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Sorrell’s departure from WPP could be a window for a new era, analysts say

Key Points
  • WPP's CEO Martin Sorrell stepped down on Saturday amid a misconduct investigation, leaving the multi-billion dollar company suspended in uncertainty.
  • The real question now, analysts say, surrounds whether the company has a clear succession plan or not.
  • WPP in 2017 saw its worst year since the financial crisis, and company shares dropped at the market open on Monday.
Martin Sorrell dominated WPP as founder CEO: Investment manager

Advertising giant WPP's legendary CEO Martin Sorrell stepped down on Saturday amid a misconduct investigation, leaving the multi-billion dollar company suspended in uncertainty as it faces unclear succession and a particularly rough year for its business.

But despite the billionaire businessman's 33-year tenure and what many describe as a personality-driven leadership style, analysts are suggesting Sorrell's departure could represent an opportunity for some much-needed new thinking in a rapidly changing industry.

"This can be an opportunity for for WPP to find someone to lead it into the next era," Saker Nusseibeh, CEO of Hermes Investment Management, told CNBC's Squawk Box Europe. "In some ways, Sir Martin belonged to the old style school which was finished."

"Sorrell dominated the company," Nusseibeh said, but added "you could argue he should've stepped down at the peak of the powers rather than this way."

The Hermes CEO suggested that WPP is "not necessarily a company that will eventually emerge in the future" because transformational shifts in the advertising industry call for "a different kind of company ... to meet with new markets and new methodologies." Indeed, conventional advertising companies saw bumpy performance over the last several months as disruptive tech and data-based advertising dominated traditional business models.

Questions over succession

WPP, which through a number of mergers and acquisitions under Sorrell's leadership became a global powerhouse, saw its worst year since the financial crisis in 2017 — in Sorrell's own words, "not a pretty year."

The real question now, Nusseibeh and other market observers believe, surrounds whether the company has a robust succession plan or not.

"Unless they have a succession plan already in place, they're going to struggle, and a services business will drift as they struggle," he said. "They've got to move very quickly, because they're vulnerable."

Sir Martin Sorrell
Dan Mescon | CNBC

Focusing on succession would enable WPP to focus on whether it has the governance framework to keep the company in its dominant position in advertising, Nusseibeh added, because it had been so dependent on Sorrell as a person.

Company shares were down 5.26 percent on Monday morning trading.

'Literally Mr. WPP'

But Sorrell wasn't the best at everything, argued Ian Whittaker, a media analyst at investment bank Liberum. "One of the thing that gets missed with WPP, while all the focus has been on Martin Sorrell and what he's brought to the business ... is he doesn't actually have a lot of depth when it comes to the operational management," Whittaker said.

He pointed to two names being considered for the next potential CEOs, newly-appointed joint chief operating officers Mark Read and Andrew Scott, who he described as company and industry veterans. WPP chairman Roberto Quarta will meanwhile serve as executive chairman until a new CEO is found.

"What you could get with a new CEO is, given where the WPP share price performance has been — it has significantly underperformed peers over the last 12 months by quite a considerable amount — so I'd expect that a new CEO would look to close that gap," he said, adding that one way to do this would be to sell certain company assets like WPP's market research arm, which Sorrell always staunchly defended but whose numbers didn't indicate concrete benefit.

Still, the development does leave the company's future on shaky ground. "(Sorrell's) got to be recognized," Whittaker said. "You look at how he's built that group over the past 30 years, despite last year's share price and recent news he's done a fantastic job, he's literally Mr. WPP,"

Whether WPP does well or not in this next phase depends on how smooth the transfer of power is, Nusseibeh reiterated. "And the issue they have, as with all service industries, is that all service industries depend on the leadership of the CEO, and it's not an easy thing to take that out of the equation."

London Advertising CEO: ‘Feel sorry’ for Sorrell as he quits WPP