Directors’ report*

Once again, this year the Directors’ report includes reviews from the chairmen of three Board committees: Philip Lader, as chairman of the Company and its Nomination Committee; Paul Spencer, as chairman of the Audit Committee; and Jeffrey Rosen, as chairman of the Compensation Committee. It also contains an analysis of the Company’s compliance with statutory and regulatory requirements.

Review of the Company's governance and the Nomination Committee

Philip Lader, Chairman of the Company and chairman of the Nomination Committee

Report by Philip Lader (above)
Chairman of the Company
and chairman of the Nomination Committee

Dear share owner

A record year for your Company, 2008, in many ways; but in these times, WPP’s directors have had little inclination or time to reflect on past achievements.

Current worldwide economic conditions underscore the Group chief executive’s and Jeremy Bullmore’s assertions earlier in this Annual Report that this period “won’t be tidy.”

  • rigorous, “common-sense” corporate governance modeled on the continuing evolution of best practices, particularly in risk management;
  • vigilant stewardship of WPP’s considerable assets, tangible and intangible; and
  • intense assessment and review of finance, industry, and operations indicators, as well as management’s strategic initiatives and standards of creative services.

These practices contributed, in part, to 2008’s record billings, record revenues and record operating profit.

One measure of your Board’s commitment is that we met, as a full Board or in committees, 39 times in 2008, in addition to far more frequent informal contacts between directors, senior management, operating company leaders, professional advisors and share owners, among others. Especially noteworthy among the past year’s tasks and issues were:

  • evaluating and approving the acquisitions of Taylor Nelson Sofres plc and other companies which enhance our strategic position and provide attractive returns on investment;
  • monitoring the integration and performance of prior additions to our diverse portfolio of complementary companies;
  • attending to the details of Jersey statutory requirements and the Group’s re-domicile in Ireland, which was authorized by share owners’ overwhelming support;
  • consulting with management on the Group’s response to rapidly-changing general economic conditions, with particular focus on the most important income statement and balance sheet issues;
  • increasing our understanding of new media and relatively new geographic markets which are transforming the global communications and marketing services industry in which the Group competes;
  • devoting special attention to developments in interactive media, including a Board meeting in Silicon Valley with briefings by founders of major businesses in that arena;
  • meeting face-to-face, through formal presentations and informal discussions, with more than 100 WPP business leaders, including the CEOs of the Group’s principal brands, as well as with clients, government officials and executives of relevant companies;
  • managing a performance-driven remuneration program that allows the Group to attract, motivate and retain the talented people upon whom our success depends: one which closely aligns their interests with those of share owners and optimizes the budgetary flexibility of variable personnel costs;
  • reviewing and approving financial statements, critical accounting policies upon which they are based, and supporting systems of reporting and internal controls; and
  • for each of the Group’s major operating companies, focusing on their key people, major clients and principal competitors through a detailed “Brand Check,” at every Board meeting, that measures performance, anticipates events, and gauges risk.

This level of Board attention, we believe, is appropriate to WPP’s global breadth, functional scope, and complexity, especially amidst heightened standards of corporate governance, rapidly-changing economic conditions and the transformational strategic opportunities and threats to which your Company is responding.

Among the Board’s most critical responsibilities is planning for the succession of the Group chief executive and other key executives. These individuals’ skills, resourcefulness and dedication are particularly critical to WPP, a business built on creativity. The entire Board therefore devoted extensive time to this subject in 2008, as we have for the past six years.

Two separate Board meetings occasioned all non-executive directors’ discussion of backgrounds, performance, development opportunities and potential roles for approximately 200 senior managers and “rising stars” of the parent and operating companies. For each such position, potential candidates were identified.

Not coincidentally, the Group’s structure and devolution of responsibilities to leaders of each of our “tribes” – as well as the fact that some of these businesses, if independent, would rank among our industry’s largest – provide extensive senior management experience to several dozen WPP executives, some of whom could readily undertake parent company roles.

The most comprehensive of these reviews was directed to the Group chief executive’s position. From the internal field of proven talent and a range of potential external candidates, the non-executive directors and the Group chief executive exchanged views – in a totally frank, highly specific manner – about the candidates best qualified to succeed him. After that session, on several other structured occasions and at other times, the non-executive directors, in the absence of the Group chief executive, further discussed the succession candidates and process. We continue to believe strongly, however, that – lest public discussion of this subject foster speculation and distraction – the content of these ongoing deliberations should remain strictly confidential.

As to the Board’s own performance, as well as the contributions of individual directors, Board committees, and the chairman, we undertook, once again in 2008, a rigorous 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.

