22nd April, 2018

Sorrell & Co are poor adverts for captains of industry

Martin Sorrell first took me to task in 1987, when I was a media analyst and had been quoted in The Wall Street Journal saying that WPP was a “creature of the bull market”. He wasn’t very happy with my description.

I was partly right — his advertising agency had to be rescued twice in 1992 during the recession. The shares fell from 570p in 1987 to 50p five years later. Sorrell usually leaves that bit out of the WPP story.

Nevertheless, the company recovered and he continued to make acquisitions and assemble a group of world-leading advertising agency and market research brands. The shares doubled over the decades from their previous high to the current level, so that is a performance of sorts — although hardly spectacular, given that it took 30 years.

Sorrell has been a master financial engineer, a slick self-publicist and a brilliant extractor of cash and shares from WPP for his personal account. I think he has been more of a stock market wheeler-dealer than an advertising guru. Far worse, though, he has provided damaging ammunition for the enemies of capitalism and industry.

WPP has been a case study of a supine board and executive greed. In options, bonuses and share awards he has collected about £200m in the past five years alone. His compensation at WPP vastly outweighs the packages received by any other British boss in recent times. Such largesse is impossible to justify, especially given the mediocre long-term share price performance. Consequently, his departure should be applauded by those who would promote honourable business and free markets.

The fact that he departs under a cloud because of alleged “personal misconduct” — while keeping share incentives worth £33m — only adds to the impression of a tainted legacy.

I strongly suspect that WPP will now be dismantled, since its conglomerate structure makes no commercial sense — especially in an era of media disruption.

Another public company boss who will exit shortly is Paul Polman of Unilever. He also leaves a mixed inheritance. Polman has announced plans to shift the headquarters to Rotterdam without giving adequate explanation, thereby creating a huge amount of bitterness in the nation where the business was formed in 1886 by William Lever and his brother. He is a Davos man, like Sorrell, and parades his sustainability credentials extensively. It is easy to be sanctimonious with Other People’s Money.

Polman has talked rather less about his 39% pay rise last year to €11.7m (£10.2m). Much of this was thanks to the share price going up after Kraft Heinz made a takeover bid, which Unilever’s board rejected — hardly justification for his windfall.

Unilever’s boss has said in the past that he is “embarrassed” by his salary, and would do the job even if he weren’t paid. In which case, the board are idiots for boosting his pay package to such a degree. At least it took him only nine years to double Unilever’s share price.

It is depressing when such leaders are seen as symbolic of capitalism. To me, they are overpaid corporate types who do not reflect the good side of commerce. However, there are heroes out there, and a life in business can definitely be a worthwhile endeavour, though my reasons now are different from the ones that made me choose to be an entrepreneur decades ago.

I believe you really can change the world if you start your own company. Bill Gates has once again been voted the most admired man on the planet in YouGov’s annual study. It may be his philanthropy that put him ahead of all the politicians, entertainers and sportsmen, yet if he hadn’t created a fortune through business, he would have had nothing to give to good causes.

To build a company you need to compete in the market. It involves voluntary exchange, and free will. By contrast, most transactions with the state concern coercion. Business is a wonderful route to expressing practical creativity. By achieving successful product and service innovations, the private sector has an impact on millions of people every day — it makes a positive difference.

From Steve Jobs and the Apple iPhone to James Dyson’s vacuum cleaners, to Reed Hastings and Netflix, new ideas can come to practical fruition through the magic of entrepreneurship. We need more role models like them, and rather fewer like Sorrell and Polman.