SS: Sir Martin Sorrell, welcome to HARDtalk. Do you think you underestimated the damage that the recession is doing to your business, given that you’ve had to revise downward what you expect to be revenues and sales for this year?
MS: We haven’t revised anything downwards. What we said was we budgeted for -2 for the year. In the first quarter we budgeted -4, and it came out as -5.8. So it might sound semantic but we’re not giving guidance, we’re just telling people this is what our budgets are.
When we look at the results of some of our competitors, obviously it’s impacting them equally and in many cases more heavily [than us]. So I think our strategy of focussing on new markets, new media and consumer insight remains the sensible way to go. But there’s no getting away from it, life is pretty tough at the moment.
SS: People, for one reason or another, see you as a man with a good track record of prophesy on the wider economy.
MS: The problem is that if you get it right once in your life, it’s very difficult to get it right twice!
SS: Tell me what you foresee as the realistic turning point, for the Western industrialised economies.
MS: There is no doubt things are a little bit better than they were two or three months ago. I think the rally you saw in the stock market reflected relief that Armageddon probably wouldn’t happen, or that the prospects of that happening had receded. You know, in reality, I don’t think things have changed much, certainly not in the Western industrialised economies.
In Asia (with the big exceptions of Australia and Japan), it’s much more mixed. China and India continue to grow; in Latin America, Brazil continues to grow; Mexico, despite swine flu, continues to do reasonably well; Argentina defies the law of gravity. Africa and the Middle East: still pretty good given where everybody else is. Central and Eastern Europe had a good first quarter, relatively, but it must get tougher there given what’s happened – particularly in Russia with the oil prices and the rouble. There is massive government spending especially in the developed world. Do governments keep these deficits in place? Do they limit government spending? Increase taxes? Or do they inflate their way out of the crisis with the consequence of an increase in long-term interest rates? I think the latter is more likely, because of the electoral unpopularity of putting people out of work when you have to go to the country as Angela Merkel is doing, Gordon Brown will be and President Obama will have to do in the mid-terms of 2010.
SS: Does it change the pace at which you focus the business toward the emerging and developing economies? It’s been a theme of what you’ve been talking about.
MS: We think, post the recession there are three focuses: the new market (the Brics and the Next Eleven countries), new media (going beyond PC and mobile and social networking and video content), and consumer insight will become more important.
I don’t think it shifts the pace. It certainly, in our view, increases the need to focus on those areas and we do think that in the longer term those three parts of the business or those three strategic priorities will prove to be even more correct as a result of what’s going on.
SS: When I read things you write I get the feeling you’re close to giving up on Western Europe. Am I right?
MS: Giving up is too strong. What you’ve got to find are those places that are going to grow relatively fast, no matter what their size is. I think you have to admit that the likely growth areas are Asia, Latin America, Africa and the Middle East, more than Central, Eastern and Western Europe.
It’s dangerous and inadvisable to underestimate the American economy. It is 14 trillion dollars; it has tremendous resources in terms of the immigrant population, entrepreneurial abilities, natural resources, clout and size. Western Europe I think will continue to have relative difficulties.
SS: I want to look at some lessons of the financial meltdown or crisis of capitalism. Call it what you will. Increased size no longer necessarily looks like the wisest choice…
MS: If you look at our own industry, size is giving us some protection in terms of diversity, geographically and functionally.
SS: So you don’t think WPP has got too big?
MS: Obviously I’m intimately involved with WPP so Stephen I’m naturally going to be a person who says no to that! No I don’t think so. If you look at it in terms of scope WPP has to become more focused on the three areas we identified – which are the new markets, new media and consumer insights. There has to be a continuous rebalancing of those three areas, the first geographical and the two others functional.
SS: You’ve got operations in over 100 countries, you’ve got over 100,000 employees, although I know you’re shedding some jobs, where does that stop? When do you say, ‘Enough. We really have expanded as much as we sensibly ought to?’
MS: It’s obviously more difficult to expand a large company than one that’s starting from scratch. I think the answer to your questions is, as long as we continue to find opportunities it’ll be fine.
Our aim is to grow our business top line by 0% to 5%, our earnings by 5% to10% (this is all organic) and our acquisitions to add 0% to 5% each year. I don’t think those are gargantuan objectives. If we set ourselves a target of 10, 15 or 20% I’d agree with you. If the world economy does recover to 2% or 3% growth in GNP, advertising and marketing services will grow at that rate, or slightly greater given the growth of the faster-growing markets. So it’s not impossible to be in the range of 0% to 5% growth organically in your top line and improving your effectiveness and efficiency in your bottom line.
SS: On the specifics of jobs, you did announce 7,200 job losses quite recently.
MS: If you look at our announcement, last year we added 4,000 jobs. In the first quarter of this year it’s gone down by 3,000. Attrition is running at about 10% to 15% which means if you stop hiring for six months you achieve the reduction. We’ve also said that we will tailor the number of people in the business to where our revenues go. If our revenues grow by 10% the headcount will go up by 10%. That’s me being objective.
SS: Do you find it is more difficult to impose your stamp, your authority, on WPP as it gets bigger?
MS: I don’t know if it’s one way or another, obviously as something gets larger it becomes more complex, more demanding, more interesting. When we started WPP I founded it because I wanted not just to build something but to run something. It’s now [worth] six billion pounds and the other statistics you mention, so we haven’t done too badly, old boy!
SS: And the markets are well aware that your contract says you can walk away at any time you choose.
MS: A few years ago I had a five-year contract, then I had a three-year contract, then they said they wanted to go to a two-year contract, then they wanted a one-year contract. When we got to the year’s contract, I said let’s just do it at will. There are no restrictions on my side; no restrictions on the company’s side.
SS: And are you close to feeling that you’ve done what you want to do at WPP; close to thinking you want a new challenge?
MS: Founders are very different. Bill Shankly said, “people think football is a matter of life and death I can assure them it is much more serious than that.” Same thing for WPP, WPP is a matter of life and death and I can assure them it is much more serious than that.
SS: Sir Martin Sorrell thank you for being on HARDtalk