Risk & Economy » Regulation » Interview: WPP FD Paul Richardson

THE WORLD’S LARGEST advertising business, WPP, was recently thrown into the spotlight. Not for the record-breaking profits it has posted or the exceptional share price of 855p in August, but for the remuneration of its directors.

Chief executive Sir Martin Sorrell, group FD Paul Richardson and strategy director and CEO of WPP Digital, Mark Read, all submitted their remuneration package, only to see the shareholders veto the idea – although their votes are non-mandatory.

Richardson, holding his cards close to his chest, won’t reveal whether the trio will push ahead. However, he explains it’s not just a case of money being thrown at you.

“Long-term plans and awards are a complex area for each company and they are difficult to understand at the best of times. Sometimes these things are paying out as a result of past performance just at a very different economic time in the cycle,” Richardson tells Financial Director.

According to WPP’s latest annual report, Sorrell received £6.7m in his remuneration for 2011, including pension and benefits such as healthcare and life assurance, compared to £4.2m for the year before. Meanwhile, Richardson received £2.1m in 2010, with his package increasing to £2.6m.

Sorrell defended himself in the Financial Times, claiming the package was based on performance and decided by an independent board. If his FD were so inclined, he would be justified in making the same argument.

The advertising business boasted revenue increases of 7.4% to £10bn for 2011 and profits before interest and tax increased 16% to £1.43bn, compared to the previous year across its 150 brands worldwide.

Profit before interest and tax increased to £1.2bn in 2010, up from £1bn in 2009. Overall, profit for the year stood at £916.5m for 2011, £661m in 2010 and £506.9m in 2009, with basic earnings per share up from 35.9p in 2009 to 64.5p in 2011.

Finance veteran

Although now a finance veteran, Richardson initially had his sights set on a career in engineering. His father was an engineer for British Airways and Richardson tried to follow in his footsteps. However, he found himself “floored” in an interview when questioned about Audi cylinders. With a lightbulb flash, Richardson knew this was not the direction in which his future lay.

Already studying economics and computing, he decided to leave engineering in his wake and embark on a career in finance. He applied for a graduate training post at KPMG to gain a better understanding of what makes businesses tick.

“Business is about perseverance and discipline,” says Richardson, skills he has now gained from years of experience in finance.

He took the first opportunity to get out of the firm as he “was never cut out to be a partner” – applying for two roles: one as internal auditor for British Airways and the other as chief accountant at Beechams’ treasury division (before it was GlaxoSmithKline).

However, at Beechams he realised he “didn’t know anything about treasury” and sat his Association of Corporate Treasurers exams the year after they were introduced.

From there, he joined Hanson Trust, prior to its merger with Imperial Tobacco. The company proceeded to go on an acquisition spree after his recruitment.

“We bought a lot of companies; Consolidated Goldfields was one. We had a lot of very good assets, like Butterly Brick, an industrial company,” he explains.

An even bigger opportunity came in 1992 when WPP rolled around and he left Hansons after six years in the job. WPP had just started its restructuring following the acquisition of J Well Thompson and Ogilvy.

“I was recruited to be treasurer under this strenuous bank workout. We were given a bridging loan of $150m (£95.6m) which we had to repay in 24 months. It was a small company in the sense that our revenues were $1.2bn and the profit before tax was $87m. The margin was 5.6% in 1992. We had two goals: repay the bridge facility of $150m and get the margin up to 10% in five years. So we had a 1% per annum margin goal to meet our covenants and requirements,” he says.

Strenuous though it might sound, Richardson remembers it as one of the best things to happen in him – because it allowed him to work closely with the banks.

“We did two equity placings at WPP on behalf of the banks and one was rolled into a rescue rights issue in 1994. So it was quite a challenging environment, to be honest. Businesses were stretched. We weren’t allowed to do many things. We weren’t allowed to do any acquisitions. We had a capital constraint on us and it was one of the original fairly early workouts that proved to be very successful,” he says.

By the end, the share price had grown from 32p prior to the equity sale, to £2.40.

