 and a warm welcome to Davos and the cold air of Switzerland, the hot air of the World Economic Forum. A one-on-one, a new format where it is hoped that we will get up close and personal with our guest. Now, if you don't know who Samartin Sorrel is, then you're probably wondering why you're watching or in this room. As the CEO of WPP, the largest advertising consulting group in the world, Martin is, for me, best known for coining the phrase, Davosian language. What did you mean when you said once in an interview you wanted to get away from Davosian language? Confusing. What is it, rational dynamism? Resilient dynamism. Dynamic resilience, I don't know what it is. But I think what Klaus is trying to do, and only quite rightly, if you strip away this verbiage, is to try and create a slightly more optimistic environment because post-Layman, so Layman was what, September 12, 13th of 2008. So for five years we've been struggling, certainly the Western economies have been struggling, with the implications and the results of a subprime crisis, insurance, monoline crisis, which then metastasized into Layman. Well, Bear Stearns and then Layman. So I think really what we're trying to do is to shake the Western economies out of their lethargy, and as we touched on just before we came on air, this issue, for example, of youth unemployment, which is probably socially the most powerful issue we have to do, the most important issue we have to deal with, getting that money to work, getting clients so that we deal with, out of the mentality of uncertainty, because they don't lack confidence, Richard, because the difference between now and September 2008 is their balance sheets are strong, they've got $2 trillion sitting on their balance sheets, relatively unleveraged, but they're unwilling to put it to work in the environment which we operate in. So what Klaus is about is saying, let's try and up the confidence index and reduce the uncertainty index to get it going. Is that justifiable to increase the confidence index? At a time when only yesterday PWC's CEO survey showed, CEOs are actually falling in confidence levels. Well, it's very difficult because, you know, I went to China with Hank Paulson and seven other CEOs to what was effectively the Harvard Business School of China, the Shanghai China Advanced Leadership Program, and what was noticeable, and we were with SASAC. So SASAC is the government-holding company, 40 companies, $2.39 trillion, I think, of combined turnover. So these are big, big bananas. And what the Chinese are saying, it's very difficult to run a company with a state shareholder and conservatism, and what they want is more freedom. What Western CEOs face is a more regulatory environment, rightly or wrongly, I'm not arguing about that. And what they face is more restriction and more uncertainty and more concern about the future. Average life of a CEO worldwide is about, I think, three years. How long have you been CEO? Longer than that, 28 years. But I'm an exception and probably that proves the rule. So an average life of a CEO in America is about four and a half years. Average life of a chief marketing officer in America is two years. So in that uncertain environment and with boards, who'd want to be non-executive director of a company, the risk-reward ratio is totally out of kilter. Generally, people are very conservative in this economic environment, being harangued by Richard Quest on CNN. The last thing you want to do is to take risks. So it's shaking people out of it. So the irony about that Chinese conversation is it's like ships passing in the night. The Chinese are becoming more entrepreneurial and we're becoming less entrepreneurial. So I think getting a little bit more entrepreneurial vigor to deal with issues such as youth unemployment as well is needed. The delightful part about this one-on-one is that we have time. We have time to eviscerate. Absolutely. We can delve deeply. With your CEOs of your various subsidiary and your various agencies and your chief marketing officers, are you prepared to let them have the time to develop their programs? Have you looked to see how long their average tenure is? Well, actually, it's quite long and we've got about really a dozen verticals inside our company. And my job at the end of the day, if you said to me what's my job, is to make sure that those 12 people, the very best people that we can have running those 12 businesses. And the other part of it is to make sure they play together increasingly. Because clients increasingly want from us the very best people working on their business. They don't care where they come from. They don't care about the silos and the verticals. They don't care about whether it's Ogilvy or JWT or YNR or Gray. They worry about whether they have the best people. They don't care whether they come from China or Argentina. What they want is the very best people working on their business. So that's really my role and my job at the end of the day. Are you confident taking a look at those different businesses and what your clients are telling you? I'm guessing that you're going to sort of say Asia and emerging doing well, developed doing badly. Well, we have a big advantage. Our gestation periods. We don't have long payoff periods. We're going to have big capital investment periods. So, you know, structure of our P&L, you know, if we're 17 billion or 16 billion in 2011 of revenue, 17 in 2012 is the forecast. About 60% of that, so call it 10, 11 billion, is invested in people. Our investment is in human capital. We invest only about $350, $450 million in fixed capital. So the payoffs on human capital investment are very quick. You know when you hire a person whether they're going to work or not. Within, I would say, three to six months, it's very rare that we find significant what I would call sleepers. Now, having said that, it's amazing how bad some of the personnel decisions that we make and the