A Most Interesting Man – Part 2

0:00I think we're going to have to do two because you are sincerely fascinating and charming and even smarter than I thought you would be.

0:15Welcome to Lunch with Shelley, the podcast featuring conversations with colleagues, friends, family, business leaders. At lunch, here's Shelley. Welcome back to another wonderful episode of Lunch with Shelley. Hey, I'm Claude, producer and editor of the show. As promised, this is part two of Shelley's wonderful discussion with Sir Martin Sorrell. If you didn't hear part one, I would highly suggest that you go back, listen to part one, and then jump into this episode. All right, here's Lunch with Shelley with Sir Martin Sorrell. How do you stay so young, mentally, physically? No, but, you know, AI, I feel like I'm a Luddite that I'm giving out being a Luddite.

1:02So I met a woman at J.P.

1:07Sir Martin Sorrell:Morgan have started to have sort of CEO conferences in Europe, and they've done two of them. They do them every year for European CEOs. and at their first one they had this woman who's a futurist at J.P. Morgan. Oh, what's her name? Did you ever know Faith Popcorn? Yes, I did know she. Me too, and she is maybe still a futurist. Anyway, she's based in Buenos Aires with J.P. Morgan and she has 30 people in her department and they do future thinking and they do, she had a phrase for it, not early wave, but she really looks for, not what you and I would know about, but earlier than that. But you're talking about trends, right?

2:02Sir Martin Sorrell:She had a word for it, I'm trying to remember what it was. Anyway, early prediction. Anyway, I was so, and she was a bit quirky, she was quite fuzzy. Yeah, right. Because she's Argentinian, you know, and Argentinian women are, you know, are buzzy. Anyway, so I said to her, we were having a board meeting in Buenos Aires. I said, come to the board meeting. She came to the board meeting. And I said during the course of her presentation that one of the directors and I were saying, thank God that we'll be dead when AI comes in. Before any of this stuff happens, yeah. Because it makes life so difficult.

2:39Sir Martin Sorrell:She said to me, You will not be dead. She said to me, if you can give me another five years or ten years, I can probably give another 25. I mean, the point being longevity. Yeah. That AI and quantum is going to improve the healthcare industry to such a degree that we'll all be around much, much, much longer. Well, that's the most positive aspect of it. Well, some people, they find the idea attractive to some others, you know, as long as your body doesn't fall apart. coming back to your question I think I've always thought that when people retire they lose it my father is the same way and that's what I see although I have so many friends that want to retire in the next 10 years playing golf at 60 or 65 in Tampa is not well you didn't have to see Tampa but frankly it's just not on and I think you lose it I mean, I think at the end of the day there's all this stuff about work-life balance which I don't believe in which I get chastised for saying I'll say it again like Mark McCormack, right?

3:55Sir Martin Sorrell:So, an IMG He was a lawyer he met Arnold Palmer at Wake Forest University Mark was a scratch golfer Arnold was obviously better than scratch and Mark said to Arnold you need somebody to look after your contracts they shook hands, they never had a written contract it was 10 % of his earnings one of the reasons that Jack Nicklaus left was that his commission rate was higher, well I think he had the same commission rate as Arnold but Jack got really upset because every time Arnold played won or got an endorsement contract 10 % of his earnings went to Arnold but Mark there was no difference between work and play.

4:40Sir Martin Sorrell:His work was his play. Well, that's the, I mean, everybody knows that's the key. That is the key. Like, I'm working and playing right now, obviously. That's right. Yeah. So remember what my dad said, find an industry which is fun. And you'll never work a day in your life. Sure. Yeah. So I think, you know, that's why I can't, today is, again, we were talking about it this morning, distributed working I don't think works. Now, I have to... What is distributed working? Working from home. Oh, okay. You know, three days in the week in the office and all that stuff. I don't know what it's... Now, my view has changed.

