By Ed Attwood
The world’s most influential ad man, Sir Martin Sorrell, says the global economy is stuck in a ‘Slough of Despond’. Are there any reasons at all to be positive about the rest of 2016?
“I don’t do one-word answers,” mutters Sir Martin Sorrell as the time allotted for our interview starts to run out.
As the world’s most influential ad man, Sorrell is renowned for his quick intellect and love for the big picture. He speaks fast but incisively, often butting in to answer a question even before it is fully put to him. And, ever inquisitive, he asks almost as many questions as he answers.
So perhaps it is lucky Sorrell does not do one-word answers, because whatever he says tends to generate headlines. That is not only due to his status as the founder and CEO of the planet’s largest media agency, WPP, but also because his firm’s performance is often regarded as a bellwether for the global economy. It operates in 112 countries (after adding Cuba to its roster in July last year), has 3,000 offices, employs 190,000 staff and has a market cap of $30bn.
Companies under WPP’s aegis include Burson-Marsteller, Young & Rubicam, J Walter Thompson and Ogilvy & Mather, and earlier this month, the media giant reported a 6.1 percent rise in 2015 revenues to £12.23bn ($17.3bn), aided by an increase of 4.6 percent in net sales to £10.52bn.
Not bad for a company that started life under the trade name Wire and Plastic Products, and which was bought out by Sorrell in 1985 as a front for his plans to dominate the ad world.
During a whistle-stop tour to the Global Education and Skills Summit in Dubai last week, Sorrell soon found himself making headlines again. This time a throwaway remark about the folly of the student ‘gap year’ phenomenon resulted in news stories around the world. But the WPP boss is more normally associated with coverage either related to his prognosis on the global economy or his considerable pay packet — of which more later.
When it comes to what is going on in the world, Sorrell’s views are not exactly encouraging, despite the recent success of his own firm. And when questioned as to what his clients’ biggest worries are about the year ahead, he is abrupt.
“The uncertainty. It’s the complexity and the volatility,” he says. “Disruption forces you to want to look into the future and invest. Zero-based budgeting means you have to tear apart what you have and build it up again and in the short term investors say ‘get on with it’.
“Our compound average growth over 30 years is 14 percent on EPS [earnings per share], so we’ve done well. But it is a very difficult environment. The biggest problem — without a doubt — is getting that top-line growth and that forces clients to look at costs.
“Why was there an M&A boom last year? Effectively you have a cost platform and you want to get another platform to merge and share the costs. And share prices go up in a direct relationship to the number of people you say you want to remove from the business, which has lots of social implications.”
Is there any hope for a reprieve in the near future? Sorrell does not think so — in fact he says that the combination of slow growth, low inflation and low pricing power all lead to a “new normal” period of low growth.
“My view is we have to get used to this,” he says. “This is a sort of ‘Slough of Despond’, if you like. So when you say ‘is this year going to be different?’, the answer is ‘no’. Do I think there’s going to be a recession? No. Is there one in Brazil? Yes. Could there be one in other countries? Yes. Do I think the world? No.
“Because I think there are enough growth spots to give us what we need, which is 3-3.5 percent [growth per year]. Because if something is growing at that rate as a whole, there are sectors that are growing at 6 or 7 percent, and there are sectors that are growing at zero.”
WPP itself has certainly found room to grow over the course of the last year. It outperformed its rivals by picking up some $8.6bn worth of new business, including bumper contracts from the likes of Unilever, GlaxoSmithKline and L’Oreal. Meanwhile France’s Publicis — with whose CEO, Maurice Levy, Sorrell has enjoyed a long-running spat via the media — came out worst of the large agencies. From a geographical perspective, Sorrell’s highlights from last year include the US (“very strong, we probably now have leadership there”), China (“I remain a raging bull on China”) and India.
“The Middle East itself is patchy,” he continues. “Saudi Arabia is strong, Dubai here is strong, but with so much uncertainty and volatility it’s difficult. The oil price has put pressure on sovereign wealth funds who’ve had to pull in their investment horns and obviously government spending is top of the agenda.
