Review of the Company’s governance and the Nomination and Governance Committee
Report by Philip Lader (below) Chairman of the Company and chairman of the Nomination and Governance Committee
Dear share owner
A record year, 2011, thanks to supportive clients, innovative strategy, award-winning creativity, and, especially, the talent and commitment of WPP teams around the world.
Our long-term strategy – geographic and product diversification and investment in digital and Consumer Insight businesses – is paying off. Recognized by the Cannes Lions International Festival of Creativity’s first Holding Company of the Year Award, WPP maintains its leadership in advertising, as well as media investment management. Yet it is now established that the Group is a comprehensive communications services company, with a powerful, increased focus on the power of proprietary data and analytics.
The operating teams’ superb day-in, day-out performance this past year was evidenced in continuing dedicated service to major clients, significant new business wins, disciplined expense controls, and innovative leadership in talent and treasury management, acquisitions and cross-company collaboration. Central to these achievements, however, has been what my prior years’ reports have referred to as “management’s indefatigable entrepreneurship.”
Calibration of such energies with prudent corporate governance continues to be among your Board’s principal responsibilities. We have therefore sought to exercise rigorous directors’ oversight, particularly emphasizing all aspects of risk management. Parent-company execution of our strategic objectives, as well as operating companies’ financial and creative performance, are closely monitored. Industry, finance and individual businesses’ indicators are regularly reviewed and assessed. We endeavour to aggregate and optimize, preserve and enhance the Group’s enormous tangible and intangible assets.
To these ends, we met, as a full Board or in committees, 24 times in 2011: regularly, as a Board, in Dublin, Washington and New York; but for first-hand understanding of WPP’s African and Middle Eastern activities, we also met in Cape Town with the Group’s regional leaders and major clients. Innumerable times throughout the year, directors, senior management, operating company leaders, professional advisors and share owners convened. And there continues to be near-daily exchange of emails between directors, the Group chief executive and me.
Throughout, our governance practices have been characterized by ‘common sense’:
- with extensive briefings on new media’s impact on consumer behaviour, emerging trends in our industry, rapidly-growing geographic markets, and economic and financial market conditions;
- by regular examinations of client services, personnel transitions and creative work, as well as internal financial controls, income statement and balance sheet issues, and integration of acquisitions;
- and in refinement of our performance-driven remuneration programs and evaluation of talent recruitment, development, motivation and retention.
This was accomplished by frequent and candid exchanges of views with WPP business leaders, clients, government officials and securities analysts.
At every Board meeting, the Group chief executive’s Brand Check – focusing on clients, talent and competitors – enabled non-executive directors’ evaluation of both enterprise risk and management nimbleness in seizing opportunities.
To these efforts, a broad diversity of backgrounds, experience and perspective was brought by your directors: residents of, and educated in, Europe, the US’s East and West Coasts and South, the Middle East and Asia, working across the globe in Asian media and advertising, Wall Street investment banking and investment management, the City of London’s pension fund oversight, international management consulting, private equity and angel investing, business education, manufacturing, consumer products and retail management, internet start-ups, government and non-profits. Three non-executive directors were prominent businesswomen. Most important, your directors are remarkably independent-minded.
The Board, and I personally, understand, but greatly regret, the decision of our colleague, Lubna Olayan, not to stand for re-election. The demands of her Saudi Arabian-based company as well as education, charitable, and other commercial interests precluded, in her judgment, her ongoing participation with our Board, service which often occasioned considerable effort and sacrifice on her part. She has been an exemplary director. And we hope to enlist her informal counsel for WPP and, in other contexts, to continue our prized relationships.
As to your Board’s responsibility related to succession planning and management development, we continued last year to review the roles of some 200 senior managers and ‘rising stars.’ Given the size and complexity of some of the Group’s operating companies – which, if independent, would rank among the industry’s largest, there is a large and impressive pool of seasoned executives who are capable of undertaking important new roles.
We applaud Sir Martin Sorrell’s remarkable work and encourage his continued, vigorous and effective leadership. He and your Board, nevertheless, periodically and in several structured sessions, exchange candid, specific, current opinions about the candidates, internal and external, best qualified to succeed him at some point. I firmly maintain the position, however, that – lest public discussion of this subject foster speculation and distraction – the content of these ongoing deliberations should remain strictly confidential.
Throughout 2011, I participated in numerous corporate governance conferences, seminars and studies, and it is my belief that your Board’s rigorous practices comply with, or exceed, traditional and evolving standards applicable to a worldwide enterprise of WPP’s complexity and entrepreneurial drive. Moreover, your Board, particularly its senior independent director, our Group chief executive and I,welcome substantive engagement with share owners on governance, financial, compensation and other matters.
Notwithstanding such rigorous governance, this Board continually tailors best practices to this specific organization. For example, we respectfully assert, contrary to some advisory group’s preference, that a director’s ‘independence’ should be determined on a factual, rather than mere timeline basis. With its scale and range of commercial activities, WPP benefits enormously from directors who have long experience with the organization and are actively engaged in the Group’s governance; and their ‘independence’ should be determined not by arbitrary standards (e.g., nine-year tenure limitations), but on a case-by-case basis. Continuity of directors and the chairman, in your Board’s opinion, serve – when reviewed formally and annually, as we do – share owners’ best interests.
Any appearance of conflict with published governance guidelines are fully disclosed. And to ensure that a majority of our share owners concur with these positions and review each director’s performance annually, our directors’ terms are limited to one year, and the Group chief executive serves at will.
As to our committees, I attended all of the Audit Committee’s meetings in 2011 by invitation of its chairman and, with his consent, will continue this practice to stay fully abreast of the committee’s and our auditors’ findings.
The mission of what was formerly the Nominations Committee – ranging from consideration of the Board’s and committees’ composition, potential new members, directors’ potential conflicts of interest, each committee’s terms of reference, to the Board’s thorough self-evaluation – has been expanded to include overview of corporate governance and sustainability. Participation of the Group chief executive, the Company Secretary and the Group chief counsel is invited at each of this committee’s meetings. In 2011, the committee met formally twice, occasionally addressed committee matters as a sub-set of the full Board or non-executive directors’ meetings, and frequently conversed informally.
For the Board’s review of its own operations, each director completed a confidential questionnaire 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. From these findings, we continued implementing changes to enhance the Board’s performance.
In each of these ways, and our general conduct, your Board seeks to comply with – and throughout the financial year ended 31 December 2011, WPP plc did so or surpassed – the requirements of the UK Corporate Governance Code, NASDAQ’s rules, US Sarbanes-Oxley requirements and, where practicable, guidelines issued by institutional investors and their representative bodies. We trust that, in all our undertakings, the ‘independence’ of your Board is evident.
Our Company Secretary, Group chief counsel, countless dedicated WPP team members and highly competent professionals provide essential, invaluable support to the Group’s directors. We are privileged to represent share owners and continue to be devoted to the mission and success of this extraordinary business.