Why WPP Is Better Off Without Martin Sorrell

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WPP faced serious disruption to its business long before Chief Executive

Martin Sorrell

faced allegations of personal misconduct and then stepped down. His exit won’t clear away those problems, but it might set the company on the path to addressing them.

The disruption the world’s biggest advertising agency faces isn’t just about advertising’s digital revolution. It is also about the exceptional wave of major customer accounts coming up for renewal this year.

More than $25 billion worth of advertising billing from some of the world’s biggest accounts is up for review this year-a bigger wave than the last similar scramble in 2015.

Barclays

analysts have identified $10 billion of those accounts and estimate WPP’s existing share is more than $2 billion.

WPP probably needs to at least retain the clients attached to this billing for its revenues to stay flat in 2018. The group was already under pressure after a fall in last year’s revenue, excluding acquisitions. That was a worse outcome even than WPP’s forecasts for lower-than-normal growth. It has also failed to find the costs cuts that some rivals have by streamlining the routes through which clients access big ad agencies varied services.

A more radical approach is needed to remake the group. Restructuring costs could be funded by selling either some of its £2.2 billion of investments in other companies, or its Kantar market-research and data company, which doesn’t fit completely with the rest of the business, according to

UBS
.

Mr. Sorrell is a classic, if very long-lived, version of the expansionist CEO who rides a wave of acquisitive empire building. He has remained one of the highest paid CEO’s in the FTSE 100 even as WPP’s shares have dramatically under-performed. Since the start of 2017, WPP’s stock has performed much worse than both the U.K. index and international rivals.

The company’s big challenge was whether this year’s intensive period of pitching to keep clients could succeed with a CEO under a cloud. Mr. Sorrell appears to have spared the board the decision by stepping down, although with no detail on the allegations against him it is hard to know whether there was any real choice.

It was probably for the best. WPP has reached the point where it needs a leader that can come up with better ideas of how to adapt this vast machine to its evident challenges. There are big risks that WPP loses more ground while a new CEO is chosen and gets into the role. But this outcome, however it came about, may well be the right one.

Write to Paul J. Davies at paul.davies@wsj.com



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