WPP's Annual Report Calls Consultancies the 'New Competition'

Holding company WPP released its annual report for investors on Tuesday, and several insights stand out among the voluminous documents laying out the holding company's strategy for 2019 and beyond. Key among them: WPP sees consultancies like Deloitte and Accenture as key competitors, even as the latter faces a multimillion-dollar lawsuit from a client claiming that it failed to complete the work for which it was contracted. In a section labeled "Engagement in Action," leadership addresses the five most common questions asked by shareholders. They include competitive pricing, the diminished status of creative agencies, client in-housing trends, WPP losing share in the U.S. and the greatest threats facing the company in today's market. [kickout id="1"] On pricing, WPP argues that the industry has always been competitive and its approach has not changed. Creative agencies face particular challenges, it continues, because clients value their services more than ever but seek to move beyond "traditional strengths in communications." In other sections of the report, WPP lays out the ways in which it seeks to address their needs by applying the expanded data and technology assets that are key to CEO Mark Read's strategy. "While there is an increase in demand from some clients to bring our people closer to them, on-site, in-housing is not at the heart of the economics of WPP," the section continues in addressing that trend. This is particularly interesting given that many agencies say they encourage clients to take work in-house and play the role of consultants. WPP goes on to note that recruiting, training and retention is particularly difficult when it comes to in-housing on the digital media front. As an example, it states that GroupM agency Essence serves as Google's digital media agency partner and "buys the media for Google on Google." That said, the document claims that direct threats from platforms like Google, Facebook and Alibaba have been "overstated," calling them "important partners" despite the fact that they are "vying with us for talent and attention." A more important challenge, in WPP's eyes, comes from consultancies. "Consulting firms have expanded rapidly into areas in which we compete. We need to recognize that new competition, be ready for it and promote our existing consulting and technology capabilities more effectively," the report reads. In terms of WPP's performance in the U.S., the report acknowledges that the agency network has been "too slow to adapt" to dramatic changes in the region, citing the mergers of Y&R and VML and Wunderman and JWT as attempts to make up for past underinvestment in unspecified key areas. Other popular shareholder topics that did not make the top 5 list include GDPR and data privacy, Brexit, workforce engagement and diversity and inclusion efforts. Another potentially touchy subject was executive compensation. The report revealed that Martin Sorrell, WPP founder and former CEO who exited the company almost exactly one year ago amid claims that he had misspent company funds and mistreated employees, earned approximately $4 million in base salary, pension and long-term benefits for 2018, with the potential to earn far more in coming years. "The circumstances of Sir Martin’s resignation entitled him to pro-rata allocation of his remaining long-term shares schemes," said a WPP spokesperson. Yet the total was still far lower than the $19.2 million Sorrell made in 2017—not to mention the whopping $85.2 million he took home two years earlier. And the company's shareholders voiced their disapproval, with more than 27% voting against the compensation committee report. According to the annual document, "the reason for the significant vote against the report was primarily discontent around the circumstances leading to Sir Martin Sorrell’s resignation in April 2018, his contractual treatment as a retiree and the 'good leaver' treatment of his outstanding share awards." WPP will announce its first quarter earnings on Friday.