human resources decisions we make and we spend more time thinking about, you know, what iPad we're going to buy rather than what we're going to invest in people. But having said that, we're in a very fortunate position. So this distinction between the short and the long term for us is not like the oil business or the car business. Having said that, what's our strategy? Very simple for good or evil. New markets, new media, application of technology and big data, and horizontality. That's it. Horizont what? Totality. It's a terrible word. It's a devotion, isn't it really? What does it mean? It means playing together. Right. It means making sure that every one of the 163,000 people in 110 countries that we now operate in knows what the other 162,999 know. I mean, an impossible dream. But, you know, we've always been too vertical. We're now much more horizontal. So our top two horizontal integrators. One is country managers at a country level. Making sure we have the best people locally. Making sure we work with the best companies locally and we have the best acquisitions. And then client leaders. Top 30 clients, 6 billion out of the 17 billion, about a third of our business. We have 30 horizontal integrators to make sure all the various parts of WPP play together. I am guessing that the one thing that sends you ballistic is when you hear of an internet-signed turf war between the divisions. It's not even, actually it's not even an internet-signed turf war. It's the lack of thought, the blinker. You go ballistic. That drives me crazy. So, I mean, I'll give you a good example that I won't mention. So it was a Latin American, big Latin American opportunity. I won't even say which industry. Sort of transportation-related. We're getting close. And we're getting closer and closer. This is one of the inefficiencies of having such a long amount of time. Anyway, so two companies that are emerging. Big identity opportunity. We'd worked for one of them very significantly for many, many years. And I was asked to do a video for the presentation which I was very willing to do. And I said to the person running the picture, I said, did you talk to our company that's been working with one of the merger parties for, you know, about 15 or 20 years? And the answer came back, no. And it drives me crazy. Now, having said that, you know, I started WPP with a partner 28 years ago in a room not dissimilar to this size, but smaller, actually, in London. So two people in one room in London. We had a coordination problem between the two of us. You can imagine what the coordination problem is with 163,000 people, 164,000 people in 110 countries. I think that is the critical issue. And all the clients in this room and at Davos, it doesn't happen that we work for, it doesn't happen with. But the people who aren't here, I've got to tell you, the destructive forces that operate inside companies in terms of people's unwillingness or inability to work together, that is the critical issue. And technology helps you bring people together in a way that we've never been able to do before. What worries you most at the moment in the global economic environment? Is it, for example, what might happen in the U.S. budget crisis? Is it the ongoing Eurozone crisis? What is the core worry you have? Well, there are now five gray swans. As of this morning, there are five gray swans. There's a fifth one that popped out this morning. But let me just say, and let me just do it in order of significance because you're asking me to prioritize it. The U.S. deficit is the fiscal cliff, the $16 trillion there. Sorting that to my mind. The U.S. is still $16 trillion out of $65 trillion worldwide of worldwide GDP. The U.S. is still twice the size of China at $8 to $8.5 trillion. So sorting that, not postponing it, not kicking the can down the road again, is the critical issue. I said that's number one. Middle East clearly has got to be, that's totally unpredictable. That's a black swan. It's not even a gray swan because we just don't know what's going to happen. I mean, who would have said two weeks ago that Algeria will be pretty much at the top of our agenda. So Syria, Gaza, Iran, Israel Post, Netanyahu's reelection, if that is the case, all these things. So that would be number two. Number three, well, number three and four equal now. Mario Draghi has done a fantastic job on Eurozone crisis, at least so far. And then China, hard soft landing. It's really a soft landing. And in fact, the BRICS, you know, Russia, I'd probably be most bullish about. Brazil will come back. India, I think, is stronger than people give it credit for. But China, you know, we had a very strong fourth quarter in China, and there's clear signs of recovery. So I would say US deficit and the Middle East are the two biggest things. Now, the fifth one that popped out this morning is EU and Britain. Let's talk about that. A referendum adds to uncertainty. It doesn't diminish uncertainty. I understand what the Prime Minister's predicament is. It's a political issue. The EU is taking 16% of the vote, taking more voters out of the Conservative Party, potentially, than out of the Lib Dems or Labour. So it is a political issue. But having a referendum sometime between 2015 and 2008 creates more uncertainty, and we don't need that. But didn't, when David Cameron said this morning that the credibility of the EU for the British people is way for thin at the moment. Is he not better to bed once and for all? No, but once and for all is 2015 to 2018 is not once and for all. And by the way, we've got a little thing called an election coming up in 2015. And a renegotiation, of course. And we don't even know whether we're going to be able to renegotiate. So the point I'm making is that this is a political decision, it's not an economic decision. If I'm looking at it from the point of WPP, it's not good news. It's at best neutral and at worst negative. It can't be positive. So you just