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Review of the Company's governance and the Nomination Committee

Philip Lader

Report by Philip Lader

Chairman of the Company
and chairman of the Nomination Committee

Dear share owner

My Board colleagues and I trust that our fellow share owners are similarly pleased with our Company's 2007 performance and growth.

We are convinced that these achievements reflect, in not insignificant part, the balance your directors have sought to strike between practical, disciplined corporate governance and the entrepreneurial spirit which has long characterised WPP. As to the former, we are committed to further improvements through consideration of evolving UK and US best practices; while as to the latter, we shall continue to encourage and structure incentives for management's innovation in strategy, acquisitions, creative services and all-important everyday operations.

What was the Board's principal work in 2007? Heightened standards of corporate governance, increased requirements of governmental agencies, relentless pressures of the war for talent, and the Group's expansion in newly-developing fields (illustrated by the acquisition of 24/7 Real Media Inc.) commanded our day-to-day attention and imposed considerable demands on our committees.

But perhaps any corporate board's most critical undertaking – beyond strategic planning and proactive monitoring of finances and operations – is the evaluation, and preparation for the succession, of the chief executive and other key executives. This responsibility is particularly important in the case of our Company because WPP's businesses' competitive standing depend principally on those individuals' talent, energy and commitment and our Group chief executive's leadership has been instrumental to the Group's success for more than two decades.

We regard talent management and succession planning so seriously that, although the Nomination Committee bears such governance responsibility, the entire Board devotes extensive time, regularly and intensely, to this subject. And this has been our practice for the past five years.

Annually – and in two separate Board meetings in 2007 – to provide sufficient time for fulsome exchanges of opinions – all non-executive directors consider the backgrounds, performance, developmental needs, and potential roles for approximately 100 senior managers and 'rising stars' of the parent and operating companies. The most comprehensive attention is directed to the Group chief executive's role.

For every principal parent and operating company position, potential candidates are identified. Not coincidentally, the Group's structure and devolution of responsibilities to leaders of each operating company – as well as the fact that some of these businesses, if independent, would rank among the industry's largest – provides extensive senior management experience to several dozen WPP executives, some of whom could readily undertake parent company roles.

From this field of proven talent and a range of potential external candidates, the non-executive directors and Group chief executive considered – in a totally frank, highly-specific manner – a variety of individuals who might succeed him in the case of his retirement or other events. After that session and on several other structured occasions, the non-executive directors, in the absence of the Group chief executive, further discussed both the process and the field of candidates for such succession. We strongly believe, however, that – lest public discussion of this subject foster speculation and unhealthy competition – the content of these, and continued 2008, discussions remain strictly confidential.

The Board itself, each year, undertakes a rigorous self-evaluation of the performance and contributions of directors, individually and cumulatively, the committees, and the chairman. In 2007, all directors completed a confidential questionnaire in this regard and identified areas for improvement. Separate feedback meetings were then held between each director and a member of the Nomination Committee. My performance was assessed by the non-executive directors, led by the senior independent director. The Board concluded that appropriate improvements had been made and that, overall, the Board and its committees continued to operate effectively.

This Board – comprised of independent-minded individuals of broad international experience in disparate industries and markets – is deeply engaged in the constructive review of management performance and the evaluation of initiatives related to significant opportunities. The comparatively long tenure of several directors, we believe, has been instrumental to our effectiveness and understanding of this complex, global enterprise.

As a consequence of increased demands of his other commercial activities, one of our colleagues, Christopher Mackenzie, has decided to retire from the Board following this year's Annual General Meeting. For more than eight years, Christopher has brought to our deliberations not only his considerable intellect, but also canny business disciplines honed at GE Capital, as a corporate chief executive, and in private equity. I have valued his candour and strategic frame of reference.

Periodic introduction of new directors, with rather different professional, generational and regional perspectives, contributes to our practice of challenging even the most well-tested assumptions and iconic executives. In 2007, the Board welcomed Timothy Shriver, a highly respected American whose extensive experience as chairman of The Special Olympics and with other public policy and non-profit organizations enhances our Board's perspective on corporate responsibility and expands the range of our perspectives on global conditions.

That appointment and the aforementioned Board self-evaluation and succession-planning processes illustrate the work of the Nomination Committee, which I also chair. Members converse regularly and informally. The full committee – and, by invitation, with the participation, in whole or in part, of the Group chief executive, the Company Secretary, the senior independent director, and the Group chief counsel – meets as required to monitor this agenda, to assess the Board's composition, and to consider potential new members who are identified from the extensive relationships of our international Board.

Committed to rigorous standards of corporate governance, the Board seeks to comply with the Combined Code on Corporate Governance; and in the Board's opinion, the Company has done so throughout the financial year ended 31 December 2007. Moreover, the Company generally follows NASDAQ's rules; has devoted extensive time and resources to ensure compliance with the US Sarbanes-Oxley requirements; and, where practicable, seeks to comply with the guidelines issued by institutional investors and their representative bodies.

Several of these entities express the view that directors who have served for more than nine years can no longer be considered 'independent'; nor, by definition, can the Group chairman. This Board understands their premises, but respectfully does not agree. A worldwide enterprise of WPP's scale and range of commercial activities benefits enormously from long-term directors who continue to be engaged actively in the Group's governance. I submit that 'independence' should be determined not by an arbitrary standard, but on a case-by-case basis, with full disclosure to share owners of any appearance of conflict with published guidelines.

The genuine independence of our senior independent director, Bud Morten, for example, is routinely demonstrated not only by his painstaking attention to intricacies which only such a dedicated veteran would fully comprehend, but particularly by his provocative challenges to presentations at Board and committee meetings. Bud will, at some point, elect to devote less time to this Group, and our Board will then appoint a new senior independent director. Yet I believe that share owners observing Bud's WPP workload, time commitment, and judgement would have little quarrel with the Board's, and my own, assertion of his independence and invaluable contributions in his current role.

The Board does not view my position as non-executive chairman or my role as a Senior Adviser to Morgan Stanley as compromising my independence. It is their considered judgement that such continued service, as well as my chairmanship of the Nomination Committee and membership of the Compensation Committee, help ensure continuity and co-ordination of related Board matters. We do require, however, that non-executive directors who have served on the Board for nine years or more submit themselves for re-election annually.

My Board colleagues and I appreciate our fellow share owners' trust in our representation of their interests. We have great confidence in the Group's extraordinary chief executive and take pride in our association with this Company. Yet, as major publicly-held companies' non-executive directors' responsibilities have increased immensely over past decades, the demands are noteworthy.

This Board and its committees held more than 35 meetings, in person or by phone, in 2007. Packs of reading materials are distributed near-weekly. Few days pass without substantive communications between non-executive directors; fewer still between senior management and us. For their prompt attention and diligence in all these matters, I thank my colleagues.

Share owners understandably dwell on a company's financial performance. For WPP, this reflects how creatively we serve clients, how effectively we compete every day, and how ably we navigate sometimes threatening economic tides. But it also assumes little-celebrated compliance with endless legislative and regulatory requirements in more than 100 jurisdictions. Especially as chairman, I applaud those members of our team, and the other professionals who assist us, who complete this unsung work so conscientiously.

Effectively serving the world's most successful and demanding clients is the essential measure of WPP's continued success. Therefore, let me convey my fellow directors' and my fundamental appreciation to the Group's 110,000 employees, including associates, whose imaginations, hours, tenacity and resilience are the hallmark of our achievements, in 2007 and in years to come.

Philip Lader
24 April 2008