The case of Sir Martin Sorrell

April 24, 2016 1 Comment

Martin Sorrell 2

From time to time the world of big business suffers a flurry of concern about the remuneration of chief executives.  Recently shareholders of the advertising company WPP worked themselves into a mini-lather about the pay of the company’s boss, Sir Martin Sorrell.

Sorrell’s annual salary is £1,5000,000.  In March this year he gained a share award of £63m, a figure likely to increase.   Since 2010 he has received more than £150m from his company.  He’s the second best paid of all executives in the FTSE 100 list of companies.  In May 2014 his ‘net worth’ was estimated as £257m.

A hospital porter, I calculate, would need to work for over six years before he or she earns what Sorrell receives in a single day.

Piles of cashSome of WPP’s shareholders raised questions about this ever mounting wealth, and in particular the formula used to calculate Sorrell’s bonus.  Aptly called ‘LEAP’ (the LEadership Acquisition Plan), this links the personal award directly to the share price of the company.  WPP’s share price has increased by 98% in the last five years.

Despite their misgivings the shareholders seem to have only limited power to alter the course of events: although they succeeded in putting an eventual stop to the LEAP scheme, it’s still in place, and Sorrell is still benefiting from it.

What’s interesting, though, is that the shareholders have succeeded in prompting a vigorous defence by Sorrell of his pay arrangements, in advance of WWP’s annual general meeting in June.  It’s worth reflecting on the grounds he uses to justify his position.

RichFirst, he says that the work he’s put in, and the risks he’s taken, in building up WPP from its small beginnings to its current status as a multinational advertising giant, justify a high reward.   Last Monday he said,

WPP capitalised at £1 million [in 1985]. Today it is capitalised at £21 billion. I’m not a Johnny come lately who picked a company up and turned it round.  If it was one five-year plan and we buggered off, fine.  Over those 31 years … I have taken a significant degree of risk. [WPP] is where my wealth is. It is long effort over a long period of time.

His second defence is to claim that his rewards are commensurate with the success of the company.  In a television interview Sorrell said,

But I continue to hold in the company, so every time the company does well, I benefit.  And, of course, a large number of other people – because I’m not the only one involved in these plans – and every time we do badly, we all suffer. So it’s geared to the success of the company. It’s pay for performance.

This, he maintains, is not just his own view, it is the common view of his Board, and the rewards are not his alone; all the members of the company benefit:

The fact is, those plans were put in place, they were voted on, they were approved. The only reason the plans have resulted in what they’ve resulted in is because the company has done well.  Over the past four or five years, the company’s market cap has grown by about £10bn. So if it’s our nostra culpa for having a successful company… I make no apologies for that. The better the results, the better the people do.

To his credit Sorrell doesn’t seem to deploy the common ‘market rate’ argument that the level of his remuneration is simply following that of his peers.  This is an example of a ‘factual’ defence of inequality. It makes to attempt to affirm or deny that inequality is unjust, it simply shrugs its shoulders and says that inequality is unavoidable.  At least Sorrell attempts a ‘normative’ view, effectively endorsing inequality as just.

WPP logoThe company’s surprisingly cluttered website gives a potted history of WPP.  In 1985 Sorrell bought a share in Wire and Plastic Products plc, which made plastic baskets used by supermarkets, and became its chief executive in the following year.  The plastics continued, but Sorrell quickly steered the business into advertising, growing in size by swallowing up larger firms.  The biggest fish to be devoured, in 1987, was the venerable US firm J. Walter Thompson.  The Ogilvie Group followed in 1989.  Essentially the whole story is one of growth by acquisition, more and more companies falling into WPP’s black hole.

This history leaves us in no doubt about who is responsible for this irresistible rise, to become ‘holding company of year’ for five consecutive years.  In 2016 Sorrell was named as ‘Britain’s joint most impressive business person, according to Ipsos MORI’s Captains of Industry survey of more than 100 senior leaders of the UK’s top 500 companies’. Last year ‘Martin Sorrell ranked No. 5 in the Harvard Business Review’s 100 Best-Performing CEOs in the World’.

But, even if it’s hard to deny the success of WPP since it was started, it doesn’t take too much thought to begin to question whether that success can really justify Sorrell’s £150m:

  • Can a company that has grown primarily through gobbling up the resources, skills and brands of the companies it has acquired really take all the credit for future success?
  • Can one man, even a powerful CEO, plausibly claim that the lion’s share of the responsibility for success lies with him?  Is it not rather shared with a large number of others working in, or on behalf of, the company?  190,000 people currently work for WPP.
  • Even if, as seems unlikely, no one else contributed much of significance towards the success, how could Sorrell be sure that it was his intellect, skill and vision alone that led to the company’s current happy position?  Was there, for example, not a large element of luck in the events since 1985?
  • Can risk-taking really be called to aid in justifying large rewards?  Is the taking of risks not an inherent part of any company’s experience, large or small, successful or unsuccessful?  Sorrell’s personal investment in WPP was small, and he owns a mere 1.6% of his company.