added another reason why people are going to postpone investment decisions. And the last thing we need is people postponing more. Just think of that two trillion sitting there, underutilised and uninvested. So are you regretting moving your headquarters or your registration back to London? No, not at all. I mean, you left in a fit of peak. No, no, no. You came back in a moment of humility. That's deeply, that's deeply inaccurate, insulting and factually incorrect, actually. No, we left because the Labour government under Gordon Brown threatened, and it was never implemented interestingly, to tax overseas profits. We asked for clarification, we got no clarification. So we, along with a number of others, moved our headquarters. Now, prior to the election, the Conservative hopefuls, and then the coalition government after the election, put a full court press on to get us and others to come back and said we will put in legislation to make sure it doesn't happen. By the way, we are still at risk if a new administration came along and decided to tax overseas profits. But I think we did the right thing. I think we took a stand on something we thought was important. We've come back. That doesn't, it's not affected by the EU. I just think, you know, the EU is potentially, if you think about it in GDP terms, it's 450 million people. It's 17 to 18 trillion. So it's actually bigger than America. The irony about this morning is this. If we do have a referendum somewhere between 2015 and 2018, those economies in Western Europe that are in deep doo-doo at the moment are going to be recovering, and I think quite sharply, by 15 and 18. Now that might be good news, actually, because the referendum may work out positively because people will see a growth economy and they'll move in. But it could be that we say no and move out at precisely the wrong time. Many people in this room will not know, many will, but some won't and certainly people watching may not know, that WPP's origins have absolutely nothing to do and in fact could not be further away from the exotic world of advertising. No, I disagree with that. Manufacturing heartline, wire baskets, pots and pans. You know, this is our industrial roots. You went out and you found a company in the mid-1980s that you could reverse engineer. That's what we're reversing to. It was what the French, much more elegantly called a coquille, a shell company. Was it hard to find? No, it wasn't hard to find. There were about a dozen companies that a stockbroker and I identified. And wire and plastic products, that's what WPP stands for. It was a little bit of cocking a snook at our own industry by calling it WPP and not going through some massively expensive branding and identity and exercise. Wire and plastic products was a wire basket manufacturer based in Dartford. And I remember going along with Preston and Ravel who was the stockbroker who we developed the idea with. And to go and see Gordon Samson who was the chief executive who bought companies out of, from the liquidator basically. I mean he was, he was used to, a bottom fisher is what I would call it. And Gordon said, you know, come along, he didn't invite us for lunch, he invited us at 1.30 to a clock deliberately, you know, after lunchtime. And Preston and I were starving and we were in Dartford High Street and we went into the local fish and chip shop. And we came out smelling of vinegar and salt. And when we turned up at the Wireworks, Gordon was convinced to his dying day actually that we deliberately went into the fish and chip shop to appear to be men of the people. Did he have any idea of what your plans were? Or did he think, hang on, these are genuine people that want wire baskets? No, no, Gordon was, we were very upfront with Gordon and Gordon was very open and very transparent. And he knew, I mean he knew this was something that, it was very difficult to judge actually. I mean it was a, he made a judgment about me, about Preston, about what we were trying to do and it was a loop of faith for him. Because, you know, this was, we didn't lay out a specific plan. A, because we hadn't formed it in detail. But B, because we didn't want to reveal it. We didn't lay out a specific plan. He took a leap of faith. He actually looked at us and said, or looked at me and said, look I'm willing to go along with your plan. These one-on-ones are designed to make you feel uncomfortable. Yeah, well I always feel uncomfortable when I'm talking to you. And so you should. But do you feel embarrassed when you have to talk about your pay and compensation? Especially, I don't, I don't get embarrassed. Especially when your shareholders rejected your pay package. Yeah, I mean that was, I don't think, I think I've said this to you before Richard. I don't think that we, and I put, I mean it's not primarily my responsibility to negotiate my own compensation or to adjudicate my own compensation obviously. So it's difficult for me to talk about it in that, but as I'll be, I won't duck the issue. I don't think we handled it well say this time last year. What actually happened was the compensation committee was in negotiation or in consultation with the institution shareholders and it leaked, I think it was to the Sunday times. And they got very upset that it leaked and didn't want to negotiate in public. So we drew from that. I think that was wrong and I think they acknowledge it was wrong. Now there's a very robust, if that's the right word, series of discussions about what is right. But having said all that, let's put that just one to one side just for a minute. If, and this is the critical issue from my point of view, if Britain wants, and let me be boastful about it a little bit, wants more world leaders like WPP, we have to be competitive. And remember what I just said, 10 billion out of 17 billion is what we invest in people. The critical investment for us, the critical, you ask me the question, we've got to get