UK: THE DAVIDSON INTERVIEW - MARTIN SORRELL.

UK: THE DAVIDSON INTERVIEW - MARTIN SORRELL. - Having built a huge empire of over 40 separate companies and bounced back from a collapsed share price and $1 billion debts, WPP's boss has proved his worth. Now what some are questioning, says Andrew Davids

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Last Updated: 31 Aug 2010

Having built a huge empire of over 40 separate companies and bounced back from a collapsed share price and $1 billion debts, WPP's boss has proved his worth. Now what some are questioning, says Andrew Davidson, is whether he can really manage a people business.

There are a number of theories about Martin Sorrell, founder and chief executive of WPP, the £1.5 billion-revenue marketing services group.

Determined empire builder, brilliant financial brain, wily survivor: all have been entered on the credit side of his personal balance sheet.

Other descriptions have not been so flattering, casting him at times as something of a ruthless number-cruncher, ill-at-ease in an industry which prizes creativity, and intent solely on squeezing maximum financial rewards out of his company's rather mixed fortunes. Absolutely unfair, of course, but that's the press for you.

'I suppose I have got a bit cynical about it,' grins Sorrell, looking tanned and relaxed on a warm spring morning, sitting in shirtsleeves in his first-floor Mayfair office. 'Once you have written the good story, there is only the bad one left to write. A couple of years of profits and I become a visionary again.' He shrugs. 'I'm not moaning. It's part of life.'

Life, as you might have guessed, is being rather good to the 51-year-old WPP boss at the moment. Last year's buoyant profits - the fourth straight year of improved results at WPP - have been followed by some sparkling first quarter figures this year, showing strong revenue growth in the US and Asia Pacific. The core ad agencies in his empire, J Walter Thompson and Ogilvy & Mather, seem settled, custom market research is booming, costs generally are down, margins are creeping up, the group's large debt is being paid off. Apart from a little flurry in the British papers about the size of Sorrell's performance-related pay package, which could net him around £18 million worth of WPP shares over the next three years, publicity has generally been positive. Indeed, as we speak, Sorrell and I are dwarfed by a massive piece of silverware sitting on the table in front of us, the size of the FA Cup, his trophy apparently for winning Publicity Club Man of the Year. Not quite the greedy goblin of adland legend, then?

Not a bit of it. Sorrell, you suspect, has always rather suffered in comparison with the flamboyant characters who have traditionally dominated advertising. He is not, as his old employer Mark McCormack wryly puts it, 'a glad-handing' sort of person, and as an owner renowned for slashing perks and squeezing overheads, he was never going to be a popular figure inside the advertising business. But now even his critics have to admit that with his empire - which nearly imploded prior to its financial reorganisation in 1992 - hitting its financial targets, and with old rivals like Maurice and Charles Saatchi (also previous employers, of course) having to start from scratch once more, Sorrell looks in a pretty powerful position again.

So why then, do doubts still remain?

Possibly, as Sorrell himself admits, it is a legacy of the number of people who still feel let down by him. Like those who found the value of their WPP shares slumping from £11 to 26p between 1987 and 1992, for instance. They question whether he has the right mix of companies run from the right place; whether he can ever effectively integrate them with the right vision; and whether you really can run a creative people business as a massive, publicly quoted multinational.

If this all seems a little tough on a man who has built up a huge empire with over 40 separate companies employing around 20,000 staff worldwide, you have to remember that Sorrell has made his fair share of enemies in the past. Perhaps it's his intellect. Sorrell is, by reputation, fearsomely bright, occasionally acerbic, not particularly gregarious and determinedly fascinated by the intricacies of managing big business. He has also remained remarkably untarnished by the glamorous superficialities of his industry.

The upside of this is that his overviews of the marketing services sector in past WPP annual reports have been models of sharp analysis. The downside is that some have perceived him to be too clever by half, and in negotiation, something of a slippery customer. One advertising executive described doing a deal with Sorrell as 'like trying to stab a dolphin with a banana'.

Yet it has to be said that those who take the trouble to get to know him are usually hooked for life.

