Letter to share owners
Report by Philip Lader
Chairman of the Company and chairman of the Nomination and Governance Committee
Dear share owner
Another record year for WPP, we are pleased to report. The Board joins me in commending all the people across the globe who helped our Company achieve new levels of revenue, profitability, headline margins, and earnings per share, our leadership in all net new business league tables, and the very top international creative awards.
We trust this enthusiasm about 2013’s results is shared by our share owners. The year’s 55% rise in WPP’s share price, 20% dividend increase, and lift of our dividend pay-out ratio to 42% evidence that much is going well with your Company.
Your Board, meeting after meeting, re-visits and tests the Group’s strategic objectives:
- greater penetration of the world’s faster-growing geographic markets;
- increase in revenues from new media;
- continued rapid growth in data investment management and the application of technology; and
- horizontality in the provision of our operating companies’ services.
We are convinced, while nudging and championing management’s real-time tactical adjustments, that this aggregate strategy remains best for WPP’s responsible growth and profitability.
Yet – as noted elsewhere in this report – client confidence in external conditions is not fully restored, the competitive landscape is changing significantly, geopolitical events are unsettling, none of our leadership is getting younger, and management’s continually revised agenda for performance improvement remains long. And you have charged us, as directors, with the long-term stewardship of this remarkable company.
That is why, at this time of noteworthy achievement, major changes in our Board were undertaken.
We instituted a mandatory retirement policy for non-executive directors, recruited and appointed a large slate of extraordinary new non-executive directors, significantly changed the composition of Board committees, initiated transitions in their leadership, and will announce my successor as chairman in the coming months.
Two highly respected colleagues, consequently, will leave your Board at our Annual General Meeting. Esther Dyson, the eminent authority on all matters digital and successful investor in infant web-based businesses, has been a WPP director since 1999; Orit Gadiesh, the Chair of Bain & Company and strategic advisor to CEOs in diverse fields around the globe, since 2004. They have devoted countless hours and miles on your behalf, had tangible influence on decisions large and small, and personally will be very much missed.
For an organisation as complex and dispersed as WPP, institutional memory is critically important. That is why an unusually large number of new directors was appointed at this time and committee rosters have swelled. In the next few years, newcomers’ familiarity with our businesses and people can progress as veterans cycle off the Board. During these new colleagues’ probable tenure, senior management transitions and dramatic technological, as well as industry, changes may occur; and the longer these directors’ service on the Board, the better informed their judgements likely will be.
Those of us who have long been privileged to serve this Company believe that our share owners will find in these new non-executive directors, individually and as a group, the experience, wisdom, disciplines, independence, and vision necessary to challenge and support management, seize opportunities, make tough choices, honour commitments to our people and the clients and places WPP serves, and act in your best interests. Their credentials illustrate the direct relevance of their backgrounds to the Group’s core competencies and strategic objectives, suggesting the potential contributions we veterans anticipate from their service:
- Roger Agnelli: Latin America’s strategic importance to WPP makes the appointment of Roger to our Board invaluable, given his in-depth, region-wide perspective and relationships as one of Brazil’s most respected business leaders. His candid, independent judgement, moreover, is based on a decade as CEO of VALE, a diverse prior career in banking, and his extensive experience as a director of numerous international companies.
- Jacques Aigrain: Jacques brings to our Board not only the intellectual force illustrated by his Sorbonne Economics PhD, but also keen finance and regulatory, as well as institutional and private equity, insights from his chairmanship of LCH.Clearnet Group, role as Swiss Re’s CEO, two decades with JP Morgan Chase, and advisory work for Warburg Pincus. While ‘European’, his work on boards from the Middle East to Texas, as well as in Europe, are the basis for his particular audit, acquisition, and compliance competencies.
- Charlene Begley: Several decades of senior executive leadership at the General Electric Company – including as its Chief Information Officer, head of its Sourcing Council, CEO of its Home & Business Solutions/Appliances, Lighting & Intelligent Platforms, as well as CEO of GE divisions ranging from Enterprise Solutions to Plastics to Transportation, and leader of GE’s Corporate Audit Staff – enable Charlene to share GE’s relevant disciplines and practices with WPP’s management. The breadth of her roles at this distinguished company has developed in her an extraordinarily keen eye for business risks and opportunities.