You could add to this list very easily.  But they are trifling considerations set alongside a much larger and more basic question, one of human justice.  Should anyone be able to acquire and hoard the kind of riches owned by Sorrell?  In other words, is Sorrell’s position compatible with a just society?

John RawlsThe outstanding thinker in this area in the last seventy years, John Rawls, tried to answer this question with his ‘difference principle’, which seeks to ‘regulate’ inequality.  Inequalities, thought Rawls, are justifiable only if they are necessary in order to make the worse off people in society better off than they would be otherwise.  Sorrell himself doesn’t claim that without his huge wealth deprived people would be less derived (he does, by the way, donate some of his wealth to charity – his own trust).  It’s much more plausible to believe that his wealth does nothing to help poor people and may hinder their chances of a better life.

Rawls maintains that in practice the ‘regulator’ of inequality is the formal machinery society collectively puts into place for that purposes: legislation and taxes, for example.  Unfortunately, the actual machinery in place, here in the UK, for example, is completely inadequate to act as any real regulator of inequality.  The Panama papers gave chapter and verse to what was already universally known, that the rich keep and increase their riches by hiding them well away from taxation authorities.  Concealed deep within WPP’s website is the address of its registered office: Queensway House, Hilgrove Street, St Helier, Jersey JE1 1ES, registered number 111714. ActionAid reports that WPP has 611 tax haven companies. The legislative route is also ineffective, since legislators normally come from the same class and hold the same outlook as those who control extreme wealth. In any case, the super-wealthy themselves have a strong direct influence on government: Sorrell has worked for the UK government in several capacities.

Extreme differences in wealth matter to everyone in society.  They give a few people a disproportionate power over the lives of others.  They undermine the ability of the state and public institutions to deal fairly with everyone.  They make it harder for poorer people to achieve the benefits and fulfilment that the rich and their children take for granted.

G A Cohen

In a book published in 2000 with the provocative title If you’re an egalitarian how come you’re so rich? The American philosopher G.A. Cohen took Rawls to task for concentrating on formal means of keeping inequality in check.  He thinks Rawls would allow far too much ‘fair’ inequality to exist, and proposes that inequality can be restrained only when ordinary people – almost all people – believe in (and operate on the basis of) what he calls an ‘ethos of justice’, ‘a set of sentiments and attitudes in virtue of which its normal practices, and informal pressures, are what they are’.  What I think he means is that the culture of a whole society can determine behaviours like wildly excessive executive pay, in a way that formal rules alone cannot.  He points to periods, like the UK in the years after the Second World War, and West Germany in the 1980s, when cultural beliefs about relative pay kept corporate greed in check, to the benefit of less well paid groups.

If we accept Cohen’s view, two things seem to me to follow.  First, that the current extreme inequalities in wealth are not God-given or driven by inexorable economic forces, but sanctioned by a large number of people in society, even if, like the shareholders, they may have passing doubts and huff and puff from time to time.  Second, that the cultural assumptions of societies can change over time.  And there may come a time when the excesses of Sorrel and his chums come to be regarded as entirely unacceptable by the vast majority, who will demand a change in their behaviour.

The most unacceptable aspect of Sorrell’s standpoint, it seems to me, is its extreme egotism.  For him, discussion of his remuneration revolves exclusively around himself and his relationship to ‘his’ company.  He does not stop to consider the contributions of others to his happy position, or his responsibilities to society in general, let alone to the most needy people within it.

Cohen has an epigraph to one of the chapters in his book from George Eliot’s Adam Bede, a quotation that sums up perfectly the moral black hole at the heart of Sorrell’s position:

George EliotMy back’s broad enough and strong enough; I should be no better than a coward to go away and leave the troubles to be borne by them as aren’t half as able.  ‘They that are strong ought to bear the infirmities of those that are weak, and not to please themselves.’  There’s a text wants no candle to show’t; it shines by its own light.  It’s plain enough you get into the wrong road i’ this life if you run after this and that only for the sake o’ making things easy and pleasant for yourself.  A pig may poke his nose into the trough and think o’ nothing outside it; but if you’ve got a man’s heart and soul in you, you can’t be easy a-making your own bed an’ leaving the rest to lie on stones.  Nay, nay, I’ll never slip my neck out o’ the yoke, and leave the load to be drawn by the weak uns.

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  1. Lyndon Jones says:

    I admire this article for the rational analysis it brings to this distressing issue. It’s worrying to see so little being done to counteract the leaching of so much money from society. Thank you Andrew.

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