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Review of the Company's governance and the Nomination Committee
Dear share owner
Surveying worldwide economic conditions in last year’s Annual Report, the Group chief executive observed that the coming year “won’t be tidy.” In sharp contrast with 2008, when WPP posted record billings, revenues and operating profit, the past year was, again in his word, “brutal” for our Company and the marketing communications services industry in its entirety.
That total share owner return actually increased during this period – with WPP’s dividend level being maintained and its share price rising considerably – can be attributed to very specific factors. Recovery of the global financial markets and key industries was essential, and advantageous currency impacts certainly helped. Our long-term strategy of geographic and product diversification and investment in digital and consumer insight businesses continues to be successful, particularly when more traditional locales and platforms are under severe pressure. Especially noteworthy was the consistency of our operating companies’ new business wins. But having monitored management very closely during this trying year, the Board especially recognizes management’s adroit, albeit painful, calibration of expenses, personnel and treasury functions.
An additional, not insignificant contributor to how the Group navigated 2009’s troubled waters, as we trust our share owners might agree, was the manner, intensity and breadth of WPP’s corporate governance. It continued to be characterized by:
- rigorous, ‘common-sense’ Board oversight, modeled on the ongoing evolution of best practices, particularly in risk management;
- unceasing re-evaluation of management’s tactical implementation of the Board’s strategic objectives and the operating companies’ financial and creative performance;
- diligent assessment and review of finance, industry and operations indicators; and
- vigilant stewardship of WPP’s considerable assets, tangible and intangible.
Though we are relatively confident about a more stable 2010, there will be no relaxation of these standards.
In 2009, as one measure of your Board’s commitment, we met, as a full Board or in committees, 28 times. Additionally and informally, directors, senior management, operating company leaders, professional advisors and share owners, among others, met innumerable times during the year.
Among our principal undertakings during this period – some expressly addressed to the year’s challenges – were:
- heightened consultation with the Group chief executive and finance director regarding responses to uncertain and fragile economic conditions, with income statement and balance sheet issues addressed frequently;
- thorough reviews of the integration and performance of recent and prior acquisitions, with central attention to recently-acquired Taylor Nelson Sofres plc (TNS) and its role within Kantar, all examined in the context of our diverse portfolio of complementary companies’ contributions to attainment of the Group’s strategic objectives;
- emphasis on furthering our understanding of rapidly-growing geographic markets, including regular briefings on WPP’s activities in Asia and one meeting’s focus on Latin America;
- presentations to strengthen the Board’s and senior management’s grasp of new media, its commercial and social dimensions, and the ways in which it is transforming consumer behavior, as well as the global communications and marketing services industry;
- exacting formulation and management of a performance-driven remuneration program – ranging from the Group chief executive to more than 50 key personnel – that is essential to the Group’s recruitment, motivation and retention of the talent that is pre-eminently important to WPP’s business; a program which closely aligns employees’ interests with those of share owners and, supremely important in years like 2009, optimizes the budgetary flexibility of variable personnel costs;
- reviews and approval of financial statements, critical accounting policies upon which they are based, and supporting systems of reporting and internal controls; analyses of not only the systems’ accuracy, but their responsiveness to potentially urgent liquidity and financing requirements in stressful circumstances;
- at Board meetings throughout the year, intense give‑and‑take and informal discussions with WPP business leaders, such as the CEOs of the Group’s major brands and scores of key personnel, as well as clients, government officials (including Brian Cowen, the Taoiseach of the Republic of Ireland, where the Company is now tax-domiciled), executives of relevant companies and securities analysts; and
- examination of operating companies’ illustrative creative products, client services, and key personnel transitions.
The Group chief executive continued the ‘Brand Check’ practice, at every Board meeting, not only highlighting specific employees, major clients and principal competitors, but also inviting non-executive directors’ detailed, far-ranging consideration of individual operating companies’ performance, geopolitical and industry-specific phenomena, and potentially disruptive or beneficial events. Risks are gauged at every meeting; risk management is at the forefront of your Board’s attention.
As virtually all commercial enterprises experienced in 2009, economic conditions change with increasing rapidity; and your Board – comprised of remarkably independent-minded men and women from across the globe, with active responsibilities and broad international experience, from Wall Street and the City of London, international management consulting, asset management, angel investing and academia, advertising and internet start-ups, consumer-products, energy and manufacturing industries, government and global non-profit organizations – employs the breadth and depth of these perspectives in its fashioning and assessing the Group’s risk management.