Your Board is comprised of independent-minded men and women – from Europe, the US, Asia and the Middle East – with broad international experience, from academia, Wall Street and the City of London, management consulting, advertising and internet start-ups, consumer-products and manufacturing industries, government and non-profit organizations. The comparatively long tenure of several directors, in our judgment, has been instrumental to the Boards in-depth understanding of our unusually complex, global enterprise. Newcomers and long-serving directors alike challenge even our most well-tested assumptions and iconic executives.

We regretted that, after six years of service, David Komansky retired from the Board in early 2009. His observations invariably were insightful and unvarnished. Without hesitation, he “cut to the chase” and brought to our sessions not only compelling candor and wit, but also wisdom forged by long experience in the financial services industry, as CEO of a major public company and from boardrooms of prominent global companies. He always helped us focus on what was practicable, what would best serve the share owners’ interests, what was right and honorable.

Renewal is important for any Board, nonetheless; and while valuing the experience of long-term service, we have sought to recruit to your Board and its committees new directors with considerably different professional, regional and generational perspectives. To this end, during 2008, Esther Dyson and Lubna Olayan were appointed as members of the Nomination Committee; and following David Komansky’s retirement, Orit Gadiesh also joined that committee. At that time, Bud Morten, having overseen the successful implementation of Sarbanes-Oxley compliance, stepped down from the Audit Committee and was replaced by Timothy Shriver, who – in his second year on this Board – brings a fresh view, demonstrated commitment to corporate social responsibility, and considerable other skills to that committee.

These changes in the Audit and Nomination Committees’ membership, implementation of new rules governing the disclosure and approval of directors’ conflicts-of-interest, revision of committee terms of reference, and the previously mentioned Board self-evaluation and succession planning illustrate the 2008 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, identified from a variety of both internal and external sources.

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 2008. Moreover, WPP Group plc and its successor, WPP plc, follow NASDAQ’s rules, have devoted extensive time and resources to ensure compliance with the US Sarbanes-Oxley requirements, and, where practicable, seek to comply with 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 should no longer be considered “independent”; nor, by definition, should the Group chairman. As I have stated before, this Board fully understands their positions, but respectfully does not agree. 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. I continue to submit, on behalf of the Board, 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.

Any share owner who could observe the contributions of our senior independent director, Bud Morten, for example, would attest that his experience, judgment and commitment of time constitute an invaluable asset of the Group. Only such a dedicated veteran can routinely comprehend important implications and connections in WPP’s worldwide operations. Regularly provocative challenges to opinions and assumptions expressed in Board presentations would be welcome only from a respected colleague with such a longstanding record of diligence and discernment. Bud will, at some point, elect to devote less time to the Group, and our Board will then appoint a new senior independent director. Until then, my fellow directors and I appreciate the extent to which his efforts exceed customary board workloads and reiterate our conviction that share owners are well served by his genuine independence. We continue to require, nevertheless, that non-executive directors who have served on the Board for nine years or more submit themselves for re-election annually.

The Board does not view my position as non-executive chairman as compromising my independence. It is their considered judgment – one they formally review on an annual basis – that such continued service, as well as my chairmanship of the Nomination Committee and membership on the Compensation Committee, help ensure continuity and coordination of related Board matters.

Responsibilities of major public companies’ non-executive directors have increased substantially in the past decade. Packs of WPP reading materials are distributed near-weekly; few days pass without substantive communications among your non-executive directors; fewer days still, between senior management’s and our BlackBerrys’ messages. Consequently, I am immensely grateful for the prompt attention and conscientious efforts of my colleagues, as well as those at WPP who directly support the Board’s work and the very able professionals who meet the seemingly endless legal, regulatory, tax, accounting and administrative demands of more than 100 jurisdictions and 2,400 offices.

Share owners, of which management is a significant part, understandably, will not have been pleased by most of their investments’ performance in this economic climate. With the indiscriminate collapse in stock markets around the globe, WPP’s share price declined significantly, notwithstanding the Company’s record achievements in 2008. To continue to create value, our Company must serve each client creatively, must compete effectively every day. For that commitment, the Board thanks each and every one of the Group’s 135,000 people including associates. It is with their imaginations, hours, tenacity and dedication that WPP intends to generate superior returns for its share owners, however “untidy” these times may be.

We who serve on WPP’s Board appreciate our fellow share owners’ trust in our stewardship of your interests.

Philip Lader
14 April 2009

The sections headed ‘Letter to share owners’, ‘Who we are’ and ‘What we think’ should be read in conjunction with and as part of the section headed Directors’ report.