He is a short man, dapper, with a large head and wide features. His nose is a bit blobby and askew, and his face carries the odd tiny scar, legacies of an early car crash when he went through a windscreen aged 18 and had to have extensive plastic surgery. His oldest friend, Simon Schama, the historian, who was Sorrell's classmate at Haberdashers' Aske's School in north London in the early '60s, has said in the past that the incident changed Sorrell's life, making him determined to succeed. But Sorrell himself is not so sure. 'I don't think it changed anything. It was just rather painful.'

His quiet pragmatism is reflected in his office. He runs WPP from a little, two-storey, backstreet building just behind a Westminster Cleansing depot in Farm Street off London's Berkeley Square. It is very low-key, more suited to a small agency than a multinational HQ. Sorrell's own office, in a corner above the entrance, has been enlarged over the years, giving him more windows, and more space for all his paraphernalia - photos, books, papers, presents and advertising gismos - but it is hardly huge. He is thinking of doing away with it altogether and going open-plan with his staff.

He works that way in New York, where the real heart of WPP and the whole marketing services industry lies. Which leads to the obvious question: why stay here at all? It has long been speculated that were he to be run over by a bus, an American would immediately be appointed in his place.

Shouldn't he decamp? He answers bluntly that he is not quite sure. 'You're right to raise the question. The importance of America in all this is colossal. O&M is run from New York, JWT is run from New York, Hill & Knowlton (WPP's PR subsidiary) is run from New York, the only ones that aren't are the market research companies. I think an hour of my time would have greater marginal value in New York than here but ...'

But the home ties - he likes his cricket - and the fact that US shareholders are still thin on the ground at WPP mean that it is likely to remain a British company for some time yet. And, he adds with a grin, 'We have very strong operational management. Maybe they feel the less time I spend in New York, the better it will be.'

False modesty, of course. Everyone knows that Sorrell is famed for being as financially hands-on as a holding company boss can be. His style is to let his chiefs get on with it but control them through their own finance staff. Hence nearly all the senior financial executives in the operating subsidiaries tend to come ready-trained from head office. Sorrell himself is constantly on call, going through the figures.

He ascribes much of his motivation to his back-ground, saying he always wanted to run a big business. His grandparents were Russian Jewish immigrants.

His father was a successful businessman in his own right, running the retail division of the old Firth Cleveland group, which owned 750 stores and names like Civic and Broadmead. Sorrell himself was an only child, perhaps doubly loved because an elder brother had died at birth.

He probably got a few leg-ups from his father when he started. He was offered, for instance, a Marks & Spencer scholarship to attend Harvard Business School after Cambridge. He declined and borrowed cash to pay his own way. He then worked for a host of stars-to-be - Mark McCormack, James Gulliver, the Saatchi brothers - before the male menopause (his description) struck on his 40th birthday and he decided to be a big wheel himself. If that sounds rather impulsive, those who know the man say it probably wasn't. Sorrell looked, learnt and then leapt.

The rest is all well-known business history. While still finance director at Saatchi & Saatchi, he bought a nondescript but publicly quoted wire basket manufacturer, Wire and Plastic Products, Pennypot Industrial Estate, Hythe, Kent. Investing '£300 or £400,000 in 1985', he then bought a number of small below-the-line agencies, offering the owners earn-out deals with a mixture of cash and WPP shares, a technique he had learnt from the Saatchi brothers. After that he just kept on buying, finally pulling off the coup of snaring famous old J Walter Thompson. In 1989 he mortgaged the empire up to the eyeballs to buy rival agency Ogilvy & Mather, and the downward slide began.

Inevitably, when recession struck, critics accused him of hubris and folly. But Sorrell is a survivor. He survived the slump in his share price, after profits collapsed, and he survived two restructurings of his $1 billion debt, when WPP was to all intents and purposes bust. A witness of Sorrell's performance at the time says it was brilliant. He always kept himself at one remove from his own negotiating team, stayed out of the nitty gritty and hence never allowed himself to be pinned down by the banks until he got what he wanted.

Sorrell has repeatedly survived calls for his own head to roll while continuing to pay himself rather large salaries and benefits, something which eventually brought down his old rival Maurice Saatchi. And now, to the astonishment of many outsiders, WPP has bounced back from its debt problems faster than anyone thought possible. (The deal that was eventually done swapped some of the debt for equity, and the banks finally sold out their stakes last year. WPP's biggest shareholders currently include Fidelity, Provident Mutual and Clerical Medical.) Now Sorrell is starting to reap the rewards of keeping a clenched grip on his seat for all that time, and has emerged from interview purdah with a rather large smile on his face.