In that context, succession of the Group’s CEO and other key executives was – again, as for the past seven years – addressed substantively in 2009. The entire Board devoted major parts of two meetings to reflecting on these individuals and some other 200 senior managers and ‘rising stars’, skills, performance, developmental opportunities and potential successors. Some of our businesses, if independent, would rank among our industry’s largest, and we are therefore fortunate to have an impressive roster of executives with extensive senior management experience, several dozen of who could readily undertake parent company or other key roles.
Your Board and the Group’s chief executive have exchanged candid, specific, current opinions about the candidates, internal and external, best qualified to succeed him; and on several structured and informal occasions, the non-executive directors, in his absence, addressed the potential selection process and succession candidates. We take this risk management responsibility extremely seriously. We continue to adhere to the position that – lest public discussion of this subject foster speculation and distraction – the content of these ongoing deliberations should remain strictly confidential.
In light of the financial community’s experience since 2008, your Board concurs with the general calls for intensified corporate governance and believes that our practices have evidenced this. We have been attentive, nonetheless, to the slew of reviews and reports on this subject; and on my colleagues’ behalf, I have personally engaged in a variety of such studies. Given WPP’s global operations and complexity, your Board welcomes meaningful and beneficial engagement with share owners to convey our governance practices. To that end, we hope that our communications throughout the year and this Annual Report provide a comprehensive, clear picture of how the Board and the Group operate.
For governance to be genuinely effective, however, every board must tailor best practices and innovations to the idiosyncrasies of its organization’s industry, culture, operations, regions, and personalities – without diminishing the rigorous execution of oversight responsibilities. Of WPP’s exceptions from some advisory groups’ preferences, one example that is occasionally referenced is our position that a director’s ‘independence’ may be determined on a factual, rather than mere chronological, basis.
Some institutional investors and their representative bodies contend that directors who have served for more than nine years should no longer be considered ‘independent’; nor, by definition, should the Group chairman. We respectfully assert that a worldwide enterprise of WPP’s scale and range of commercial activities benefits enormously from long-term directors who are actively engaged in the Group’s governance and that ‘independence’ should be determined not by such an arbitrary standard as tenure, but on a case-by-case basis, with full disclosure to share owners of any appearance of conflict with published guidelines.
We do agree that occasional change and renewal are healthy for a Board. For that reason, Bud Morten – an exemplary non-executive director, whose experience, judgment and commitment of time have constituted an invaluable asset of the Group – has stepped down as the Board’s senior independent director. One cannot exaggerate how well served we share owners have been by this respected individual’s service. His quantitative analytical experience, qualitative judgment and routinely painstaking review of all relevant documents are indicative of his long-standing record of diligence and discernment. Only valued more by his Board colleagues is his capacity to challenge and debate – with senior management and often with several of us – without being disagreeable. He has been and, by standing for re-election as a non-executive director, will continue to be, we trust, a model director, one with an unflagging, demonstrated inclination towards independent-mindedness.
Succeeding Bud as senior independent director is Jeffrey Rosen, deputy chairman of Lazard, a member of this Board since December 2004, and a distinguished 30-year veteran of international financial transactions. He also brings to this role a thorough understanding of WPP from his conscientious service as chairman of our Compensation Committee and energetic membership of our Audit Committee.
Evidenced by our current slate of candidates for this Board, we continue to require that non-executive directors who have served on the Board for nine years or more submit themselves for re-election annually. For that reason, my name is among those on the list. The Board does not view my position as non-executive chairman, my chairmanship of the Nomination Committee and membership on the Compensation Committee, or my nine years’ service as compromising my independence. It is their considered judgment – formally reviewed on an annual basis – that such continuity helps ensure co-ordination of related Board matters and practicable, informed management of our governance work. By invitation of the Audit Committee’s chairman, I also attended all of its meetings in 2009 and, with his consent, will continue this practice to stay fully abreast of the Committee’s and our auditors’ findings.