“We have about a third of the market here — about 5,000 people employed in the MENA region, billings of $1bn and revenues of around $500m. We have good people, good businesses and good brands. But we’ve got to work closer together.”
In terms of strong growth markets for 2016, Sorrell again cites the US, China and India, where he thinks revenues will grow to over $600m from $500m last year.
“Despite the slowdown [in China], the irony is that the biggest increment in advertising is coming in China, the second-biggest is the US. So it’s still a G2 world,” he points out.
Other countries to receive a name-check include India, Vietnam, the Philippines, Mexico and Nigeria and — closer to home — Egypt and Turkey.
“Iran is clearly the biggest economy to open up since Vietnam,” Sorrell says, of what may turn out to be WPP’s 113th market. “It’s sophisticated, culturally strong, artistic, with very literate men and women. It has phenomenally deep roots, so it’s potentially very strong.”
The outcome of the US presidential election later this year will prove critical to the growth of the world’s largest economy. And, like everyone, Sorrell has his own views of the man of the moment, Donald Trump, the billionaire developer who looks set to wrap up the Republican nomination.
“You can’t tell what Trump wants to do. All he wants to do is ‘make America great again’ — and that’s a fairly broad platform,” he says. “All elections are won on fairly broad platforms — ‘time for a change’ was Obama’s platform — and those have always been the most powerful.
“Condoleezza Rice said he has tapped into blue-collar appeal — I disagree. You look at the audiences and these are not just the disaffected, the unemployed, blue collar workers and those with no college education. Anybody who gets 35-40 percent of a poll is not just getting that group.
“He’s tapping into disaffection and dislike. I went to Obama’s inauguration in 2008, and it was Kennedy-esque — he was the new JFK. We’ll see what history says about Obama, but most of that promise seems to have evaporated. There’s disaffection and Trump is tapping into [the aftermath of] the banking crisis of 2008.”
Whatever the outcome of the election in the US, or of Britain’s crunch decision over whether to remain in the Eurozone (“a leap into a black hole,” Sorrell says), WPP will stick to its strategy of focusing on four areas: ‘horizontality’ (a Sorrell buzzword that means getting the various firms under the WPP umbrella working closer together to benefit clients), high growth markets, digital and data. Media measurement will also be critical, Sorrell says, particularly in markets such as the Middle East. And he has encouraging words for Twitter as an advertising platform, despite the recent issues over management and the firm’s stock price. Last year, the firm upped its spending on Twitter from $150m to $250m, compared to the $1bn spent on Facebook and the $4bn spent on Google.
“Twitter, to my mind, is a PR device — it’s not a search medium, it’s not a social medium,” he says. “But I think despite the controversy around Twitter for all sorts of reasons, I think it’s very interesting from a PR point of view.”
Sorrell’s own wealth is the subject of much debate, particularly among WPP’s shareholders. The Sunday Times Rich List put his net worth at $460m in April last year — a figure that is set to expand dramatically in 2016. Reports in the UK last week suggested that his pay packet, which includes incentives and dividend matching payments added by WPP, will amount to somewhere in the region of $100m, the second-highest sum ever paid to the head of a FTSE-listed company.
That being said, there can be little doubt as to the immense amount of shareholder value Sorrell has built up over the years, and the fact that shareholder revolts are often threatened but rarely break out is testament to that. Now 71, there is still no sign that the CEO is planning to leave the firm he founded any time soon, but Sorrell says WPP’s health will always be of interest to him even after his departure.
“I’m not one of those apres moi le deluge types,” he says. “In fact there’s one fundamental reason apart from the quantitative — quantitatively all my wealth is still locked up in the company. I’m an employee at will, which means I can leave today and be dismissed today.
“People always say they want to be entrepreneurs — well, you put your money into the business. Apart from when I had to sell some stock to fund my divorce, I’ve held all my stock, so I now have something like 25 million shares in the business. It’s not options — heads I win, tails you lose — it’s a significant investment in the business, therefore you treat the company’s money as your own. I think that’s fundamental.”
Whenever it is that Sorrell finally does decide to leave, you can be sure those same shareholders will not be celebrating his departure.