Review of the Company’s governance and the Nomination Committee
Dear share owner
Report by Philip Lader (above) Chairman of the Company and chairman of the Nomination Committee
Our chief executive has described the business environment of recent years as “untidy”, if not “brutal”. And the world continues to witness an extraordinary array of natural, geopolitical and economic challenges. In such a tumultuous context, your Board is particularly pleased to report the encouraging results of the Group’s 25th anniversary year and our prospects for 2011.
Management’s indefatigable entrepreneurship – notwithstanding the Group’s substantial size, global scope and industry position is, we believe, central to these results. Our articulated long-term strategy – geographic and product diversification and investment in digital and consumer insight businesses – is unwavering. The past year’s results underscore the soundness of these objectives. Yet they also evidence the fact that the Group, while continuing to strengthen its advertising and media management competencies, has essentially become a comprehensive communications services company, one with an increasing focus on the power of proprietary data and analytics.
Day-to-day operations were, of course, no less important to these results. We are heartened by WPP companies’ new-business wins and leading position in serving the world’s major clients. We congratulate managers at every level for their adroit calibration of personnel and expenses in an especially demanding environment. We recognise the critical role of parent company colleagues whose talent and treasury management, acquisitions and cross-operating company leadership have contributed substantially to this anniversary year’s considerable achievements.
As we trust our fellow share owners would agree, the manner, intensity and breadth of WPP’s corporate governance met standards consistent with the operating team’s superb performance. We have sought to exercise:
- rigorous, ‘common-sense’ Board oversight, modelled on the evolution of best practices, particularly the increasing focus on all aspects of risk management;
- unceasing re-evaluation of management’s tactical implementation of the Group’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.
The Group’s 2011 is promising… and we trust will likely be considerably more stable than the last several years. But there will be no relaxation of these standards.
As one measure of your Board’s commitment, we met, as a full Board or in committees, 30 times in 2010. Our regular full Board meetings were in Dublin and New York; but to enhance our understanding of the increasing importance of WPP’s Asian activities, we met with the Group’s regional leaders, major clients and public officials in Shanghai, too. Additionally and informally, directors, senior management, operating company leaders, professional advisors and share owners, among others, met innumerable times during the year. Few weeks go by without some gathering or teleconference of your directors; never a day passes without directors exchanging emails with each other, me and/or the Group’s CEO, always with his legendary instant response.
In response to 2010’s specific challenges, your Board undertook a series of initiatives exceeding our customary governance disciplines. For example, we:
- increased the frequency of consultation with the Group chief executive and finance director regarding responses to uncertain and fragile economic and financial market conditions, with income statement and balance sheet issues addressed frequently;
- reviewed closely the integration and performance of TNS and other recent and prior acquisitions, all examined in the context of our diverse portfolio of complementary companies’ contributions to attainment of the Group’s strategic objectives;
- sought to further our understanding of rapidly-growing geographic markets, especially with regular briefings on WPP’s activities in Asia, the aforementioned Board meeting’s focus on China, and the addition of two new directors, one a prominent Chinese media business leader, and the other a former chief executive who has led telecommunications companies on several continents;
- strengthened the Board’s and senior management’s grasp of new media, their commercial and social dimensions, and the ways in which they are transforming consumer behaviour, as well as the global communications and marketing services industry;
- dedicated many hours to the formulation and management of performance-driven remuneration programs – ranging from the Group chief executive’s to those of more than 50 key personnel – an undertaking which is essential to the Group’s recruitment, motivation and retention of the talent that in turn is critical to WPP’s success programs that align employees’ interests with those of share owners and optimises the budgetary flexibility of our variable personnel costs;
- reviewed and approved financial statements, critical accounting policies upon which they are based, and supporting systems of reporting and internal controls; analysing not only the systems’ accuracy, but their responsiveness to liquidity and financing requirements in stressful circumstances;
- at Board meetings throughout the year, routinely engaged in 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, executives of relevant companies and securities analysts; and
- examined 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 significant issues relating to talent, clients and 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 and trends. Business risks are gauged at every meeting reflecting the fact that risk management continues to be at the forefront of your Board’s attention.
