Corporate governance: How the Company is governed, including risk management and activities of the Board
Statements of compliance
UK Corporate Governance Code compliance
The Board considers that WPP complied in all material respects throughout 2013 with the provisions of the UK Corporate Governance Code.
WPP operates a system of internal control, which is maintained and reviewed in accordance with the UK Corporate Governance Code and the guidance in the Turnbull Report as well as Rules 13a-14 and 15 under the Securities Exchange Act 1934. In the opinion of the Board, the Company has complied throughout the year and up to the date of the approval of this Annual Report and Accounts with the Turnbull Report and has also complied with the relevant provisions of the Securities Exchange Act 1934.
How we comply
For ease of reference we have structured this section around the main principles of the UK Corporate Governance Code.
The role of the Board
The Board is collectively responsible for promoting the success of the Company by directing and supervising the Company’s policy and strategy and is responsible to share owners for the Group’s financial and operational performance. Responsibility for the development and implementation of Group policy and strategy and for day-to-day management issues is delegated by the Board to the Group chief executive and the other executive directors. The list of matters reserved to the Board can be downloaded from the website wpp.com/wpp/investor.
During 2013, the Board met seven times formally and held 20 committee meetings throughout the year.
|Attendance of directors at meetings||Board||Audit Committee||Compensation Committee||Nomination and Governance Committee|
1 By invitation, the chairman attended all of the Audit Committee meetings.
2 By invitation, Bud Morten attended certain committee meetings.
3 Paul Spencer, Bud Morten, John Quelch and Koichiro Naganuma retired in June 2013.
4 Roger Agnelli, Jacques Aigrain, Hugo Shong and Sally Susman were appointed on 13 May 2013.
5 Daniela Riccardi was appointed on 12 September 2013.
6 Charlene Begley was appointed to the Board on 1 December 2013 and appointed to the Nomination and Governance Committee on 17 February 2014.
7 Ruigang Li and Sol Trujillo were appointed to the Compensation Committee in June 2013.
8 Ruigang Li, Jeffrey Rosen and Tim Shriver were appointed to the Nomination and Governance Committee in June 2013.
|Philip Lader1 (chairman)||7||7||7||6|
|Sir Martin Sorrell||7||–||–||–|
The role of the chairman
The Board is chaired by Philip Lader, who chairs the Nomination and Governance Committee and during 2013 was a member of the Compensation Committee and at the invitation of the Audit Committee chairman, attended all meetings of that committee. The chairman provides the leadership of the Board and is the main point of contact between the Board and the management team. The chairman represents the Board in discussions with share owners, investor bodies, ensures that systems are in place to provide directors with timely and accurate information, represents the Company in extensive external gatherings, and is also responsible for the Board governance principles. He has led the Board recruitment and appointment process, determination and periodic revision of confidential leadership plans for potential emergencies, and the ongoing emphasis on management development and CEO succession planning. Ambassador Lader plans to retire from the Board at the end of December 2014, after the Board’s announcement of a chairman-designate and an orderly transition.
The role of the senior independent director
The senior independent director is Jeffrey Rosen who is available to share owners and acts as a sounding board for the chairman and as an intermediary for the other directors with the chairman when necessary. The senior independent director’s role includes responsibility for the chairman’s appraisal and succession. Jeffrey Rosen has been the senior independent director since April 2010.
The non-executive directors have a diverse range of skills, experience and backgrounds. As detailed in their biographies, the non-executive directors work across the globe in media and advertising, investment banking and investment management, pharmaceuticals, mining, logistics and bioenergy, airlines, FMCG, international management consulting, private equity and angel investing, business education, manufacturing, consumer products and retail management, internet start-ups, government and non-profit organisations. They provide constructive challenge and assistance to the Group chief executive in developing the Group’s strategy. All directors have access to the services of the Company Secretary and may take independent professional advice at the Company’s expense in conducting their duties. The Company provides insurance cover for its directors and officers.