the best people. The only way we will do that is by being competitive. Our competition is two American companies and two French companies. The French companies is very opaque. There's very little examination of what they do. The American companies, it's meant to be transparent, but proxy companies like ISS and Glass Lewis don't apply the same criteria to them as they apply to us. And that I think is competitively wrong. So we have to make a decision, right? We have to make a decision. What do we want? And the implications of being less competitive may be that we will not have the world leaders that I think we have to have if Britain's going to participate. But your article in the FT, during of last year, which some criticized you for, your opinion piece in that piece? I've got to tell you, I'm going to be deliberately opaque about it. But the biggest opportunity that WPP has ever had came out of that article. I'm not going to say what it was. Oh, come on. No, no. It's only you and me. No, no, no. Won't be drawn in that. But I've got to say to you that that article drew some criticism, but drew the reverse of it as well. Some positive. And the headline was, you know, or the line was, I'm an owner. Yes. And I act like one. That is a critical issue. I mean, I struggled with economics at Cambridge. And, you know, often people say to me, what's the most impactful book? I read a book by Robin Maris called The Theory of Managerial Capitalism. And what Robin Maris talked about was the separation of ownership and control. I passionately believe, maybe, because I read that book at that particular point in time, that removing that separation between ownership and control is critically important. That too many companies, you have people in control who have no ownership and therefore nothing at risk. And too much of the reverse, because one of the interesting things about the research is where companies are over-owned, they don't respond as well as where they are less under-owned. And so I think getting the balance right so that management is committed that they actually have. You know, the word entrepreneur. So often inside our company, people say to me, you know, we're not entrepreneurial enough. What they actually mean is that they don't get enough autonomy. But being an entrepreneur means taking risks and risks, not with other people's money, but with your money. That's what we do. But as you remind people that you own a small percentage and all your... Only 2%. Only 2%. But all of my net worth is that. Right. So do you consider yourself to be not just an owner, but the principal owner? No. That was a very important thing in the article. It wasn't the owner. You know, the owner would be Mayor Culpa. An owner is the thing. But if I have one share in your company, I'm an owner. No, no. Okay, that's a significant owner. Okay? Or certainly significant to me. No, no, no. We're not on a slippery route because the important thing is the individual that it is important enough to the individual to make a difference. So before he or she commits the resources of the company, they think about it being their own. Not some disembodied or disassociated party. So you're out front on your pay and compensation and you have... My pay and compensation is highly performance oriented. No, no, honestly, 90% of it is geared to the performance. Fine. That may be. That's not the way we're going. You're out on front on your pay and compensation. You've also come out on front on Starbucks taxation. I suspect you see nothing wrong with Barclays or whichever bank it was wishing to defer. I know they've said that. They're going. Not wishing to defer. I know they've said they've not. But if they wished to defer the bonuses, that would be okay with you. No, you're putting words in my mouth. Exactly. You are prone to do that occasionally. Not really, but occasionally. I said perhaps. No, no, no. I'm saying, and in fact, with the BBC interview with Simon Jack around Christmas time, what I said was that corporate tax structures, the structures you choose are a question of judgment. You don't have to go back to Ireland from it. You don't have to move your headquarters from the UK to Ireland or anywhere else for that matter to alter corporate tax rates. You can sit in the UK. You can move your procurement department somewhere. You can move your brand somewhere. What I was saying was that corporation tax and your approached corporation tax is a question of judgment. It is, to call it an area of corporate social responsibility, it's not actually a bad way of putting it. It's liable to be misinterpreted as sort of charitable giving. It's not charitable giving. It's a question of a judgment. There is so much flexibility in where you locate in the mobility of capital and the mobility of firms that you have to use your judgment. So going back to the Goldman decision, and in fact, if they were going to make that decision, they reversed it, right? Would you have stuck with the original decision if they were going to make it? It's difficult for them because they are in the banking business and they probably have even less trust than advertising agents. Or journalists are even the bottom along with politicians. So it's very difficult. But I think probably they made the right decision. But did they need to get themselves in that position or not is another question. The thing is that if we don't like the rules, I mean this is the fundamental point, if we don't like the rules, then we've got to change the rules. Trying to adjudicate on the basis of the spirit is very, very difficult. Now coming back to the 50 to 45, I actually said at the time, I don't understand why the government needs to go from 50 to 45 at that particular point in time. I think the Chancellor could have got up on his hind legs and said, in the life of this parliament, we will reduce marginal tax from 50 to 45 or 40 and just left it there. It was just politically, I think, insensitive at that point in time to have done what they did. So you could have removed that problem by not doing anything about it quite so immediately. What drives you? What's your fundamental philosophy? Well, as I said to you, I know we said the point of these sessions is about philosophy. My philosophy is quite simple. 