Much is made of the fact that Paul Richardson works in the shadow of the man who created the industry profile of the sophisticated finance director—and who used those skills to assemble his own global empire. While his counterparts at Omnicom and IPG follow in the footsteps of long-serving, well-regarded predecessors, Paul Richardson works alongside WPP Group’s original master of the balance sheet, Martin Sorrell. While Sorrell grabs the headlines with his deal-making, Richardson, his hand-picked numbers expert, quietly makes the financial machinery run at the London-based company.
“At WPP, we have a natural division of labor that works very well,” says Richardson, 44. “Martin enjoys M&A and is fantastically good at it. My background is tax and treasury. I’m technically very strong.”
In the early ’90s, Sorrell tried twice to woo Richardson away from his job as deputy treasurer at Hanson PLC, the one-time conglomerate now focused on building materials. In late 1992, Richardson joined WPP after the holding company’s do-or-die refinancing. As the economy stumbled a decade ago, WPP found itself struggling under the weight of convertible preferred debt incurred with the 1989 acquisition of Ogilvy & Mather. Sorrell convinced his banks to support him, instituting a debt-for-equity swap, with those shares going to the banks. As a result, Richardson found himself working under “pretty tight” margins pre-ordained by the banks.
WPP began implementing initiatives that are serving it well now. It restructured its employee compensation model, for instance, shifting it to a more flexible incentive-based system using bonuses, freelance talent and consultants. In 1992, those variable costs were just 3.5 percent of revenue. By year-end 2000, they were 7 percent.
WPP has rewarded the faith of its shareholders, becoming one of the best-performing stocks in the FTSE 100 during the past two years. Unlike during the last recession, the company doesn’t have a significant amount of debt. And diversification into areas like market research has helped offset ad spending declines.
Last week, WPP reported a 35 percent gain in revenue, to $5.8 billion. And following a restatement of 2000 earnings-per-share numbers, WPP posted a 1.7 percent increase, to $2.20. However, the company says that “on a like-for-like basis, excluding acquisitions,” 2001 revenue was down 3 percent and gross profit dipped 4 percent.
The company says it refuses to take the kind of charges related to severance and restructuring costs that could boost margins. (Still, it took a $102 million write-down in its technology investments.)
“In 2001, we’ve tried to deliver our 2000 operating margins of 14 percent on flat or negative revenue. We’ll do that without taking exceptional charges,” says Rich ardson. “If we took an exceptional charge of $50 million, we could claim 15 percent margins. It’s a matter of cash profits vs. accounting profits. ”
In optimistic adland, WPP has been un usually blunt in its appraisal of the economy. As early as November 2000, it was warning investors of a slowdown and making conservative forecasts. By the first quarter of 2001, when many still thought America’s economic woes were an isolated hangover following the dot-com bust, WPP saw larger consequences. “We were saying the government is putting its head in the sand,” says Richardson.
Its honesty has garnered fans on Wall Street. “WPP has done an extremely good job managing expectations,” says Merrill Lynch analyst Neil Blackley.
The $4.7 billion acquisition of Young & Rubicam in 2000 has been WPP’s largest transaction during Richardson’s tenure. The subsequent exodus of Y&R clients and execs has drawn criticism of the deal. Richardson shrugs off detractors. “We knew there would be bumps in the road and it would take two years to get things in order,” he says.
Richardson seems unfazed by the challenges arising from WPP’s bid for Tempus last year. WPP contended the events of Sept. 11 made the previously agreed price too high. It took its case to the U.K.’s take over panel but was unable to back out of the original bid. “We believe there was a material adverse change and we had to act on behalf of our shareholders,” Richardson says.
Richardson’s unflappable style makes him well liked. “He’s an extremely personable, honest, straightforward kind of bloke,” says Rupert Howell, CEO of Chime Communications, where Richardson sits on the board. “He’s not what you’d expect of a financial person, where you expect a Rottweiler.”
Trained as a CPA, Richardson cut his teeth in pharmaceuticals at a company that was eventually absorbed into GlaxoSmith Kline. In 1986, he joined Hanson. For the next six years, he evaluated international debt and capital markets that provided funding for many of Hanson’s acquisitions. Rich ardson proved a quick study when he applied his experience to marketing communications. “WPP’s emphasis is to add value to either our clients or people within the organization,” says Sorrell. “The role of CFO is very much critical to that.”
Richardson, who resides in London but has lived in Italy, Germany, Holland, Denmark, Switzerland and Spain, doesn’t mind the extensive travel his job demands. Trips to far-flung offices give him the chance to find ideas for new space efficiencies. “Space is our second-biggest cost, after salaries,” he says. They also help him understand WPP companies at a grass-roots level. “With all the hardness you need to bring to that job, he also makes the effort to understand issues at the operating companies so he can help them flourish,” says WPP strategy director Eric Salama.
That operating style, which softens preconceptions of what a finance director can be, may stem, in part, from Richardson’s love of rugby, a game not as popular in England’s football-mad culture. “The difference between rugby and soccer is this: Soccer is a gentleman’s game played by thugs,” he says. “Rugby is a thug’s game played by gentlemen.”
The Moneymen: Paul Richardson