5:23Sir Martin Sorrell:In the early days of COVID when we were doing... We were knocking the lights out. Right. Because we're digital... We're digital natives. Right. You know, 6 ,500 digital natives basically in 33 countries so this was meat and drink for them i think we then sort of became too used to it now i have to say to you that every piece of academic work that i've seen from harvard business school for a minute because i said on the ai committee there makes the argument that distributed working is more productive i mean i haven't seen i'm sure there is some academic work that goes the other way But all the academic work I've seen from that school and other schools tends to say it could be women looking after children, more flexibility.

6:16Sir Martin Sorrell:Flexibility is key. Global company, more flexibility. Right. I don't buy it because I think I'm a bit like Jamie Dimon in that. I think that the more friction you have, not friction, but the more engagement you have, the more knowledge you have, the better it is. Particularly in our industry, people generate ideas by talking to one another. You stimulate one another. Yes, yes, yes. It's very stimulating. And Zoom is not the same thing. No, and the other thing is I would say this is controversial. if I haven't said anything that's controversial so far I think this generation is very different to previous generations I think it's much more difficult to run a business now even in America America is much easier to run a business there is so much more flexibility as in an entrepreneurial business or just any business this is where Trump is right in spades I mean, when he describes America...

7:18Should I underline that? Yes, you can do it.

7:21Sir Martin Sorrell:You know, he says it's the hottest, and it is. It's 30 trillion out of 110 trillion GDP, and China's next at 20. And it's growing, probably growing in nominal terms by 4 % or 5 % in Q1 of this year. According to Howard Lutnick at Davos, it's going to grow at 5.3%, I think he said. But if you knock out inflation, it's 3%. So it is growing rapidly, and it is quite extraordinary. I was in India a few weeks ago. That's growing at 5, but it's a 5 trillion economy. So it's a sixth the size of America. So America, you know, is on fire. I mean, it is growing, and that's largely due. Companies here, people don't understand, I think, fully.

8:12Sir Martin Sorrell:the S &P 500 in Q3 of last year, average EPS was up by 12%. Exclude the hyperscalers, it was 9%. Q4 is the same. Right. Actually, it's 10 % excluding the hyperscalers. And the forecast from Goldman and Morgan Stanley for this year for the S &P 500 EPS is going to be up by the same, 12%. Well, Dow is over 50 ,000. Yeah. Well, it's a high valuation. Right. Well, that's what Jamie Dimon just said yesterday. One of the reasons the valuation is high is the prospects of earnings. The point I'm making is, whatever you think about Trump, he is good for business. Well, yeah. And he has driven, you know, you see it in Trump 1.0, you see it in Trump 2.0.

8:59Yeah, he's good for business.

9:00Sir Martin Sorrell:The problem is it's becoming more and more K-shaped. What was the word? K-shaped. In other words, you have the top 1 % or the top 10%, whatever. And there is an affordability issue, which he mentioned in the State of the Union speech last night. And an inflation issue. Well, inflation has come back. It's calming down. But, you know, I think the discussion about inflation, right? So inflation goes up by, he said, 9 % last night, right? Under Biden, whatever it was, right? So it's great. So you've gone from here to there. And then you go 2%. But it's 2 % from here. If it was 2 % from here, it would be a better thing.

9:46Sir Martin Sorrell:In other words, people forget where they've come from. And, you know, prices are. I mean, I look at hotel prices. I look at travel costs. Because that's like sort of your grocery store analogy or because you travel? No, because one of the interesting things is the experiences. People are sacrificing more and more. They will trade off expenditure in some areas. For an experience? For an experience. I think it's so fascinating. It may be because of COVID. It may be because of social media or whatever it is. You know, we're all sitting looking at our phones. Or it's just the fact. Experience is absolutely, particularly in these younger generations.

10:32So get back sort of to the younger generation. and then I had a bunch of other questions, but why do you think it's so difficult for this 20 to 27-year-old kids to either be hired or to be managed? Well, I think there's a little bit of false thinking in that.

10:52Sir Martin Sorrell:First of all, I don't believe that AI has bitten yet. So if you think people are not being hired because of AI... I don't agree either. Right. What's happening? So there's a really interesting thing. So our industry is$1.2 trillion of ad spend right this year. $900 billion in digital, which is growing like a weed, going up by 15%, 20%. Google's at$300 billion. Meta's at$200 billion. Amazon's at$70, thereabouts. And TikTok outside China, including the stuff that Larry Ellison is buying, or Oracle's buying, and Silver Lake. that's probably outside China about 70, 60. Those four platforms together are more than half of the 1.2 and more than two-thirds of the 900 billion.