Effective risk management, as well as strategy development and operations oversight are best achieved through the focused concern of broad-gauged directors. The men and women who serve on your Board are broadly recognised as remarkably independent-minded; they reside and have worked across the globe; their current and past professional roles have been international in scope; their present responsibilities range from Wall Street and the City of London, to international management consulting, asset management, telecommunications and media, angel investing, academia, advertising, internet start-ups, consumer-products, energy, manufacturing, government and global non-profit organisations.
And we continue to refresh the composition, and benefit from the ever-broadening perspectives, of our Board. The appointment as a non-executive of Ruigang Li, a graduate of Fudan University and former resident scholar at Columbia University, emphasizes our Group’s recognition of the importance of Asia and China particularly, to our business, this industry and international commerce. President of Shanghai Media Group since 2002, he leads China’s most comprehensive portfolio of television, radio, digital, home-shopping, content distribution, and performing arts businesses and the largest content and service provider of Chinese language programs in the Chinese mainland. He is also chairman of China Media Capital, his country’s first and only sovereign private equity fund dedicated to media within China and abroad.
Our other newly-appointed director, Sol Trujillo, brings to our Board 30 years of senior management experience in international media and communications. Former chief executive of US West (now Quest), Orange (now France Telecom) and Telstra (the Australian telecommunications company), he is acknowledged to be a broadband and wireless pioneer. An exceptionally experienced corporate director – having served on the boards of PepsiCo, EDS, Bank of America, and Gannett, among others – he remains active in business affairs in China and South Asia, Europe, North America, Africa and the Middle East and is chairman of China’s Silk Road Technologies and a director of Target, Promerica Bank, and Italy’s Weather Investments.
The governance community has increasingly addressed the value of women’s contributions to corporate boards, and your Board has, indeed benefited from such perspectives. Lists of the world’s leading business women routinely include the three women who serve on your Board – Esther Dyson – the prominent internet pioneer, investor and commentator, Orit Gadiesh – chairman of global management consultants, Bain & Company, and Lubna Olayan – chief executive of the multinational Olayan Financing Company. Marie Capes serves as Company Secretary. Currently, 54% of the Group’s employees are female; as are 48% of WPP’s senior management. Your Board, the Group’s chief executive and this chairman are committed to continuing to seek the benefits of a wide diversity of backgrounds and perspectives throughout the Group.
As examples of the continuing broadening of current directors’ experience, congratulations are in order for John Quelch and Colin Day. Professor Quelch’s global leadership in the academic field of marketing has long been recognised as London Business School Dean and Harvard Business School senior associate Dean and professor, as well as a past director of such companies as Pepsi Bottling, Reebok, easyJet and Blue Circle Industries. He was recently named Dean of the prestigious China Europe International Business School and was presented with an Honorary Doctorate from The University of Hanoi.
Colin Day’s work as Reckitt Benckiser’s finance director since 2000 has been widely applauded; his prior experience as Aegis plc’s finance director has been directly relevant to WPP’s media investment management business; and his prior board experience has included Cadbury and Imperial Tobacco. In his new role as chief executive of Filtrona plc, the international supplier of specialty plastic and fibre products, Colin will continue to expand the range of his valuable insights for our Board.
Among the various other honours received by directors of the Company this year, none was more well-deserved than the award of the rank of Commander of the Order of the British Empire (CBE) to Paul Spencer in recognition of his contributions to the financial services industry. Paul’s extensive experience in financial management and supervision – including his current service as chairman of State Street Managed Pension Funds and as the Independent Trustee of the BAT, BT, BA and Rolls-Royce Pension Funds – is reflected in the exacting standards he maintains as chairman of your Board’s Audit Committee.
Just as we observe the transitions in our Board colleagues’ professional lives, WPP’s directors devote considerable attention to succession planning for the Group’s CEO and other key executives. For the past eight years, and again in 2010, your entire Board devoted major parts of two meetings to management development for some 200 senior managers and ‘rising stars’. Some of the Group’s operating companies, if independent, would rank among our industry’s largest, and we are therefore fortunate to have an impressive roster of seasoned executives who are capable of undertaking 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 have separately addressed the appropriate selection process and succession candidates. Although we have every expectation of Sir Martin’s continued, vigorous and effective leadership of the Group, the Board’s responsibility for succession planning is taken extremely seriously. We continue to adhere to the position, however, 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 rigorous practices have evidenced this. We continue to be attentive, nonetheless, to the many reviews and reports on this subject; and on my colleagues’ behalf, I have personally participated 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 particular demands of its organisation’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’ should 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 arbitrary standards as tenure, but on a case-by-case basis, with full disclosure to share owners of any appearance of conflict with published guidelines.
