This downturn is evidently really beginning to get on the nerves of WPP chief executive Sir Martin Sorrell. He says: “People’s expectations have shifted. Company profits were down 30 per cent in 2008, now that they were only down, say, 13 per cent last year, they are calling that good. But if profits keep falling at that rate, pretty soon you will go out of business.”
The world’s most powerful ad man is sitting in a meeting room in the group’s understated three-storey townhouse headquarters in Mayfair. From here, Sorrell oversees an advertising, marketing, communications and research network that employs 99,000 people across the world spanning over 200 subsidiaries, including some of the most famous names in the business, such as JWT, Ogilvy & Mather, Young & Rubicam and PR outfit Finsbury.
He invested in a shell company after leaving another advertising firm, Saatchi & Saatchi (where he was finance director) in 1985, buying into £1m-rated supermarket trolley maker Wire & Plastic Products. The move might have seemed strange but he used the firm as a vehicle to build an empire entirely from scratch, spending the last 25 years masterminding an endless series of swashbuckling acquisitions, which in the early days saw him make bids for firms far bigger than his.
Right from the start, Sorrell understood that top advertisers such as Procter & Gamble, HSBC, Vodafone and Ford want to deal with larger, powerful agencies with the clout to bargain hard with media owners worldwide. This intuition has paid off spectacularly for Sorrell – though in a touch of nostalgia, his firm, a FTSE 100 giant with a market valuation of £8.8bn, still makes wire baskets.
But it has not been all good times for Sorrell. The firm almost went bust in 1991 after paying $864m (£570m) for Ogilvy & Mather two years earlier, which coincided with the early 1990s recession and left it overextended with its banks. It took two years, two restructurings, and Sorrell at his most nimble, before the firm climbed out of the hole it had got itself into. Yet Sorrell is quick to point out that “WPP never missed an interest payment.”
However, Sorrell, clever and pugnacious, is just warming to his theme about the current downturn. He continues: “You can only cut costs for a limited period of time. Anybody can cut costs. The issue is how you build revenues.” He clenches his fist and adds: “Firms have to build brands, you have to earn the right to charge a premium.”
However, even in this recovery period many firms remain more concerned about staying in business rather than charging premium prices for their products or services. As Sorrell knows only too well – after entering the FTSE 100 in 1994, he is now the index’s longest serving boss – in times of crisis it is always a firm’s ad budget that gets cut first.
WPP witnessed the effect of corporate cost cutting on its 2009 results, which saw pre-tax profits fall 11 per cent to £663m, even though sales rose 16 per cent to £8.7bn. Sorrell described the year as “brutal” and was forced to cut 14,000 staff.
Around 60 per cent of the firm’s sales come from marketing services – predominantly research, which accounted for £2.6bn in revenues last year – but also from areas such as public relations and design. Just over 35 per cent of its sales come from the US. Sorrell holds a 1.34 per cent stake in the business, worth £118m.
Sorrell sees 2010 as a stable year for the ad market, with the UK general election, the June World Cup in South Africa, the US mid-terms in November and the Asian games in China the same month set to boost advertising spending globally.
For the UK the most important thing is “what happens after the general election.” He adds: “Whoever wins the election decisions are going to have to be made. And people who run businesses are fed up of waiting.”
The UK has run up a crippling budget deficit of £178bn. Sorrell says: “We all know there are going to be public spending cuts and tax rises. But we want to know where they will fall. I would prefer to see indirect taxes rise, like Vat, going up to something like 20 per cent [from the current 17.5 per cent].”
He says this prolonged political hiatus is also putting London and the City out on a limb. He says: “Uncertainty about tax rates, company as well as personal, puts London as a financial centre at a disadvantage. Human capital has never been more mobile – and that is a risk. I hope London does not blow it, though it is a worry that we will.” However, Sorrell made his own mind up about the UK’s tax system some time ago, registering the firm in Dublin in 2008 for tax reasons.
WPP is the leading advertiser in China with a 15 per cent market share, but despite Rio Tinto seeing four of its executives jailed for taking bribes, and Google pulling out of the communist state because it refused to continue to censor its Chinese web pages, Sorrell continues to be upbeat about the region.
He says: “We have not had any significant issues with the Chinese. Maybe that is because we are not as important to the security of the country as Google or Rio Tinto. You have to look at China through a Chinese lens. I have always found Chinese regulatory authorities willing to listen and learn. But you have to work within the Chinese framework. Firms have to explain the benefits of globalisation and not get into a protectionist fight with the Chinese.”
However, Sorrell will keep a watchful eye on the growth of Google, and has no problem with EU moves to look at – and possibly curtail – the US web giant’s European influence. He says: “Google is the biggest media owner in the UK. Bigger than ITV. Google is going direct to our clients and offering to write ads and book media space for them. It is trying to eliminate us as the middle man.”
He welcomes the closer tie up between Microsoft and Yahoo to rival Google: “Clients want a more balanced market.”
Closer to home Sorrell seems pretty sanguine about the new team at ITV, with Archie Norman as chairman and incoming chief executive Adam Crozier. He says: “Archie Norman, seems to have set out much of the ground before Adam Crozier arrives there. But ITV’s agenda is not radically different from [former executive chairman] Michael Grade’s who invested in quality programming and listened to advertisers’ needs. In value terms, ITV is a bit of a bargain relative to competing media. Prices have gone down to what they were five to ten years ago.”
At 65, Sorrell shows no signs of slowing down. He is said to still regularly start his working day at 6.00am. Two excellent candidates, Ogilvy & Mather chairman Shelly Lazarus and media buying agency Mindshare chief executive Dominic Proctor, are often named as potential internal successors – but in truth they are the latest in a long line of names who have come in and out of favour over the 25 years Sorrell has run the business.
Some say it will be difficult to find a successor with Sorrell’s understanding of the ad business as well as his talent for financial engineering. Others add it would be hard for the person after Sorrell to make their mark as all the major consolidation in the industry has been completed over the last 20 years.
None of these concerns bother Sorrell in the slightest. He says: “I’m enjoying myself more than I ever have done. I am happy to do the job until the board taps me on the shoulder and tells me it is time for someone else to have a go.”
Meanwhile, Sorrell is very much concerned with the here and now of the business. He says: “I’m a micromanager, and unashamedly so. What’s going on inside the business is important. If you withdraw yourself from that, it is very hard to get back into it.” On that note, Sorrell, a BlackBerry adict, makes his goodbyes and heads to his next meeting; after an hour talking to us, he is anxious to “get back into it.” One thing is sure: there is no stopping him.
CV | SIR MARTIN SORRELL
Work: 1968-69 Glendinning Associates; 1970-74, worked for Mark McCormack, who founded sports agency IMG; 1975-77 personal adviser to food entrepreneur James Gulliver; 1977-85, Saatchi & Saatchi; 1985, invested in WPP, became chief executive a year later
Education: Christ’s College Cambridge read economics; Harvard, MBA
Family: Married to his second wife, three sons from his previous marriage
Lives: Lives between London and New York
Hobbies: Skiing, sailing, cricket