Yet he knows some have still to be convinced. Now the debt's been sorted out, what he is focusing on, he says, is 'adding value', both to clients' businesses and to his staff's careers. This can, of course, sound rather glib but the two areas are crucial for a creative business like WPP: keeping clients and key people happy is about as close to the bottom line as you can get.

Keeping clients happy is, you suspect, the easier side of the equation.

Everyone acknowledges that WPP runs big clients well. Its top 10 - Ford, Unilever, IBM, Philip Morris, American Express, Warner Lambert, Kellogg, Nestle, Eastman Kodak and Mattel - include six multinationals which have had 50-year-plus relationships with companies now in the Sorrell empire, often spanning not just media advertising but market research, public relations and design as well. They like the institutional quality, as Sorrell puts it, of WPP; they also like Sorrell himself, as was proved by the way they stuck by him during the debt crisis. For them, to prosper is to grow, and to grow they have to move into new markets; to do that effectively, they like to work with people they trust.

More difficult, as everyone running a creative company knows, is sorting out the people side of the business. As in management consultancy and investment banking, retention of key staff can mean a difference in income of millions of pounds. Look what happened, says Sorrell, when the Saatchi board was stupid enough to push out the agency's founder. 'They said the clients and employees thought it best for Maurice to go, but from what we have seen since that was not the case.' Instead, a lot of business walked out the door.

Of course, there are those who argue that this is why you cannot run people businesses as large, publicly quoted vehicles since the conflict between rewards for key staff and returns for shareholders are too big.

And it's interesting that when asked which companies he thinks are the great people businesses, the ones Sorrell cites - Arthur Andersen, McKinsey, Bain, Goldman Sachs - are all partnerships. Later he expands the list to quoted giants like Microsoft, Citicorp, JP Morgan and others, and says that the partnership point was more valid 10 years ago. Now the need to raise cash easily for expansion means it is barely an issue.

Even so, there have been creaks and groans at WPP as Sorrell has worked since 1991 at reorganising the incentive systems within the group. A recent Harvard Business School paper on WPP, which estimates that the top 5% of the group's managers represented 20% of the staff costs just two or three years ago, details how salaries have been slashed and a bundle of new measures introduced: annual bonuses based on capped percentages of target operating profits, incentive programmes tied to the value of operating companies, share ownership plans. The changes, says the HBS paper, met with great hostility, but few staff left, possibly because trading conditions for everyone were so tough in the early '90s. Sorrell has also initiated an aggressive recruitment scheme to snap up the best business school graduates.

Yet there are some ironies here. The paper respectfully notes that Mr Sorrell was originally not a great believer in incentive schemes. An interesting point, given Sorrell's own reward package, a five-year programme that guarantees him an £18 million mountain of stock should the WPP share price hit four pre-ordained targets by 1999. Sorrell appears to have undergone a conversion on a par with Saul on the road to Damascus. What happened?

'It was very simple from my perspective,' he says. 'We had gone through a difficult time, I was approaching the magical age of 50, and I sat down and said to myself and others that I wanted to commit myself to the business for the next however many years it would be. I had always seen what I was doing, when I had my attack of male menopause at the age of 40, as an entrepreneurial opportunity. I was prepared to make the very significant investment, in my terms, of $3 million, in 1994, but not at a bottom locker price. I took the idea to the remunerations committee and said, "I am prepared to make this investment, can we develop a programme that will be subject to very rigorous success criteria on the back of this $3 million investment?" I am not aware of anyone else on this side of the Atlantic or the other who has done that sort of thing.'

Clearly Sorrell's birthdays are worth watching. But on a pay package worth about £1 million a year, does he really need much more to bolster his commitment? Sorrell never blinks. 'I think there are degrees of commitment.

If you look at research, firms where there is a strong link between management investment and control, tend to do better.'

Yet some would note he was doing pretty well anyway at a time when most WPP shareholders were lucky to get a dividend at all. Although habitually reticent about his family life - he has three grown-up sons, one of whom works for Goldman Sachs - Sorrell does admit he has houses in north London and the south of France, as well as a flat for skiiing holidays in Switzerland. He already had 2.5 million shares in WPP when he thought up the new scheme. Was he suddenly caught short? He laughs.

