won't find it out from WPP. For now, the holding group is getting on with what Quarta called "business as usual" as it plots a future without him.

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