"The Board of WPP has appointed an independent counsel to conduct an investigation in response to an allegation of personal misconduct against Sir Martin Sorrell, Chief Executive Officer of WPP", said WPP in a statement.
In a statement issued by Project Associates on behalf of Sir Martin, he rejected the allegation of financial impropriety - but said he understood the company had to investigate it.
The latest investigation will increase pressure on Sorrell, who is already feeling the strain as WPP's share price has tumbled nearly 40% in the past year to its lowest point since 2013. In a statement responding to the allegations, the CEO proclaimed his innocence and reaffirmed his commitment to the company.
The Journalreport indicated the investigation was looking into Sorrell's possible misuse of company assets as well as allegations of improper personal conduct.
Sir Martin, 73, has been at the helm of WPP for more than three decades having previously worked at Saatchi & Saatchi and was knighted in the Queen's 2000 New Years honours list. With Sorrell's position now in doubt, WPP board members will perhaps wish they had established an heir apparent some years ago. This allegation is being investigated by a law firm.
A source told the publication that WPP's board, which Sorrell is a member of, has brought on a law firm to look into issues surrounding the high-powered executive.
We wait to see how WPP's shares react to the overnight news.
"The message for our people and clients is one of business as usual within our operating companies and client teams", the company said in the memo, according to two WPP employees who received it, who asked not to be identified as the document isn't public.
In an internal memo to top WPP executives, the company said it can't share further details about the ongoing probe.
"It's never good when your CEO or any part of the leadership team is being investigated", Edentree's Patel said.