The Board’s Nomination Committee – now comprised of Esther Dyson, Orit Gadiesh, Lubna Olayan and me – invites the participation, in whole or in part, of the Group chief executive, the Company Secretary, and the Group chief counsel in its meetings. In 2009, we formally met three times and more frequently conversed informally to assess the Board’s composition and to consider potential new members, identified from a variety of both internal and external sources. Paramount to our thinking has been how both the Company’s progress on its long-term strategic objectives and its month-by-month performance towards financial goals can best be assessed by the collective experience of individuals serving on this Board.
For the present, no changes were deemed necessary. Practically all of our directors hold or have recently held strategic leadership positions; and one, Orit Gadiesh, is chairman of Bain & Company, one of the world’s most sought-after strategic consultants. European, American, Asian and Middle Eastern directors together inform our global perspective and ever-increasing focus on faster-growing markets. Several directors who are deeply involved with new media – notably, Esther Dyson, an acknowledged web authority and active investor in new information technologies, and Mark Read, who oversees the Group’s interactive portfolio – take the lead in monitoring WPP’s strides in this field and identifying opportunities and threats. Our Consumer Insight initiatives are especially informed by Harvard Business School professor (and former London Business School Dean) John Quelch, one of academe’s most highly regarded marketing experts, and Colin Day, Reckitt Benckiser Group’s finance director and former Cadbury plc director.
All of us directors have managed large organizations: Lubna Olayan, for example, is currently CEO of a major Saudi Arabian corporate group. Most have had hands-on financial responsibility: witness Her Majesty honoring Paul Spencer last year for his contributions to financial accountability, practiced as chairman of our Audit Committee and as Independent Trustee of BA, BAT, BT and Rolls-Royce’s pension funds.
Our corporate responsibility program – summarized in this report and in our separate CR publication and championed by our Board colleague Tim Shriver, the CEO of Special Olympics and prominent spokesman for business’ public duties – is comprehensive and impactful. Well beyond the Group’s measures to improve our workplaces, enhance our people’s employment experience and contribute to environmental sustainability, as well as other articulated CR undertakings, WPP companies and their teams complete uncompensated promotional, design and related services for hundreds of worthy causes worldwide.
In addition to evaluating the relevance of our directors’ profiles to our strategic objectives, the Nomination Committee’s 2009 work also complied with governance duties ranging from implementation of rules governing the disclosure and approval of directors’ conflicts-of-interest and review of committee terms of reference to oversight of succession planning and the Board self-evaluation. The Board again completed, in 2009, as part of its commitment to rigorous standards of corporate governance, a thorough self-evaluation. All directors completed a confidential questionnaire in this regard and identified opportunities for improvement. Separate conversations were then held between each director and either the chairman or the senior independent director, who also led the non-executive directors’ assessment of my performance as chairman. Based on this process, we continued our tradition of implementing changes to enhance the Board’s performance of its responsibilities.
‘Groupthink’ is the antithesis of our Board’s behavior. Each Board and Committee meeting challenges well-tested assumptions, long-standing practices and even iconic executives. We thereby seek to comply with – and throughout the financial year ended 31 December 2009, WPP plc did so or surpassed – the requirements of the Combined Code on Corporate Governance, NASDAQ’s rules, US Sarbanes-Oxley requirements and, where practicable, guidelines issued by institutional investors and their representative bodies.
Each year over the past decade, our responsibilities as non-executive directors have increased substantially. We do not shrink from these; nor do we take them lightly. Our iPhones and BlackBerrys hum with near-daily messages prompted by packs of WPP reading materials, the Group chief executive’s, the senior independent director’s or my musings, or any director’s reaction to news-of-the-day. They, as well as our Company Secretary and Group chief counsel, devote an enormous amount of time, frequently with personal sacrifice. Essential to our effectiveness are the oft-unsung efforts of those at WPP who directly support our work and the highly competent professionals who meet the never-ending stream of legal, regulatory, tax, accounting and administrative demands.
While forecasters promise a more benevolent economy for 2010 – and early signs are encouraging, operating in more than 100 jurisdictions, with 138,000 people and some 2,400 offices, can be ‘tidy’ only through their disciplined, co-ordinated efforts. WPP’s people across the globe are creating value each day, for our clients and for our share owners. It is, every day, a competition with other firms and with our own past creativity. That tenacity and dedication brought us through 2009 relatively unscathed. It is such professionalism which can generate superior returns for our share owners in this and future years.
For that and for our fellow share owners’ trust in our stewardship of these interests, we directors are most thankful.