Omnicom's board move brings the big agency holding company more in line with peers that already have independent boards. The revamping comes two months after rival Interpublic Group of Cos. cut four insiders from its board (AdAge.com QwikFIND aan19o).
Interpublic's move set a new standard among ad agency companies in a key measure of corporate governance. Omnicom and Interpublic now have the same respective board make-up: nine outside directors and two employees.
Effective with a shareholder vote at its May annual meeting, the only two inside directors on Omnicom's board will be Chairman Bruce Crawford and President-CEO John Wren. Prior to this move, Omnicom had the most heavily weighted inside board membership of the major holding companies. Its 18 members had nine employees and nine outsiders.
"We didn't rush to judgment, and we're certainly not copying Interpublic," said Mr. Wren. "This has been something that's been discussed for some time."
Moves to give boards more independence from management take on significance after Enron's collapse as investors push boards to exert stronger oversight.
"It will be shocking to their shareholders, but in a positive way," said Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "I'm sure the fact that a competitor did the same thing influenced it. They're both attracting capital, and their investors invest in the same industry. [Omnicom] would find it more difficult to compete for the same capital if they didn't match Interpublic's board structure."
Not that shareholders have been complaining: Omnicom's stock has been a standout performer, with its April 12 close of $94.20 not far off the all-time high of $107.50 reached amid the boom times of late 1999.
While seven insiders-including DDB Worldwide Chairman Keith Reinhard and BBDO Worldwide Chairman-CEO Allen Rosenshine-will leave the Omnicom board, they still will be omnipresent: Mr. Wren said all will attend board meetings.
"We're not throwing anybody off [the board]," Mr. Wren said. "We're streamlining. In light of good governance, this has been in play for a long time. It was a collective decision."
Omnicom will release its today. In addition to the restructuring of the board, the proxy will reveal the status of Omnicom's relationship with embattled accounting firm Arthur Andersen, Enron's auditor. A report from the board's audit committee will say Omnicom is "closely monitoring recent developments" and that the company will take action "when appropriate."
Mr. Wren declined to comment on Andersen's status. But one Omnicom executive said: "We need a multinational auditing firm to service our requirements, and I'm not sure if they're going to be in that position much longer."
Andersen didn't return phone calls. Omnicom paid Andersen $9 million to audit its 2000 financials and $7.9 million in "other fees" according to filings from the Securities and Exchange Commission. Data for 2001 was not available through SEC filings last week. Omnicom included a letter in its March annual report to the SEC noting it had secured documentation from Andersen that audits were performed under quality control.
In another board change, Omnicom will nominate Robert Charles Clark, dean and professor at Harvard Law School, as its ninth outside director. He will replace attorney Richard I. Beattie, who resigned earlier this year.
contributing: mercedes m. cardona