Sir Martin Sorrell’s resignation from WPP shows the importance of an independent board and a solid succession plan, writes Wayne Rapozo
Ancient wisdom has it that Buddha’s last words were “all things must pass”, which is a salutary message for those involved in corporate governance and boardroom life. Sir Martin Sorrell’s resignation this month as chief executive of WPP, the world’s biggest advertising agency, should remind publicly traded companies — and even private companies abiding by best practices — of the need for corporate governance structures that address succession planning, crisis management and stewardship.
A company with a chief executive like Sir Martin, who has that rare combination of technical acumen and creative wit, must balance institutional discipline and with the vision of the leader. The issue was exacerbated with WPP because Sir Martin was a founder of the company and much of its success was set in motion by him. It would be burdensome to have any board micromanage everything and curtail the imagination and drive of the chief executive and senior management. The audit, nomination and risk management committees, along with other constituent parts of the board, are there to consider difficult issues and raise anything outstanding or underplayed.
These structures should be seen as vehicles for a robust assessment of issues facing the company, engaging with and even confronting senior management including the chief executive. The independent directors are particularly crucial in ensuring that the value of the company is preserved and the business continues after a boss leaves. They must be able to stand firm with a strong-willed chief executive and be seen as truly independent. The best the board and the boss can and should do is to ensure that they develop the talent internally and establish an orderly succession transition plan. There should also be a discreet back-up plan in place with several external candidates. In the event of a crisis or sudden departure of a chief executive, companies should have a clear contingency plan ready to be communicated to the market and public in a convincing way.
The WPP board’s efforts to address succession issues were disclosed in its annual reports for the past few years. Its success can be measured by two things: the market reaction and the nature and scope of the newspaper front pages. Both indicate that not enough was done. Putting aside sensationalist reports and gossip, the real issue for board members is this: have they openly discussed the strategy, direction and value of the company as part of succession planning to ensure the company and its stakeholders are protected, even if the chief executive is talented and admired?
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