Any business handling millions, sometimes billions, of other people’s money on ultra-tight margins is open to fraud, indeed it may be tempted to try itself.
The former boss of WPP’s media operation (GroupM) in China has been sentenced to life imprisonment, accused of masterminding a $176m scam. Two others have also received stiff sentences. The Chinese judicial system is hardly famed for its transparency but WPP has been careful to distance itself from the three employees. Its business in China, hardly a surprise, has been hammered.
That isn’t the only cloud on the horizon though. Over in NYC there’s what’s being termed a $100m ‘whistleblower’ lawsuit from Richard Foster, one-time head of GroupM’s Motion Content Group (whatever that was) alleging that WPP fired him for raising concerns that WPP’s trading division used client spending power to secure cash rebates and volume-based discounts from media owners, illegally retaining profits rather than passing them back to clients. Ring a bell?
Also in NYC, there’s a class action by angry shareholders claiming the company failed to appraise them fully of the collapse in profits last summer which, ultimately, led to the departure of CEO Mark Read. Making overly-optimistic noises can be costly.
Finally (and there may of course be more) WPP is involved in a long-running dispute in Kenya with the founder and former CEO of WPP Scangroup Bharat Thakrar alleging that WPP, among other things, has been using Scangroup money to prop up the holding company, to the detriment of Scangroup. It’s redolent of other far-flung WPP disputes including its agencies in Australia.
Now WPP may deal with all these issues and emerge smelling of roses but they surely affect its ability to trade its way out of current problems. They must be especially galling for all those people at Ogilvy and VML who have just notched up a stellar Cannes Lions, seemingly doing a great job for their clients despite all the noise (and worse) around them.
WPP’s biggest problem – in a competitive field – is debt, around £3bn against a total company value of £2.64bn. New CEO Cindy Rose’s first job is to reverse these positions. But it’s hard to see what else she can sell to do it. It’s already sold out of research (Kantar) and PR (FGS Global) without making much of a dent in the debt. That in itself is something of a puzzle.
Then there’s what we might politely called proprietary media trading (or broking), the smokey activity behind many of the above issues, including China where media deals seem to have been carved up in a Shanghai poker game. Almost certainly more such cases will emerge, partly because no-one seems to know whether it’s legal or not. The US courts may help us out.
This Cannes Lions should be a turning point for WPP. But there’s still a lot of old baggage lurking in the undergrowth.
