WPP fights to make money in the new world of digital media
There are lessons to be learnt from the ads for PPI mis-selling claims
Martin Sorrell frets that brand owners are cutting back on advertising. Well, he would, as boss of WPP, the world’s biggest advertising holding company with businesses such as such as J Walter Thompson and GroupM. The carnivores snapping at the heels of the big herbivores have encouraged the likes of Procter & Gamble and Unilever to look to the bottom line — and spend less on promotions as a quick fix.
We are, he complains, all short-termists now. The average big US company is paying out all its profits in dividends and share buybacks, and its CEO lasts less than seven years. As he puts it: “Management is abrogating responsibility for reinvesting retained earnings back to share owners.”
Well, up to a point, Sir Martin. Most major companies seem in rude financial health while Amazon’s hugely successful no-profit business model is about as long term as commerce ever gets. Besides, worries about short-termism go back even further than his 31-year reign at WPP; they can be found in the Harvard Business Review in 1980, which argued that US companies were eating their seed corn.
WPP’s bigger worry today is how to make money in the brave new world of digital media, to get past the robot eyeballs and reach the human viewers. Yet this is not impossible. The ridiculous campaign to encourage still more claims for PPI mis-selling (a sort of QE for the masses) has encouraged 1.2m visits to the Financial Conduct Authority’s website. We do notice ads — if there’s something in it for us.
Killing ’em with information
HSBC rounded off the bank reporting season this week. Its statement runs to 58 pages — and that’s just for the third quarter. Some inside the bank, and even a few outside it, may understand the tsunami of information but for most of us the words might as well have been written in mandarin, which would at least allow HSBC’s millions of Chinese customers to be baffled in their own language.
Shareholders might worry that the bank’s common equity tier one ratio fell slightly, or that IFRS9 will shave a little more off next year. They might value “management’s view of adjusted revenue” or the “transitional own-funds disclosure”, but above all, shareholders need confidence that advances will be repaid. So when finance director Iain Mackay says he has $10bn of “excess capital” looking for a home, they should pay attention.
Excess capital is a comfort to the bank’s supervisors and a terrible temptation for a banker. Sibley’s Law says that you know what a bank will do with too much money, even if you don’t know which wall it will water with it. For HSBC, handing it to the shareholders appears to be something of a last resort.
The latest dividend gets only a passing mention (it was declared last month) and the board is merely “confident of maintaining this level”. There’s also a share buy-back programme to help mop up those shares issued to holders who opt for scrip instead of cash, and to provide fees for the bankers’ bankers.
In the bad old days when banks did not disclose profits, the level and direction of the dividend was the best guide to what was really going on in the marble halls. It’s not immediately obvious that today’s mind-numbingly detailed disclosure is much better.
When Peace reigns
Is John Peace a sell signal? Not so long ago he chaired three FTSE 100 companies, in defiance of the compliance police. He’s now down to one, the rather accident-prone Burberry, which this week announced the departure of Christopher Bailey, the design guru whom the rest of us could see wasn’t cut from CEO material.
When Sir John took the chair at Standard Chartered in 2009, the bank appeared to have sailed through the banking crisis. It turned out merely to get into the mire later and, as this week’s results showed, it’s still struggling to get out of it.
His third chair was at Experian, the credit-checking business whose database has not yet been hacked. He stood down three years ago, since when the shares have done rather well. Perhaps there’s something to be said for rationing FTSE chairmanships, after all.