A former WPP exec is suing the holdco, alleging the company fired him after he raised concerns that its media division was dishing out improper kickbacks to media owners and engaging in principal trading by not passing on savings to clients.
Richard Foster spent 17 years working at GroupM (the old name for WPP Media) as the global chief executive of Motion Content Group, the division which produces and co-finances TV series such as Love Island and brokers other entertainment partnerships.
In a lawsuit, Foster said he grew increasingly concerned about what he called GroupM’s “volume-based discounts”. The suit was first revealed by Business Insider in the US.
The lawsuit alleges GroupM would use the billions of dollars it has to spend on media to secure incentives from media owners—such as cash rebates or free or discounted inventory—but not always disclose or pass these back to clients.
This allowed WPP to bolster its profits and act in a manner than was not in the best interests of its clients.
Foster claims that when he brought this to top management, the agency group reacted by firing him rather than investigating his concerns. He is seeking more than US$100 million (AU$152 million) in damages for charges of retaliation, wrongful termination, and violations of whistleblower protection laws.
“The scale of this purchasing power enabled GroupM to leverage their client spend to force many ad-supported television and media platforms to give GroupM discounts, which, rather than being passed back to clients, GroupM turned into a non-disclosed profit center,” Foster’s lawsuit says.
The lawsuit says Foster estimated that over the past five years, GroupM generated between US$3 billion and US$4 billion by striking rebate-driven deals, of which the agency improperly retained approximately US$1.5 to US$2 billion (AU$2.29-3.05 billion). The suit doesn’t provide further documentation to support this claim.
To be clear, none of this is illegal. However, the practice could amount to a breach of contract between GroupM/WPP Media and clients if proven to be true.
Some say the practice—and similar—are commonplace. A decade ago, the US’ Association of National Advertisers and corporate investigations firm K2 Intelligence, published a report claiming that rebates, kickbacks and other forms of non-transparent trading were “pervasive” in the US industry.
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A WPP Media spokesperson told B&T: “The company is aware of a lawsuit in the New York State Court filed by a former employee who was let go in a recent organisational restructuring. The court has not yet made any findings in relation to the allegations and we will defend them vigorously.”
Foster’s suit claims he told senior WPP and GroupM execs, including Nicola McCormick, WPP’s general counsel for media, that the deals were unethical and posed a significant legal threat to the company.
It also says that Brian Lesser, the recently minted WPP Media CEO, requested a meeting with Brian Lesser in October last year to ask him for a “candid assessment” of the division’s operations, including any potential issues.
Foster says he also detailed his recommendations to develop a new WPP Entertainment division, to build on what he had achieved with Motion Content Group.
Upon Lesser’s request, Foster submitted a 35-page report after the meeting that included a section outlining his concerns about GroupM’s rebate practices, the lawsuit says.
Foster estimated in the report that GroupM derived nearly US$1 billion (AU$1.52 billion) in global net sales from “non-product-related income,” such as rebates and “purchase risk” media deals. In “purchase risk deals,” the agency would use its collective client spending power to buy large blocks of advertising inventory upfront to obtain pricing discounts, and then sell it back to clients through opt-in agreements.
Foster claims many large advertisers were opposed to such deals because they were designed to benefit an agency’s bottom line rather than the client’s.
The suit added that in a phone call with Foster in January, Lesser initially expressed concerns about potential risks tied to such deals, but later asked him via text to reproduce a “sanitised” version of his report to exclude any overt criticism of GroupM’s trading operations.
Unbeknownst to Foster, Lesser had already sent a copy of the original report to Mark Patterson, the executive responsible for GroupM’s trading activities. Patterson is currently WPP Media’s global president of markets and business operations.
Hours after that text, the suit says, Foster was “blindsided” by a restructure announcement that saw the sports and entertainment divisions report directly to Patterson. The following day, Patterson’s role was changed to global president, with responsibility for the APAC and LATAM regions and the entertainment and sport divisions.
Foster alleges in the lawsuit that he was then immediately excluded from key meetings, cut out of deals, and isolated from decision-making. In July, GroupM terminated Foster without cause, the lawsuit says—though as mentioned above, WPP Media maintains he was let go in a recent organisational restructuring.
“At no point did WPP or WPP Media conduct a formal review or investigation into Foster’s reports, as required under their compliance policies and applicable whistleblower protection laws, nor was corrective action ever taken,” the lawsuit says.