11:48Sir Martin Sorrell:So these are the big plummet, and they're growing like weeds. The problem is they're spending 660 billion this year on AI capacity, data centers, energy, everything else. So they're putting all their money from OPEX, which they're spending with us as an agency, into CapEx. So that's the 900 billion. The 300 billion in traditional Disney, CBS, you know, the stuff that Paramount is fighting over, Netflix, fighting over on WBD, is 300 billion and declining. And if you don't have live sport, it goes back to what we were saying about sport. It's going down at 5 % or 10%. If you do have a life sport, it may be 0 % to 5%.

12:33Sir Martin Sorrell:So you've got, it's K-shaped. Again, it's another K-shape. Digital growing, traditional going backwards. So the traditional relationship for our business between growth was, if companies were doing well, corporate profits were strong, advertising spend would be strong. There was always a one-to-one correlation. That has broken down for two reasons. One is traditional media is going backwards. And that's where, not us, but a WPP or an Omnicom or a publicist have their heartland. So they're operating in a market where WBD and Paramount are. Paramount buys WBD, two studios become one studio. Omnicom and IPG get together, two agencies become one agency.

13:24Sir Martin Sorrell:So it's a capacity. And there are layoffs that they're blaming on AI, which is not AI. But it's early, right? On the other side, you're getting the growth, Google and Meta and everything, but they're spending their money on CapEx. You know, I gave you the EPS. The companies are doing very well. Companies are doing super well. And I think the reason that they're doing super well is they're squeezing their supply chains. Right. So you see it a little bit with tariffs. With tariffs, everybody said when Trump put tariffs on, that prices were going up. Well, that hasn't been the case. And what happened was that during COVID is when prices, like I used to come to the business council.

14:05Sir Martin Sorrell:I won't name names. Right. But they would tell me. But Marlene was on this podcast. Anyway. People would tell me that they're raising prices by 10, 15, 20 percent. so I think that during Covid you saw significant price inflation because there was cost inflation as well on supply chains and people passed it on with tariffs that's been absorbed I mean there's some evidence at the minute that prices are being pushed up a bit other people are a little bit worried about it so coming back to your question about employment young people that squeeze is more to do, my view, that people are looking at their supply chains and costs and containing them.

14:50Sir Martin Sorrell:The squeeze from AI is yet to come. We haven't seen yet the implication. I go back to what I said to you. We have not seen wholesale adoption of AI except in autos and in financial services. We're seeing it a bit in package goods. It's interesting. In the last, I would say, three months And I think that's because they're finding volume growth, you know, Procter, Unilever, Nestle, Diageo, all of them. They're probably overpriced during COVID. They're seeing the pressure. They're not getting the volume growth. They get the price a little bit, but they don't get the volume. So people, the traditional correlations are broken down.

15:39And we'll see how it goes.

15:42Sir Martin Sorrell:My view is, with the hyperscalers, which are 75 % of spend, ad spend, and by 2030 will be 80 % at least, as the hyperscalers spend more and more on CapEx, it's gone to$660 billion this year. So get this, it's more than$10 billion a week they're spending on data, energy, all correlated. No wonder Trump said last night in the State of the Union, you're going to have to pay for the energy yourself. You're listening to Lunt with Shelley. We were just before Davos, I was at a conference, so-called Asian leaders. And it was what was really interesting. We were talking about the war in Ukraine and the development of these companies.

16:32Sir Martin Sorrell:There's a well-known one called Brave One inside in Ukraine. where it's run by a 35-year-old woman, funded by a private equity company originally in Ukraine. And it is from kitchen table to battlefront or battlefield within seven weeks. And it's one of the companies... That's an incredible phrase. Yeah, and it's an incredible story. And they produce, because they test out all the latest drone applications, sadly in a war zone. But they have literally built this company as a result of the war. And it's interesting because we were discussing at that conference that the West tends to invest in old technology.

