View from City Road: Time heads rolled at WPP

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SHAREHOLDERS in WPP Group are in danger of missing the big picture amid details of a dollars 422m ( pounds 221m) refinancing proposal made by their troubled advertising group yesterday. Instead, they should reflect on the implications of what they are being asked to approve. It makes for grim reading.

This is the second refinancing WPP has been forced into in as many years because of an unsustainable dollars 1bn debt mountain. Without it, it would have to stop trading. Neither ordinary nor preference shareholders have received a dividend for two years. Shareholder value, in terms of the company's market capitalisation, has collapsed from about pounds 400m to below pounds 30m. While Martin Sorrell, chief executive, is responsible for the disastrous strategy, WPP's shareholders have borne the costs of the mistakes. Even if the refinancing goes through - and there are considerable doubts it will - WPP will be in a weak position to withstand the continuing recession in the US and UK.

In short, here is a case that demands a fundamental change of management. Astonishingly, not a single head has rolled from the board. The management team responsible for WPP's plight continues in charge, and the group's motley band of non-executives has proved toothless. While the Saatchi brothers had the good grace to halve when the agency that bears their name was in trouble, Mr Sorrell's basic pay rose by pounds 1,000 to pounds 508,000 last year (though he has voluntarily foregone a pounds 145,000 additional payment).

That none of WPP's managers have been made accountable for their mistakes, is partly because its institutional shareholders have apparently been inactive. Their reluctance can only undermine the institutional cause for corporate governance at Britain's public companies. Belatedly, WPP is strengthening its non- executive board with the proposed appointment of Gordon Stevens, 66 and a former director of Unilever, as chairman. It is a step in the right direction, but his effectiveness as an independent remains unproven.

While shareholders should support the refinancing, there is a strong case for demanding Mr Sorrell's resignation at the earliest opportunity.