Global Investing

The other WPP protest

June 14, 2012

So, the CEO of the world’s biggest advertising firm failed to pitch his own pay deal to WPP’s investors.

Wednesday’s vote against the remuneration report which grants Martin Sorrell a 6.8 million pound pay award means shareholders can claim another victory in their (non-binding) efforts to wean executives off pay deals they consider excessive.

Sorrell has resigned himself to some horse-trading between the Board and shareholders in the wake of a vote which was notable for his robust defence of his worth. But of course, it isn’t Sorrell that’s the problem; it’s the possibility of his absence that really worries investors.

Evidence of that can be seen in the largely unnoticed votes against re-election of WPP directors. Nils Pratley in the Guardian did pick up on the numbers as Jeffrey Rosen, the head of the remuneration committee, and non-execs Ruigang Li and Koichiro Naganuma all saw protest votes of 20-30%. Pratley speculates that this is evidence that investors doubt whether the Board really has a handle on how to cope with a post-Sorrell world. WPP’s AGM was always about more than pay, and it serves as an indication of wider disquiet around compliant Boards at companies dominated by a single personality.

There may be a more prosaic reason in the case of Naganuma (22% protest in 2011, 30% in 2012), chairman of Japan’s third largest advertising and communications company, ADK. The answer, one major shareholder tells me, lies deep in the annual report.

It turns out Naganuma has attended a whopping 3 of WPP’s last 13 Board meetings, and only one in the last year (Ruigang Li has better, but still lacklustre attendance); just the kind of record that can get right up investors’ noses. Naganuma is also one of two non-execs which WPP concedes should not be considered independent, as his seat on the Board is the result of a joint venture deal signed by WPP back in 1998. A WPP spokesman says there was never a particular requirement for Naganuma to attend meetings.

Of course, shareholders aren’t bound the terms of such decade-old deals, and can vote him off if they can’t see the value in his position.

It reminds me of a great column written back in January by Lucy P. Marcus, in which she detailed the reasons directors might feel they should step aside. In that piece, she notes:

If you find you are missing board meetings or committee meetings, or are not engaging in, let alone beyond, what you are duty-bound or required to do, it is time to look again.

Outside of the headline grabbing defeat of the pay vote, it will be interesting to see if Naganuma – and other non-execs who fail to live up to increased expectations – can survive this kind of sustained protest from investors emboldened by stirring talk of a ‘Shareholder spring’, (even if some cynical hacks are oddly resistant to the idea)

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/