The composition of the Board
The Board is now composed of 19 directors, with at least five non-executive directors, including the Board chairman, planning to retire within the next several years under a new Board tenure policy. Three current members are executive directors and 15, plus the chairman, are non-executive directors. The independence of each non-executive director is assessed annually by the Board. The Board has confirmed that all of the non-executives standing for re-election at the 2014 AGM continue to demonstrate the characteristics of independence.
Succession: Board and committee membership
In 2012, WPP commenced a comprehensive review of the Board’s composition and effectiveness, directed by the Nomination and Governance Committee with the assistance of Egon Zehnder International, a prominent Board recruitment and advisory firm. Geographic and gender diversity together with skills and experience in marketing services, finance and pertinent technologies are among the priorities of our Board succession.
As a consequence of this review the composition of the Board and the committees has been refreshed. Four of the longest serving non-executive directors, Bud Morten, John Quelch, Paul Spencer and Koichiro Naganuma did not stand for re-election at the 2013 AGM. Eight new non-executive directors have been appointed during the course of 2013 and 2014:
- Roger Agnelli
- Jacques Aigrain
- Charlene Begley
- Dr John Hood
- Daniela Riccardi
- Nicole Seligman
- Hugo Shong
- Sally Susman
The Compensation Committee chairman, Jeffrey Rosen, will step down from the committee at the 2014 AGM and subject to his election, will be succeeded by Dr John Hood. Esther Dyson and Philip Lader also stepped down from the Compensation Committee at the end of December 2013.
Roger Agnelli, Jacques Aigrain, Dr John Hood, Daniela Riccardi, Nicole Seligman and Hugo Shong have joined Colin Day, Sol Trujillo, Tim Shriver and Ruigang Li on the Compensation Committee.
Colin Day succeeded Paul Spencer as chairman of the Audit Committee, and continuing members, Sol Trujillo and Jeffrey Rosen, have been joined by Jacques Aigrain, Roger Agnelli, Hugo Shong and Charlene Begley.
Roger Agnelli, Charlene Begley, Tim Shriver, Jeffrey Rosen, Ruigang Li, Hugo Shong and Sally Susman have joined Esther Dyson and Orit Gadiesh on the Nomination and Governance Committee, with Philip Lader as chairman. The chairman of the Board participates as an ex-officio member of all Board committees.
Letters of appointment for non-executive directors do not set out a fixed time commitment for Board attendance and duties but give an indication of the likely time required. It is anticipated that the time required by directors will fluctuate depending on the demands of the business and other events.
On joining WPP, non-executive directors are given an induction which includes one-to-one meetings with management and the external auditors, briefings on the duties of directors of a Jersey company, the Model Code, WPP Code of Conduct and the UK Corporate Governance Code. The induction also covers the Board committees that a director will join. All directors are fully briefed on important developments in the various business activities which the Group carries out worldwide and regularly receive extensive information concerning the Group’s operations, finances, risk factors and its people, enabling them to fulfil their duties and obligations as directors. The directors are also frequently advised on regulatory and best practice requirements which affect the Group’s businesses on a global basis. At the Board meeting held in Turkey in 2013, the Board received briefings from all the heads of the Group’s Central & Eastern Europe, Middle East and Africa operations.
WPP undertakes an annual review of the Board, its committees and individual directors. In 2013, the annual evaluation was undertaken alongside the Board recruitment process. Egon Zehnder’s consultants rendered candid evaluations of our Board and committees’ performance. From these findings, we concluded that the Board and its committees had been effective and are prepared for a variety of potential macroeconomic, industry, client and personnel challenges but must continue to seek additional ways that their effectiveness might be enhanced.
The directors submit themselves for annual re-election at each Annual General Meeting, if they wish to continue serving and are considered by the Board to be eligible. Directors may be appointed by share owners by ordinary resolution or by the Board on the recommendation of the Nomination and Governance Committee and must then stand for re-election at the next Annual General Meeting where they may be re-elected by ordinary resolution of the share owners.
With only specific exceptions to ensure Board continuity (as noted in the Nomination and Governance Committee report), non-executive directors shall not stand for re-election after they have served for the period of their independence , as determined by then-applicable UK and US standards; that currently being a period of nine years.
WPP recognises the importance of diversity, including gender, at all levels of the Group as well as the Board.
