Top shareholders in WPP have attacked the company’s failure to put in place a proper succession plan for the chief executive, mounting a fresh rebellion over pay and governance at the FTSE 100 advertising group.
More than a fifth of investors at a stormy annual meeting yesterday also voted against the £48 million pay package of Sir Martin Sorrell, the company’s founder and chief executive.
Deborah Gilshan, governance and stewardship director at Standard Life Investments, stated in a letter that the creation of an orderly succession plan was “critical” for WPP and remained a “key risk”.
Standard Life owns 19 million WPP shares, or 1.5 per cent of the company, which has been led by Sir Martin, 72, since the mid-1980s.
“As another annual meeting passes, the time to address succession for the chief executive shortens and the necessity to do so becomes more pressing,” she wrote.
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Ashley Hamilton Claxton, corporate governance manager at Royal London Asset Management, which owns 6.18 million shares in WPP worth £106 million, also said that the company needed to bolster its plans for a transition to a new leader.
“There is no doubt that WPP has become the media powerhouse it is today thanks to . . . Sir Martin Sorrell,” he said. “The question for investors is how the business will look when he inevitably retires.
“Planning for succession is the biggest risk facing the company and there is still work to be done to assure shareholders of an orderly transition.”
More than 21 per cent of WPP investors also voted to oppose the group’s remuneration report. Although it was approved and the vote was non-binding, the result will embarrass Sir Martin, whose pay was cut by a third last year from £70.4 million in 2015.
Opposition was lower than last year, when more than a third of investors refused to back Sir Martin’s deal.
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Sir Martin, the highest-paid executive in the FTSE 100, has defended his pay as a quirk of WPP’s history. He founded the group in 1985 when he took over Wire and Plastic Products, a shopping basket manufacturer, and built it into the world’s biggest advertising company via a string of acquisitions. Most shareholders recognise that WPP’s success has been closely tied to his leadership.
WPP reported revenues rising 16 per cent to £4.8 billion for the first four months of the year on the back of higher overseas turnover. Stripping out the impact of currency fluctuations and acquisitions, WPP’s like-for-like revenue rose by 0.7 per cent on last year.
Exclusive: Standard Life’s letter to WPP
Mr Chairman
My name is Deborah Gilshan and I am a governance and stewardship director at Standard Life Investments. On behalf of our clients, we manage 19 million shares in WPP. This is the third consecutive year that a representative from Standard Life Investments has attended and spoken at the annual meeting in escalation of our stewardship efforts.
As a long-term shareowner in WPP, we acknowledge the success that Sir Martin Sorrell and all of the team at the company, past and present, have achieved and the ensuing benefits of that success to our clients.
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Critical to that success continuing is an orderly management succession, especially for the role of CEO. This remains the key governance risk to our long term investment in WPP. As another annual meeting passes, the time to address succession for the CEO shortens and the necessity to do so becomes more pressing.
We have been engaging with you and other board members on this issue for a number of years, both individually and in collaboration with fellow share owners.
We recognise that the process of planning succession, and the related disclosures, has improved in recent years, and we trust that our ongoing engagement with you on this issue continues to reinforce the importance of it from a shareowner perspective. We will continue to support you and the board in your endeavours in this regard.
Unusually, the CEO’s service contract may be terminated by either the company or Sir Martin without any notice. Given this, we suggest that the board consider what lead time would be required to ensure an orderly succession and discuss this with Sir Martin. We would like the board to come to an agreement with him that, other things being equal, he will provide sufficient warning to meet this timeframe. In our opinion, this increases the likelihood of a seamless succession as it would allow the board to execute their succession plans effectively and would reduce further the risk profile of the company.
Mr Chairman, will the board commit to this?