U.K. group objects to Dolan's deal

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[london] A recommendation by a British pension fund trade body to vote against a resolution underpinning the merger of WPP Group and Young & Rubicam is extremely unlikely to topple the deal. But the issue raises interesting contract differences between U.S. and U.K. companies.

The U.K.'s National Association of Pension Funds issued the opinion that its members vote against the appointment of Michael J. Dolan to WPP's board once the merger is complete. WPP shareholders are slated to vote on the deal Sept. 29.

Prior to the May merger announcement, Mr. Dolan was vice chairman and chief financial officer of Young & Rubicam. He is now president and chief operating officer of the agency.


The association recommends that members vote against Mr. Dolan's election to the board on "governance grounds because of the length of his service contract." The resolution electing Mr. Dolan is one of five the entire merger depends on. Mr. Dolan has a four-year contract once Y&R merges with WPP.

John Rogers, director of the association's Voting Issues Service, said while a multiyear contract for a top executive is not unusual in the U.S., "It's very unusual in the U.K. For a major company it's virtually unheard of."

WPP's executive directors are on 12 months' notice, with the exception of Martin Sorrell, who is on a three-year contract due to his special position as group chief executive and his personal financial investment in the company.

The pension group is a trade association for fund managers at occupational pension funds, local government authorities and unions. It has 1,500 corporate members, but no regulatory powers.

Mr. Rogers said the resolution in question goes against the one-year contract recommended by the U.K.'s Financial Services Authority. "This is highly unlikely to jeopardize the vote on the merger," said Mr. Rogers of the Sept. 29 vote by WPP shareholders. Mr. Rogers added, however, it's an issue that "can come back to haunt" companies if an executive performs poorly, gets fired and is then handed a big payoff while share prices languish. "It can upset shareholders if some director makes a killing."


WPP pointed out that the Association of British Insurers and the U.S.-based Institutional Shareholders Services have both come out in favor of all the merger resolutions. WPP Chief Financial Officer Paul Richardson said the association's recommendation doesn't threaten the merger vote. "I have not had a single major institutional shareholder call to complain."

Mr. Dolan's employment contact doesn't require that he would be paid four years' salary if he was fired after the first year. He would, however, get three times his annual base salary of $800,000 if his contract was terminated in the first two years, and between one and two times his salary if terminated in the following two years other than for cause on behalf of WPP or "good reason" of Mr. Dolan.

Mr. Rogers agrees there will not be a big shareholder protest over the resolution. Only one small pension fund has told him it intends to write to WPP to express reservations about the resolution, but the fund doesn't intend to vote against it.

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