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By Nick Kostov
WPP PLC is facing shareholder unrest after its handling of founder Martin Sorrell's resignation, in a sign of how the advertising giant is straining to turn the page on its former chief executive.
Shareholders attending their first annual meeting without Mr. Sorrell at the helm showed unusually narrow support for Chairman Roberto Quarta, who was re-elected with 84.5% of votes, compared with nearly 98% last year.
More than 27% of shareholders voted against WPP's remuneration report, which includes the board's decision to retire Mr. Sorrell under "good leaver" status. That allows him to collect a long-term share award of up to GBP20 million ($26.7 million) over the next five years.
The votes are an apparent measure of shareholders' frustration with how the company managed the sudden exit of the 73 year-old founder. For years, the company insisted it had taken steps to identify possible successors for Mr. Sorrell, only to be broadsided by his resignation.
"Given the lack of confirmed information about the reasons for the former CEO's departure, we do not believe we can assess whether his termination package is appropriate," said Pauline Lecoursonnois of Hermes Equity Ownership Services, which advises some of WPP's largest institutional shareholders. She suggested shareholders should vote for the re-election of the chairman, but against the compensation report.
Mr. Sorrell stepped down after The Wall Street Journal reported in April that WPP's board was looking into an allegation of improper personal behavior and whether its chief executive had misused company assets, and that the board had retained a law firm for a probe.
WPP said at the time the allegation didn't involve sums that were material to the company. Mr. Sorrell said then that he rejected the allegation "unreservedly."
On Saturday, The Wall Street Journal reported the board's investigation addressed whether Mr. Sorrell used company money for a prostitute.
A spokesman for Mr. Sorrell reiterated Wednesday that the former CEO "strenuously denied" the accusations and would be making no further comment at this time. He noted that Mr. Sorrell had signed a nondisclosure agreement that precluded him from discussing the circumstances surrounding his departure.
It is unclear what the board-instigated probe determined, the Journal reported Saturday. Mr. Quarta told shareholders Wednesday that data protection laws prohibited the company from disclosing details of the allegation of personal misconduct. He reiterated that the allegation didn't involve sums that were material to the company.
Mr. Quarta said WPP was required to grant Mr. Sorrell good leaver status after the board received legal advice saying the executive's behavior didn't meet his contract's definition of gross misconduct.
"I appreciate that some will find this unsatisfactory. Nonetheless, I believe that the board has acted appropriately through this process," Mr. Quarta told shareholders.
The board treated Mr. Sorrell "just was any other employee would have been treated in the same circumstances," Mr. Quarta added.
On Tuesday, co-Chief Operating Officer Mark Read sent an email to staff promising to review how the company implements its code of conduct.
For decades, Mr. Sorrell was the center of WPP's empire, extending its reach across the globe through frenzied deal-making that positioned him as an oracle to advertisers hungry for advice on how to reach far-flung consumers. Digital disruption eroded that model as advertisers began going directly to Facebook and Google to better target consumers, using the tech giants' oceans of consumer data.
David Herro, chief investment officer at Harris Associates, WPP's largest investor, said he received a call from Mr. Quarta shortly after Mr. Sorrell resigned.
"A destabilizing event has hit this company," Mr. Herro said he told the chairman. "What's the plan to make sure that you don't have defections of either key staff or clients?"
Mr. Quarta responded by promoting two of Mr. Sorrell's lieutenants to run the company. Meanwhile, the chairman cast a wide net in search of a chief executive who could straddle the worlds of Madison Avenue and Silicon Valley. Mr. Quarta said he has whittled the field down to a dozen candidates.
Mr. Sorrell, who didn't have a noncompete clause in his contract, has founded a new ad firm, fueling investor fears that he will draw WPP clients away.
WPP shareholder Paul Walker told Mr. Quarta he hopes Mr. Sorrell "has a very good retirement and that he doesn't build his company into too great a peanut with which to fire at the rump of this WPP elephant."
In a recent interview, Mr. Quarta said he was unable to have a successor in place until he had agreed a date with Mr. Sorrell for him to step down.
"He always said to me: 'Look Roberto, as long as performance is there, my health, my ability to do the job, as long as you and the board and the shareholders wish me to stay, I'm staying,'" Mr. Quarta said.
A spokesman for Mr. Sorrell declined to comment.
Even before Mr. Sorrell's departure, investors had concerns about the health of WPP's business. In corralling rival agencies into one holding company, WPP has allowed the agencies to operate as fiefs for years. That structure has made it hard for WPP and other ad giants to pool resources across the organization and slash costs.
At the same time, clients are demanding increasingly bespoke campaigns that will allow them to target consumers across the internet.
"We do need to get out of the financial model that prevents WPP from organizing our assets more seamlessly," said one WPP executive. "Right now everyone is fighting over the same bonus pool and no one wants to give anything up."
On Wednesday, WPP reported that revenue fell 3.4% to GBP4.82 billion in the first four months of the year. Net sales rose "marginally" on a like-for-like basis.
in New York contributed to this article.
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
June 13, 2018 11:39 ET (15:39 GMT)
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