Shares in advertising group WPP closed 6.5 per cent lower on the first day of trading after the departure of chief executive Sir Martin Sorrell over the weekend, with investors uncertain about the future of the company he founded more than 30 years ago.
Earlier this month, the group announced Sir Martin was under investigation over allegations of personal misconduct regarding company assets, which he rejected “unreservedly”. On Saturday, Mr Sorrell said he was standing down as the “current disruption” was “putting too much unnecessary pressure on the business”.
Confirming his departure in a statement to the London Stock Exchange, WPP said: “The previously announced investigation into an allegation of misconduct against Sir Martin has concluded. The allegation did not involve amounts that are material.”
The Independent understands Sir Martin’s departure was prompted by the manner in which the investigation was handled, rather than the inquiry itself. The WPP boss is said to have felt ambushed by the WilmerHale lawyers called in to handle the matter, and frustrated by the leaks to various media outlets, which he believes must have come from the company board.
The market is divided on what the future holds for WPP following Sir Martin’s fairwell.
Jasper Lawler, head of research at London Capital Group, said the departure of the group’s outspoken boss had “increased the probability” that it would be broken up: “I think the way WPP is structured, it’s almost like a holding company of multiple ad agencies and for that to work you need a strong core and Sir Martin created that.”
However, Roddy Davidson, media analyst at Shore Capital, said: “It’s unlikely to be broken up. The new chief executive will conduct a strategic review I guess, and that could result in some reorganisation, but I can’t see them fundamentally dismantling the whole business.”
When it comes to finding a new CEO, Mr Davidson said while there is a wealth of talent already working for WPP, pointing to “massive, quality firms like Ogilvy and J Walter Thompson” which sit within the group, it would be wiser to go for an outside option.
“There won’t be a shortage of candidates. But I think it’s important to look at external candidates. It would do no harm to have someone with a fresh pair of eyes and an external view,” he said.
Mr Lawler took the opposing view, and said it would make “much more sense to bring in someone who’s familiar with the unique structure of the firm”, although he added that this could apply to a pool of around 20 individuals at WPP.
“The field is more open than you would expect, because there was no succession plan,” he said. “Normally, it would be in the works for five years and here you got this [departure] suddenly dropped on the board.”
This is a point on which the market is in full agreement. The lack of succession plan at WPP has “been a real bugbear for shareholders for some time”, said Mr Davidson, who accused the company of being “short-sighted” about the issue.
Meanwhile, Sir Martin is free to launch a new advertising business as he did not sign a non-compete agreement with WPP, although Mr Davidson said he would be surprised if Sir Martin took advantage of this fact, given that he is still a shareholder in the company he founded. He owns a 2 per cent stake in the firm, currently worth around £300m, which he can likely sell after the next AGM, and also stands to make £20m in share awards set to vest over the next five years, as part of his departure agreement.
Mr Davidson added: “It’s has been his life’s work and he still cares very deeply about the business. I wouldn’t have thought he feels bitterness towards the rank and file of those working at WPP.”