Credit: World Economic Forum

Martin Sorrell's caution is WPP's secret weapon

The ad man's menacing grey swans may have an upside.

by Adam Gale
Last Updated: 04 Apr 2016

What was 2015 like for advertising and marketing giant WPP? Well, says founder and CEO Martin Sorrell, it was a mixed bag. Yes, the company scored its fifth consecutive record year for both revenues (£12.2bn, up 6.1%) and pre-tax profits (£1.5bn, up 2.8% - or 7.3% ignoring pesky currency headwinds). But that didn’t stop Sorrell from taking a rather gloomy stance on the state of the global market.

‘The always on, Don Draperish general industry optimism seems misplaced,’ he said in his annual review. ‘General client behaviour does not reflect that state of mind, as tepid GDP growth, low or no inflation and consequent lack of pricing power encourage a focus on cutting costs to reach profit targets, rather than revenue growth. In addition, there seem to be little, if any, reasons for an upside breakout from the current levels of real or nominal GDP growth.’

Well that killed the mood. Sorrell painted a picture of company bosses squeezed between otherworldly disruptors, brutal cost cutters and menacing activist investors, all the while worrying about low oil prices, uncertainty over the Brexit vote and the impact of US Federal Reserve tightening while China slows down and Europe stagnates. His infamous ‘Grey swans’ abound.

But the story of good results in a bad market isn’t a new one. Sorrell has been saying more or less the same thing for the last five years.  Admittedly his outlook in 2014 and 2015 was less rosy than it was in 2011-13, but talk of difficult conditions and the impact of uncertainty have been constants – as has WPP’s handsome growth.

This is not, of course, as contradictory as it sounds. It’s true that WPP, depending as it does on the marketing budgets of so many other companies worldwide, does reflect broad trends in the global economy in its own results more than most businesses do. But it’s hardly unusual for a firm to outperform either the economy or indeed its own sector.  

Where it gets more interesting is considering why Sorrell tells this story. It is of course, beneficial for his company, in several ways. For a start, it obviously makes WPP look good if it manages to grow despite a challenging market. Clients aren’t likely to believe you can make them more successful if you’re not successful yourself, after all.

But more significantly, it makes it very clear that Sorrell is a realist. He admits himself that to survive in his sector, ‘you have to remain positive, indeed optimistic, seeing the glass half-full’, but that ‘general client behaviour does not reflect that state of mind’.

Those clients would surely be encouraged to know that the people taking their money in order to grow their business aren’t mindless optimists with their heads in the clouds. It pays for Sorrell to show he understands their budgetary and geopolitical concerns, because it makes the promises of his ad men and women more credible.

At the same time, the message is clear that in a overly cautious world there are growth opportunities for those businesses willing to grow profits by expanding their top line rather than relentlessly swinging the cost-cutting axe. And how would they do that? By marketing of course – ‘we naturally believe that marketing is an investment not a cost’.

This isn’t to say that Sorrell’s annual outlook is calculated. It seems very balanced and realistic, based as it is on countless conversations with other major decision makers across all sorts of markets. But sometimes being balanced and realistic just happen to help the bottom line too – there’s a reason, after all, that Sorrell waxes lyrical about macroeconomic affairs when other multinational CEOs might only offer a few bland words.

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