WPP is committed to increasing diversity across its subsidiaries and supports the development and promotion of talented individuals, including women. In 2013, women comprised 29% of the WPP Board, 32% of Board members and executive leaders in the subsidiaries, 47% of senior managers and 54% of total employees. Following the appointment of Nicole Seligman on 1 January 2014, women now comprise 31% of the WPP Board in line with our aspiration last year to increase the female representation on the Board to 30% of non-executive directors as part of the Board refreshment process.
Directors’ conflicts of interest
The Company’s Articles of Association permit the Board to consider and, if it sees fit, to authorise situations where a director has an interest that conflicts, or may possibly conflict, with the interests of the Company (Situational Conflicts). The Board has a formal system in place for directors to declare Situational Conflicts to be considered for authorisation by those directors who have no interest in the matter being considered. In deciding whether to authorise a Situational Conflict, the non-conflicted directors must act honestly and in good faith with a view to the best interests of the Company and they may impose limits or conditions when giving the authorisation, or subsequently, if they think this is appropriate.
Any Situational Conflicts considered, and any authorisations given, are recorded in the relevant minutes. The prescribed procedures have been followed in deciding whether, and on what terms, to authorise Situational Conflicts and the Board believes that the systems it has in place for reporting and considering Situational Conflicts continue to operate effectively.
The Board (which receives advice from the Audit Committee) has overall responsibility for the system of internal control and risk management in the Group and has reviewed the effectiveness of the system during the year and up to the date of this report. In the context of the scope and complexity of this system, the Board can only give reasonable, not absolute, assurance against material misstatement or loss. The system of controls is designed to manage, but may not eliminate, the risks of failure to achieve WPP’s objectives. For certain joint ventures and associates, WPP operates controls over the inclusion of their financial data but places reliance upon the systems of internal control operating within our partners’ infrastructure and the obligations upon partners’ boards relating to the effectiveness of their own systems.
The principal elements of internal control are described below.
The quality and competence of our people, their integrity, ethics and behaviour are all vital to the maintenance of the Group’s system of internal control.
The Code of Business Conduct (which is regularly reviewed by the Audit Committee and the Board and was updated in 2012), sets out the principal obligations of all employees. Directors and senior executives throughout the Group are required to sign this Code each year. The WPP Policy Book (which was updated in 2011) includes the Code of Business Conduct and human resource practices, as well as guidance on practices in many operational areas. Breaches or alleged breaches of this Code of Conduct are investigated by the director of internal audit, head of compliance and the Group chief counsel. In 2013 WPP issued the Data Code of Conduct and updated the Supplier Code of Conduct.
The Group has an independently-operated helpline, Right to Speak, to enable our people to report issues that they feel unable to raise locally. A number of issues have been raised during 2013 through 54 calls to this helpline, all of which have been followed through and investigated where appropriate and reported to the Audit Committee.
Risk monitoring of all of the Group’s operations throughout the world is given the highest priority by the Group chief executive, the Group finance director, the chairman of the Audit Committee and the Board, as it is essential to the creation and protection of share owner value and the development of the careers of our people. The Board realises that WPP is a communication services company and its ongoing prosperity depends on being able to continue to provide a quality service to its existing and potential clients in a creative, efficient and economic way.
Identification, management and monitoring of sustainability risks (including social, environmental and ethical risks) is fully integrated into the Group’s risk management processes.
At each Board meeting, the Group chief executive presents a Brand Check review of each of the business’ operations, including an assessment of the risk in each business, providing feedback on the business risks and details of any change in the risk profile since the last Board meeting.
The Brand Check covers such issues as:
- the possibility of winning or losing major business (e.g. as a result of a change of senior management at a major client);
- the addition or loss of a key executive of the Group;
- introduction of new legislation in an important market;
- sustainability, including risks relating to marketing ethics, privacy and employment;
- political instability in an important market; and
- changes in accounting or corporate governance practice.
Each operating group undertakes monthly and quarterly procedures and day-to-day management activities to review their operations and business risks. These are formally communicated to the Group chief executive, other executive directors and senior executives in monthly reports and quarterly review meetings and, in turn, to the Board.