Similarly, your 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 judgement – 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 2010 and, with his consent, will continue this practice to stay fully abreast of the Committee’s and our auditors’ findings.
To ensure that a majority of our share owners concur with these positions as to ‘independence’ as well as to review each director’s performance more frequently, your Board has recommended that WPP directors’ terms be limited to one year. Such practice, consistent with the UK Corporate Governance Code, will provide share owners with the right to review our individual performance and elect each member of your Board annually.
The aforementioned appointments of new directors evidence your Board’s conviction that occasional change and renewal are healthy for any Board. Furthermore, we continually seek to introduce new thinking into each Committee’s deliberations. To this end, Sol Trujillo has joined the Audit Committee; Tim Shriver moved from the Audit to the Compensation Committee, to which Colin Day was also added.
The Nomination Committee – comprised of Esther Dyson, Orit Gadiesh, Lubna Olayan and me – has now been charged with overview of Corporate Responsibility, with employee issues remaining with the Compensation Committee. At each meeting, our Committee invites the participation, in whole or in part, of the Group chief executive, the Company Secretary, and the Group chief counsel. In 2010, we formally met three times and more frequently conversed informally to assess the Board’s and committees’ composition and to consider potential new members, identified from a variety of both internal and external sources. The changes made in 2010 reflect our thinking as to how your Company’s progress toward achieving its long-term strategic objectives and its month-by-month performance can best be assessed by the collective experience of directors.
In addition to evaluating the relevance of your Board’s composition to the Group’s strategic objectives, the Nomination Committee’s 2010 work complied with governance duties ranging from the implementation of rules addressing the disclosure and approval of directors’ conflicts-of-interest and the review of committees' terms of reference to the oversight of succession planning and the Board self-evaluation. The Board again completed, in 2010, 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, Jeffrey Rosen, 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.
I cannot exaggerate how ‘independent-minded’ your Board is. 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 2010, WPP plc did so or surpassed – the requirements of the Combined Code and the UK Corporate Governance Code, NASDAQ’s rules, US Sarbanes-Oxley requirements and, where practicable, guidelines issued by institutional investors and their representative bodies.
Even without a large-scale new acquisition, your Board’s responsibilities as non-executive directors continued to increase substantially in 2010. We do not shrink from these; nor do we take them lightly. Those voluminous packs of WPP reading materials keep streaming to us; our iPhones and BlackBerrys hum with near-daily messages from colleagues. Directors freely and frequently share reactions to news-of-the-day. My Board colleagues, as well as our Company Secretary and Group chief counsel, devote enormous amounts of time, frequently with personal sacrifice to tasks beyond any narrow definition of their roles. And our effectiveness depends, to a significant degree, on the oft-unsung efforts of those at WPP who directly support our work and the highly competent professionals who meet the never-ending flow of legal, regulatory, tax, accounting and administrative demands.
A more benevolent economy for 2011 is forecast and – notwithstanding earthquakes, tsunamis, nuclear accidents, insurrections, revolutions, national fiscal imbalances and political discord – early signs are encouraging. Yet for this Group to achieve its mission and Business Plan collectively in more than 100 countries and some 2,400 offices, the disciplined, co-ordinated efforts of our 146,000 people is paramount in importance. The individuals profiled in this Annual Report are critical to our success; so too are the thousands of individuals across the globe who each day, create value for our clients and thereby our share owners. As laudable as the Group’s 25-year record is, we cannot forget that there is a continuing competition, every day, with other firms and with our own past creativity. The intelligence, imagination, diligence and plain hard work of all these people are what truly achieved these 2010 results. And only such professionalism and dedication can generate strong returns for our share owners in this and future years.
For that and for our fellow share owners’ trust in our stewardship of your Company, we directors are most thankful.