28 years ago, at the age of 40, so I had male menopause, andropause is what it's called. I wanted to start my own business. And philosophically, I wanted to, because I've been probably into business school, I wanted to do things on scale. I wasn't interested, you know, there are people who are good at starting things and managing things, and there are people who are good at managing things but can't start things. There are people who can't start things and can't manage things. It's rare that you find somebody who can start something and manage it. I wanted to do both. I'm not saying I've done it well. No, no, I did you. Have you? Have you? We're in the process of doing it. No, come on, come on. Don't be modest. Have you done it well? Well, time will judge. Time will judge. I mean, there will only be, that judgment will be made by you or even your successor at some point in time in the future. When are you planning for your successor? 28 years is a long time. Well, I get asked the succession question so often. I mean, I have to plan for it every second. Certainly we have a process. You don't want to let go. No, I enjoy what I do. I mean, the honest answer is I will carry on Richard as long as they let me. I mean, when somebody says, takes me out to the potting shed and says, Martin, you've done enough damage. Time to bugger off. Are you going to be the opera singer that won't leave the stage until they find that thought comes on and drags you off? They'll get rid of me when I'm, when it's the right time to get rid of me. We have time for a couple of questions. We don't have microphones. The WEF people have already... A neurotic about it. A neurotic, that's the word, about this. If you have a question, not a speech, you need to shout it loud so that Martin can hear and I can repeat. He's older than me, it's harder for him to hear. Anyone got a question? What's the most important thing managing creative people? No long-winded devotion answers, 30 seconds. Getting people to cooperate. The better people are, the less cooperative they are. And when I say that, because it creates a problem because all the average people want to act difficult in order to be good. But the better the people, they know best. So getting people to cooperate, that is the critical issue. And the greatest creatives, getting them to listen. When you start a business with nothing, you value information and ability and resource. If you've been around for, you know, 50 or 100 years, you tend to devalue it. Next question. Quick. More on Cameron's speech. How exactly is this renegotiation strategy going to impact on British business? Do you favor British... How exactly will it favor British business renegotiation? Impact. Listen, I think it's neutral at best, negative at worst. I mean, it introduces another element of uncertainty. And this is a political decision. It's not an economic decision. Question. How do you treat star employees? How do you treat star employees? With reverence and respect. But what about the third one? Renumeration. With reverence and respect. Which is more important? No, both are important. It's both qualitatively and quantitatively. So there are two sides to it, and it's not one or the other. The biggest issue, and it comes back to the first question as well, is getting people to play together. How can you do that? Because unfortunately, we're very vertical, not just in the way that we're organized, but in the way that we are financially organized as well. So having the incentive system built upon WPP as a whole is the critical issue. It is no accident that the great professional service companies, as I said this last night, would be Goldman Sachs or McKinsey. Why? Because they are unibranded companies that have essentially grown organically, not by acquisition. Martin, do you believe in employee ownership? Do you believe in employee ownership? Thank you. Do you believe in employee ownership, such as the John Lewis Company? Yeah, we have a worldwide option plan. So every employee of WPP, every one who is a 100% owned company, gets an allocation of share options, to WPP every year. Finally, Martin, do you find it hard to fire your top staff? It is terribly difficult. It's the most awful decision, and just like everybody else, you put it off. I mean, the one thing that, you always put off the unpleasant decisions. Even if you know in your heart of hearts there's the right thing to do, you always put it off. And we always delay that decision, always. And I saw it last year, when we had to make our organic rate of growth slipped from four to three to two in the first three quarters. I can't tell you what the fourth quarter was. We failed to be as aggressive as we should have been, and we all knew that there was the right way to go. And the final question, what's the one thing you still want to do? I still want WPP, I mean, WPP is the clear market leader now. No, you. I mean, I wouldn't disassociate myself from WPP. I wouldn't disassociate myself. You're one and the same. Well, there's a very strong link between me and WPP, even if it's only 2%. And so the honest answer, the honest answer is that I think we are the clear market leader. I just want us to be the undisputed champion of the industry. So that when a client is thinking about a marketing issue, when somebody is thinking about leaving university or college or art school or film school to join our industry, or when a government is thinking about a marketing issue they face or a political problem they face, they think of WPP. Ladies and gentlemen, Mr. 2%. Sir, 2%. Thank you. Now, according to the instructions...