Fresh from attending the Spring inauguration of United States president Barack Obama, the WPP Group’s Sir Martin Sorrell was recently interviewed in BBC’s famous if not controversial talk show Hard Talk. Dressed in a tailored classic pinstripe, looking very much the investment banker in his gold-rimmed glasses, he very ably addresses the core question of his interview: can a global company like WPP survive the current hostile business environment?
The truth is, the world’s wealthiest economies are in trouble. It is in the headlines on a daily basis, wherever you look: in the money markets, company profits and job losses. In fact, veteran journalist Stephen Sackur, the show’s host, darkly comments that if “today’s news is grim, tomorrow’s promises could be worse.”
A Guarded Optimism
In the interview, Sir Martin responds optimistically that the global economic slowdown, while very much real, will not be catastrophic.
“2009 is going to be very difficult,” he admits. “From my point of view, I’ve almost written it off. It’s a year to make strategic decisions and put them in place.”
“As far as ’09 is concerned, the first half is going to be tough… (but) we’re not forecasting Armageddon or Apocalypse Now. I think in 2010 the real world gets a little bit better,” he continues.
“The financial markets may recover on the second half of ’09,” he says. “I think we may be surprised by the viciousness of the recovery in the financial markets. They won’t go back to where they were but the liquidity sitting on the sidelines waiting for some more positive signals is very considerable.”
Like most political and corporate leaders, Martin is a keen supporter of the Keynesian stimulus package recommended by President Barack Obama. He intimates that at a recent symposium sponsored by the Wall Street Journal, it was estimated that more than US$1 trillion have already been injected into the U.S. economy. And nine times that amount have been funneled into a global economy that is estimated to be worth at least US$32 trillion.
“The scale of the infusion of fiscal and monetary support is so great that we will get through this crisis,” he declares.
Addicted To Growth?
By any measure, the story of the WPP Group is a case study in the creation of a global corporation.
In the mid-1980’s, Martin Sorrell made a personal investment in Wire Plastic Products (WPP), a British wire shopping basket manufacturer. Within a year, he became its chief executive officer, and embarked on an acquisition spree – a total of 18 over a three year period – of “below-the-line” advertising agencies. Before the decade ended, he would change the advertising industry landscape forever by successfully pulling off the hostile takeovers of J. Walter Thompson and Ogilvy & Mather.
As the marketing communications industry worldwide explored – and continues to do so – to bolster the bottom line, the rash of mergers & acquisitions created a few big players, each with global reach, and offering a wide array of marketing communications services.
The WPP Group stands as a prime example of the consolidation within the marketing communications industry in the past 20 years. Today, the group includes major global brands like J. Walter Thompson, Dentsu Y&R, Ogilvy & Mather, Grey Worldwide, Hill & Knowlton and Burston-Marsteller. The WPP Group counts more than 330 of Fortune Magazine’s Global 500 companies as clients.
To say that Martin Sorrell was the right man at the right time is not a cliché. He attended Christ’s College in Cambridge and received an MBA from Harvard. He earned his advertising stripes as the so-called “Third Brother” in Saatchi & Saatchi, where he masterminded Saatchi’s legendary agency acquisitions.
Establishment validation of his contribution to business and industry came in 2000, when he was knighted by the Queen of England. And in 2007, Harvard Business School awarded him its prestigious Alumni Achievement Award. A fellow honoree in that year was one of the Philippines’ top billionaire businessmen: Jaime Augusto Zobel de Ayala of the venerable Ayala Corporation.
Typical of many super-sized corporations during the heady days of the freewheeling 1980’s, WPP has seen its stock price soar and tank to near collapse. Under the leadership of Sir Martin, WPP has evolved into a leading marketing communications holding company with a global reach through its various advertising, media, information, public relations, branding, healthcare and specialist service agencies. It has a stock market value of nearly US$8.4-B, on billings of US$56-B and revenues of US$14-B.
Consolidation, of course, comes with a price, and poses ethical questions. For example, consolidation has eroded a tradition where no advertising agency worked for clients competing with each other in the same industry or category. As holding companies like WPP buy up agencies, agencies with competing clients become sister companies. The question is, how long will clients tolerate this practice?
And echoing President Obama’s sentiments that the U.S. and global economy is “badly weakened as a consequence of greed and the irresponsibility of some,” the spectacular size and growth of WPP has led to criticism that the company is “addicted to growth” and has taken too much debt to pursue its consolidation strategy. Sir Martin disagrees. According to him, he built the business in a “more conservative fashion.”
A Paradigm Shift
As a corporate entity, the WPP Group has moved its financial headquarters to Ireland, while its U.K. operations only amounted to 15% of the organization’s portfolio, prompting the interviewer to question if WPP was abandoning the U.K., implying unpatriotic motives on the part of Sir Martin.
Stephen, ever badgering, even provocatively quotes the well-known American investor
James Rogers: “The U.K. has nothing to sell. If there’s one sound bank in the U.K., I don’t know about it. The City of London is finished.”
Sir Martin responds to the statement neutrally, even as he expresses some agreement with it. The choice of Ireland as a tax domicile is a practical business decision, he spins. Staying in the U.K. would mean a reduction of after-tax profits which, in turn, means that there will be less money to invest in the country. But he worries that the problem for the West, with Western Europe and the U.K. in particular, is long-term.
“We’re mortgaging our future. We’re mortgaging the future of my kids and my grandkids,” he notes. He underscores that unless there is political and structural change, European states will be challenged by the expected massive deficits, public debt that need to be financed, inflation and higher interest rates.
He feels a little bit differently about the United States. “Never underestimate the resilience and resources and the entrepreneurial vitality of America,” he says, pointing out that in the 1980’s, the U.S. was considered in decline, only to be resurgent under the Reagan Administration.
Stephen pointedly asks if the economic problems mean that the WPP Group will actively minimize their operations in Europe. Sir Martin stresses that observers and commentators should consider “all things relative” in assessing the performance and actions of a global corporation.
He points out, correctly, that investors and shareholders alike take a look at a company’s size and relative growth rates over time. He explains his main task in piloting the WPP Group in difficult waters: “I am focusing in trying to generate the highest rates of organic growth.”
From a strategic perspective, this means identifying and leveraging shifts in the geo-political & geo-economic arenas, the growth of new media and the expanding interest in consumer insights. (WPP recently bought consumer insights giant Taylor Nelson Sofres, and has invested in South African creative shop The Jupiter Drawing Room. – Ed.) It may be straight out of business school textbooks, but management guru George David states it best: “If you don’t invest for the long term, there is no short term.”
Sir Martin also exposes an almost insular outlook prevalent in the West about economic growth. Being involved in a global business, he is aware that there are parts of the world where the economy is actually growing, which, he says is difficult for people in the West to comprehend. He identifies countries like Brazil, Russia, China and India as future market powerhouses to watch out for.
It is this reality that is now driving the business for the WPP Group. “The difficult part of running a global enterprise,” he explains, “is parts of it are growing, and parts of it are flat or declining.”
Thus, the company has to tailor-fit its response to the existing business environment. This is what many strategic management experts like Richard Rumelt refer to as con-sonance – an adaptive response to the external environment and the critical changes occurring within it.
“If you want to be a global company, by definition, you have to do business internationally,” Sir Martin says. “We’ve tried to build our business on the growth trends that are taking place.”
All things relative, it is a strategy that is ideal for the times. And for many strategic-thinking managers today, there really is no other choice but to change.