17:28Sir Martin Sorrell:I won't go into the detail because I think it's meant to be sort of semi-secret, but we had representatives of European countries who were in the armaments industry and they were saying that Germany and the UK and others tend to invest let's say in tanks and battleships and aircraft carriers whereas the future is going to be very much about drone warfare robots and of course Ukraine, I can't remember the percentage now of drone weapons that Ukraine produces itself. But I think it's like 60 % or 70 % is actually produced. Yes. So it's a terrible thing, but it's almost like a laboratory for arms development.

18:20Sir Martin Sorrell:But we were talking in that conference about how the armaments industry has to switch. You know, this gets into quite tender territory, but a company like Rheinmetall, which is one of the big German arms manufacturers, is selling tanks and, quote unquote, old equipment instead of focusing on new equipment. And if the defence budget for Europe is going to be something like 1.5, 2 trillion, half of it's still going to come from America, but the other half has to be invested as the Americans are. Well, I was going to say, that's another thing that Trump is doing, is he is investing in new technology.

19:07Sir Martin Sorrell:Well, it's really interesting. So, I guess I can't say who it was, but I remember at Davos we were talking about what the UK government should do. You know, because the UK's in a mess. Yeah. Right? A big mess. So is France. Germany a little less so because they've got more wiggle room with fiscal spending. You could argue Europe in totem, particularly in Eastern Europe. It's very, very, very tough. Anyway, this leader, ex-leader, I won't say exactly who it was, when asked, you know, what should Britain do, said, number one, people talk about growth and then don't implement policies that stimulate growth.

19:52Sir Martin Sorrell:Number two, welfare spending, and I saw Fareed Zakaria's, program on Mandani in New York and the budget. It's the same issue. Welfare spending has got to such colossal proportions. The question is, what is the right level of welfare spending and where should we spend? So this politician said, ex-politician said, you have to examine the role of the welfare state and how much you're going to spend. Thirdly, in the UK, we have the NHS. What's that? The National Health Service. Oh, right. free health care for everybody you have to look at where that money is and then the particularly in light of the immigration issue and then the fourth issue was to your point was you have to have strong military and you have to have strong tech and by the way this comes back to the tech then you know my view so the head of mi6 a woman uh blaze just the new head of mi6 only only talks once a year, the head of MI6, which is our non-UK, outside-UK intelligence service.

21:05Sir Martin Sorrell:And she, now a woman, and she only makes one speech a year. But this year she said, you know, Tim Cook is president of a country, meaning Apple is a country. Right, right. Which is something we've been saying for years. Really? Yeah, because, well, Apple is, market cap is over four trillion. Right. The UK's GDP is three and a half, maybe four. It's astounding. Yeah. So, NVIDIA, Alphabet. Apple. I mean, Ramco was briefly. Microsoft, all over three trillion. Elon Musk, my favorite analogy is, Elon Musk's one trillion compensation depends on Tesla reaching 10 million. I bet that's your favorite analogy.

21:55Sir Martin Sorrell:And I'll bet you, I will take money with you now, that he gets there. Yeah. And you would argue that he deserves it. Yeah. If he gets to 10 trillion, he would be the third, and everybody will stand still, he'd be the third biggest country in the world, if you equate market cap to GDPR. But the point I'm making is that Big Tech, come back to what that politician said, the fourth thing he said was, you've got to have strong military, strong tech. And what's really interesting is Jack Ma, when Jack Ma made the mistake with the financial IPO, you remember he criticized the regulator in China, and he was shot.

22:37Sir Martin Sorrell:Oh, yeah, yeah. And the administration said they were going to cut Alibaba up into eight pieces. They haven't done it. Why haven't they done it? The reason is they understand that having strong tech, you see it in Ukraine, you see it in the Middle East. Strong tech, given what that Polish has said about what the UK should do, strong tech is fundamental to sort of state security. Elon Musk is the only way that Ukraine and several other countries can even, and Iran, they can even talk to themselves as Starlink. And what's interesting is, you know, when you listen to people from MI5 or MI6, As they say, security and defence is really important as a partnership between government, because government doesn't have the resources.