Common ground

At the time, FD Robert Verbal left for Harvard to study a three-month advanced management programme, during which Richardson was promoted to acting FD. Verbal took a senior role at Cable & Wireless, much to Richardson’s delight as he had decided the CFO world was where he wanted to stay.

However, it quickly dawned on Richardson that there is a huge difference between treasury and finance, despite the banking experience he had just picked up.

He openly admits his accounting knowledge fell by the wayside when he entered business, and was daunted by the array of responsibilities, such as property, planning, IT and procurement, to name a few.

“What is common in all FDs is they have a multitude of departments they deal with – legal, tax, treasury, finance, IT, accounts, reporting, investor relations,” he says. “I had a little experience of investor relations and presenting to the rating agencies privately, and was dealing with the jumpy set of banks, to be quite frank.”

To top it all off, Richardson recalls it wasn’t just a case of making sure the numbers added up. His personality, or “aura”, was also in the spotlight.

“I’ve heard people say, ‘Oh, the look on their face in the morning when they walk around the office tells a lot about the business’,” he explains.

However, this proved a key lesson in leadership. “I hadn’t appreciated how much people were looking to you to be leader,” says Richardson. “People in the organisation look to certain people to sense the style of the company.”

World domination

The UK makes up 12% of revenue, with North America making up 34% and western continental Europe 25%. Wages and salaries increased from £3.6bn in 2009 to £4bn in 2011, and its revenue ratio reduced marginally from 58.9% in 2009 to 58.6% in 2011.

But it’s not all figures for the US-based Brit. Property plays a big part in his day-to-day duties.

Because WPP owns so many brands, including PR, marketing and advertising, it made sense to Richardson to pool all the resources together, so companies should not only share office space but facilities too, enabling it to streamline costs.

He is also moving offices away from cities to reduce the cost of leasing, as property is the second-largest cost to the business after staff.

But no matter how many different streams of responsibility you have, 16 years at a company is a long time. According to Richardson, the job still keeps him interested.

In particular, Richardson likes the ethos at WPP, such as moving where the clients are, rather than restricting itself by local legislation.

“I still have a map of the world by population that said we are only 20%, but this is where the population is – the map was 1.5bn or probably 1.2bn in China, 900m in India –which is now 1.2bn. I said, ‘This is where the GDP is going to be’. And I used to get, ‘Oh, but all the GDP is here in the States’. It is still the largest world economy – it’s $15tn versus China at $7tn, but look where they’ve come from,” he says.

Given that the company is involved in 108 markets, employing 160,000 people including associates, it’s not hard to believe Richardson when he says WPP are decades ahead of its competition in some emerging economies.

“World domination would be nice but not essential,” he quips. “If you’ve been brought up on the principles approach to business and you follow your gut instinct or you follow the cash, nine times out of ten you’re going to make the right decision. And what I like about this business is that it was built by its founder and we take a long-term view of everything so we are now three times the size of our competition in China and India and the lead is uncatchable” – even if the competition were given 20 years.

He also claims that many of his peers who have changed companies for the perceived better have been burnt: “Sometimes, people do well, but I’ve also seen people do very badly. I like the industry, I like the professional services model … and to be honest, I’m still learning.”

Although finance is pivotal to the company, Richardson prides himself on his role as board director responsible for sustainability, which is essentially the company’s corporate social responsibility arm.

WPP works with several large companies on highlighting their social responsibility campaigns – such as KFC South Africa, which started its work to reduce starvation through its “Add Hope” campaign; Coca Cola Rio, which launched its “Live Positively” campaign, looking at various aspects of life including sustainability, community and energy; and the British Heart Foundation in London, which has started a campaign to raise awareness of research it is involved in and its education drive.

Richardson has also worked with the sustainability team to reduce the carbon footprint across the global operations at WPP. Under his tenure as sustainability director at WPP, he has managed by 2011 to reduce the carbon footprint per employee by 26%, compared to 2006 levels.

The company also aspires to reduce that figure to 1.2 tonnes of carbon per employee in a year, which will equate to a 63% reduction from the 2006 baseline, by 2020.