'No, it's a measure of success, isn't it?' Does he need one? 'I think everybody does,' he says. 'One of the things high achievers need is measurement.

It's instant feedback.'

Or instant public relations disaster (another irony if you happen to own one of the world's biggest PR firms). Even some in the City thought the potential rewards were pitched too high. His point is that the targets he has to meet to get the stock are tough, and if he doesn't hit them, he gets nothing. To hit the targets - the biggest of which is a share price of 304p (which has to be hit for at least 60 consecutive days by September 1999) - WPP would have to show compound annual growth over a five-year period of around 22.5%. To do that over the past five years, it would have to have been in the top five FT-SE performers. So if he achieves that everyone, especially the shareholders, will be happy, a point which won the day when the package was voted through at an extraordinary general meeting last year.

The final twist is that the publicity about the scheme appears eventually to have worked in WPP's favour. 'I think it's actually attracted a lot of people into the shares,' says Rupert Faure-Walker, director at HSBC Samuel Montagu, which advises WPP. 'People have taken a look and said, "Goodness, if the chief executive doesn't get anything unless the shares outperform the market, we're having some too".' Consequently the shares have shifted from 115p to 200p in little over a year. Faure Walker adds that the idea Sorrell has poorly served his shareholders in the past is a myth too. Even people who bought WPP shares at their peak, so long as they subscribed to all subsequent offers and issues would now be seeing a profit on their investment.

But does this kind of pay scheme represent the vision that others in marketing services say Sorrell has to provide for his group? Even the Harvard paper on WPP, which is a tad uncritical, contains an interesting comment from Charlotte Beers, chairman and chief executive of O&M Worldwide.

She maintains that while Sorrell looks like someone who could capture your imagination and lead you, he has never quite taken that role at WPP.

And, she continues, no one articulates a vision and gets anyone to follow it unless there's an individual behind that vision. In other words, running WPP as an anonymous financial brand, as Sorrell has always wanted to do, keeping his own profile low, just may not work in this type of business.

For his weakness - if you can call it that - is that he is very unwilling to reveal too much of himself to anyone. He is, for instance, pretty sensitive about his family background. When I ask just in passing what the old family Russian surname was, he refuses to say, and when I say, well, at least tell me when your grandparents first came to England, he cuts me dead.

'They arrived 10 minutes after yours,' he snaps. He changes the subject, makes a joke and you forget.

The chances are he has listened to what has been said and we may now see rather more of Martin Sorrell leading from the front. Indeed, on my visit, there was an interactive audiovisual screen on trial in the Farm Street reception which actually features film of Sorrell introducing the WPP group. This, from a man who is not photographed in his annual reports, is quite something.

'Oh, I'm just a failed wire basket manufacturer,' he jokes to me later.

Pull the other one. My guess is that Sorrell's tenure at WPP is at a rather interesting point, and that his real challenge - managing rather than building the group - is just beginning.

Biographical Notes

1945 Born 14 February

Educated at Haberdashers' Aske's, north London; Christ's College, Cambridge; Harvard Business School

1968-9 Consultant, Glendinning Associates

1970-74 Vice-president, Mark McCormack Organisation

1975-77 Director, James Gulliver Associates

1977-86 Group financial director, Saatchi & Saatchi

1986-Chief executive, WPP

What People Say

'He's a hands-on, highly motivated individual, tough, very able and a very hard negotiator.' Andy Bruce, Head of Credit Risk Management, BZW

'He has a phenomenal memory for people and events and that rare combination of great intellect and modesty with absolutely no hint of arrogance.' Rupert Faure-Walker, Director, HSBC Samuel Montagu

'Doing a deal with Martin is like trying to stab a dolphin with a banana.' Anonymous advertising executive

'Where I come from there are lots of phoneys, who are charming and glib.

Martin's not easy to get to know but when you do, he's very warm and humorous.

He's extraordinarily bright but not what you would call a glad-handing people person.' Mark McCormack, one of Sorrell's first employers

'The leader should lead by example. I don't think this is a good example for the managers in the group.' A small shareholder protesting at Sorrell's controversial pay package

'His commitment to the success of the group is of a kind that only the founder can experience.' Gordon Stevens, WPP's non-executive chairman.

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