23:33Sir Martin Sorrell:Right. Right? Or sometimes the smarts. Well, they're smart sometimes. Of course they're smart. There are smart people. Of course, but they just don't have... I remember being at a business council meeting, and the head of the regulation body here, it was that woman at the SEC was congratulating herself on the fact that she managed to get a congressional appropriation for another 300 people and I was sitting there thinking there's no way that the extra 300 people I'd describe it as we've missed the Oppenheimer moment which was in relation to nuclear weapons where we do have some control not enough and it's going to be a big problem but with AI we've lost that you can't the regulators will not be able to control the companies are going to have to self-regulate in my view because there's nobody the cat is out of the bag or whatever the right analogy is we've gone too far what would you consider the closest movie is to where we are now, you know what I mean?

24:51I mean, it is sort of Terminator-esque, or I just saw Eagle Eye, I think, or Red Eye or something.

24:59Sir Martin Sorrell:Well, maybe, so I think it was Eric Schmidt. There's a TikTok video of Eric Schmidt, which you'll probably find in just about a minute or two minutes, where he says, he discusses when it will be that machines are more powerful than people. And he thinks, I think it was about six months ago, and he said within three years. And then he said, I think he said, we should pull the plug. Yeah. But you're not a pull-the-plugger. You're a keep us all healthy. It's going to be very difficult. Because there are going to be bad actors. It's too late to pull the plug. Yeah, that's what I'm saying. And it's going to be really difficult.

25:40Sir Martin Sorrell:So exercising control, this is so powerful. And then if you put on top of it, you layer on top. and I'm not a scientist and I don't understand this stuff, but you put on top of it the supercomputing capacity that you're going to generate from quantum, it's a whole different ballgame. Thank you, Emmanuel. Thank you. It's a whole different ballgame. I forgot. I think I read that Eric Schmidt said that, which is particularly important. Very important. so and people really haven't taken that on board I mean if you ask people at Google they will you know remember that Google said they didn't introduce LLMs because they were worried about hallucination they were worried about the existential because that guy Jeffrey Hinton who was one of the founders of DeepMind resigned if you remember he's now a professor at Toronto University no I don't know this Yeah, and he resigned because he was worried about the existential threat.

26:43Sir Martin Sorrell:And the third thing was I think they were worried about it undermining search. Although they have done a brilliant job of uniting AI with search. I mean, when you go on Google search, I mean, you're basically in AI mode now. Right. It's extraordinary. What do you think is the future of PR and advertising? Well, I deliberately got myself into hot water because I was interviewed on... I'll tell you where I was. I was in India, in Mumbai. And I was on Radio 4, BBC, you can probably... And I was on a segment with the woman who runs the PR Association in London. PR for UK. Okay. And I said, there's no such thing as PR anymore.

27:37Sir Martin Sorrell:which I really believe, by the way, and I think PR is the wrong name, calling it public relations is a misnomer. Because what's happened... I mean, this woman was defensive, and she thought... and was offensive as well as defending, because I threatened her existence, because if you're... But I think you're right. Well, to me... It's a nebulous term, don't you think? Well, yeah, what it conjures up to me... Okay. is men in Dirty Macs in Fleet Street, in pubs, smoking cigarettes and drinking pints of beer, right? Like a madman thing. Yeah, but yes, exactly. So it's the old thing. You're better off calling it social media or something like that to signify that the means of communication have changed.

28:31Sir Martin Sorrell:It's not issuing a written press release and disseminating it. What it's about is understanding. And it's interesting, after that interview, which caused a bit of a furore, she issued a sort of manifesto for PR agencies. And I was looking at it, I was thinking, yeah, it's some nonsense, because all agencies have become the same. if you're an advertising agency, you've moved into digital and social media. If you're a PR agency, you've hired somebody to look after media. Right. You've hired somebody, a creative director. And when I was running WPP, one of the things I saw was, you know, a Hill and Knowlton or a Burson Mastella.