- John Hood: From his student days as a Rhodes Scholar to his current chairmanship of the Rhodes Trust – including the leadership of Oxford and Auckland Universities, John has demonstrated rare combined capacities for thought and action. And he contributes to our boardroom seasoned commercial judgement earned from executive and board roles in his native New Zealand, as URENCO’s and Study Group Ltd’s Chairman and a BG Group director, and president of a major US-based foundation.
- Daniela Riccardi: ‘Client perspective’ is extremely helpful to a client-services company like ours. That is why Daniela – a long-time WPP client as a Procter & Gamble executive, including her leadership of its China, Eastern Europe and Russian businesses, before becoming CEO of the Diesel fashion business and now of Baccarat, the luxury goods company – speaks with particular authority as a new director. This Paris-based Italian’s prominence across the FMCG/retail-and-fashion world also enhances WPP’s real-time interaction with these important sectors.
- Nicole Seligman: After work as a journalist in Asia, a clerkship with the US Supreme Court, and widely recognized advocacy in complex media and other litigation as a partner in a major American law firm, Nicole has served as General Counsel of Sony Corporation and President of Sony Corporation of America. From Tokyo to New York, she has participated in many of the past decade’s entertainment, communications and technology changes that impact WPP’s businesses.
- Hugo Shong: WPP’s growth in China has been, and will continue to be, instrumental to our Company’s performance. Few individuals in that country have had more WPP-relevant responsibility and experience than our Board colleague Ruigang Li and his new fellow countryman/director Hugo Shong. Over Hugo’s nearly 25 years with International Data Group (IDG) and as president of IDG Asia/China, he launched more than 40 magazines and newspapers, established a pioneering $3.8 billion Chinese technology venture fund, and serves on the boards of major Chinese healthcare and entertainment companies.
- Sally Susman: In addition to Public Affairs/Public Policy constituting a significant line of WPP business, developments in this arena affect our Group profoundly. Sally, in this field, is both a consumer of services and a veteran professional. After several senior corporate affairs posts at American Express in London and the US and service with the US Department of Commerce, she was Estée Lauder’s Executive Vice President of Global Communications and is now Pfizer’s Executive Vice President for Policy External Affairs and Communications.
Notwithstanding their contributions related to brands, geographic and product markets, understanding of consumers, clients, new technologies and regulatory issues, this expanded Board will have no greater responsibility than ensuring the continued emphasis on management development.
Throughout this past year, your Board continued our succession-planning program, with review of some 100 individuals, including all the business leaders named in this report, other senior talent, and ‘rising stars’. We insist on the confidentiality of this process lest ‘horizontality’ between our operating companies be impaired or, as the future requirements of positions change, individuals be misguided.
My last year’s letter, referring to that Annual Report artist’s elephants, summarised the issue of WPP CEO succession: “[There’s] no elephant in this room.” Our new non-executive directors and veterans alike are unanimous in the view that – and here I repeat my last year’s comment – “Martin Sorrell is the best chief executive officer in this industry – and the person who can best serve the interests of share owners in this role at this time.”
What about tomorrow? Notwithstanding Martin’s client-helpful, high media profile, it is some dozen group heads and functional leaders, reporting to him, who run all WPP businesses day-to-day, with far more authority than occasional observers suggest. Clients certainly value Martin’s friendship and insights; but on business matters, they look principally to the resourceful people more directly responsible for WPP’s services.
We, nonetheless, are prepared for emergencies and – again as I expressed last year – “Ultimately confronting the ‘succession elephant’ will be part science, part art... There is no more important responsibility of your Board; and we earnestly endeavor to remain prepared for this inevitable [CEO] transition. That time, however, is not now.”
I hope that the careful selection of our new non-executive directors and of my successor as chairman will strengthen share owners’ confidence that, whenever “that time” comes, your interests, as well as clients’ and WPP’s people’s, will be very well served.
The Mexican artist featured in this year’s report, Diego Rivera, is famous for his stylised figures, engaged in everyday life, making their respective contributions to momentous achievements. Although corporate annual reports necessarily focus on individual leaders and quantified results, perhaps Rivera’s illustrations can remind us that WPP’s performance is, essentially, the work of 175,000 dedicated people: individuals going to work every day, serving clients, their families, and our share owners, and thereby building an ever-greater company.
16 April 2014
Chapter 9 of 13