Paul Richardson provides a formal annual assessment of sustainability risks and performance to the Nomination and Governance Committee.
The Board is firmly of the opinion that the monitoring of risk is strongly embedded in the culture of the Company and of the operating companies, in a manner which the Board considers goes beyond the Turnbull recommendations and the requirements of Rules 13a-14 and 15 under the Securities Exchange Act 1934.
Control activities and monitoring
Policies and procedures for all operating companies are set out and communicated in the WPP Policy Book, internal control bulletins and accounting guidelines. The application of these policies and procedures is monitored within the individual businesses and by the Company’s director of internal audit and the Group chief counsel.
Operating companies are required to maintain and update documentation of their internal controls and processes. This documentation incorporates an analysis of business risks, detailed control activities and monitoring, together with controls over security of data and the provision of timely and reliable information to management. IT and financial controls are also included.
The internal audit department was responsible for reviews and testing of the documentation and the relevant controls for a majority of the Group during 2013, the results of which were reported to the Audit Committee.
Each operating company annually updates a three-year strategic plan which incorporates financial objectives. These are reviewed by the parent company’s management and are agreed with the chief executive of the relevant operating company.
The Group operates a rigorous procedure for the development of operating company budgets which build up the Group’s budget. During the final quarter of each financial year, operating companies prepare detailed budgets for the following year for review by the parent company. The Group’s budget is reviewed by the Board before being adopted formally. Operating company results are reported monthly and are reviewed locally, regionally and globally by the business groups and by Group management on a consolidated basis and ultimately by the Board. The results are compared to budget and the previous year, with full-year forecasts prepared and updated quarterly throughout the year. The Company reports to share owners four times a year.
At each year-end, all operating companies supply their full-year financial results with such additional information as is appropriate. This information is consolidated to allow the Group to present the necessary disclosures for International Financial Reporting Standards (IFRS) as adopted by the European Union.
The Disclosure Committee gives further assurance that publicly-released information is free from material omission or misstatement.
The level and components of remuneration
Non-executive directors do not participate in the Company’s pension, share option or other incentive plans.
The Board considers that the non-executive directors’ remuneration conforms with the requirements of the UK Corporate Governance Code.
The fees payable to non-executive directors represent compensation in connection with Board and Board committee meetings and where appropriate for devoting additional time and expertise for the benefit of the Group in a wider capacity.
Details of directors’ remuneration and service contracts form part of the report of the Compensation Committee.
Relations with share owners
Dialogue with share owners
The relationship with share owners, potential share owners and investment analysts is given high priority by the Company.
The Company has a well-developed and continuous program to address the needs of share owners, investment institutions and analysts for a regular flow of information about the Company, its strategy, performance and competitive position. Given the wide geographic distribution of the Company’s current and potential share owners, this program includes regular visits to investors, particularly by the Group chief executive, the Group finance director, the deputy Group finance director and the head of investor relations, in the UK, Continental Europe and the major financial centres in North America and also in Asia Pacific and Latin America. The Company’s non-executive chairman is available to meet with investors and regularly consults with investors’ governance representatives and advisory bodies. The Company provides a preliminary announcement, an interim management statement at the end of the first and third quarters which includes a trading update, an interim report at half year and a trading update and presentation at the Annual General Meeting.
The Company ensures that it has a proper dialogue with share owners and their representative bodies through executive and non-executive directors in relation to remuneration and corporate governance matters. In 2013 and 2014, the chairman and senior independent director held extensive rounds of discussions with share owners and advisory groups regarding senior executive compensation, and CEO and Board succession planning. The chairman and senior independent director provide thorough feedback to the Board on issues raised with them by share owners.
WPP’s website, wpp.com, provides current and historical financial information, including trading statements, news releases and presentations and the Company’s statement of its corporate governance practices.
The Annual General Meeting
The 2014 AGM will be held on Wednesday 25 June 2014 at 12 noon at The Shard, London. A separate notice convening the meeting is distributed to share owners and will be published on WPP’s website, wpp.com. All resolutions for which notice has been given will be decided on a poll.
Chapter 10 of 13