Omnicom Seeks Prudent Governance In Board Elections

Omnicom Group, in proposing new measures to change the election terms of its board, is among a handful of American companies considering such corporate-governance initiatives.

At Omnicom’s annual meeting May 20, shareholders will be asked to amend the corporate charter to declassify its 11-member board, which would require directors to be elected annually.

Classified boards, where directors are elected for multiyear terms, have been widely adopted by publicly held companies. Ann Yerger, deputy director of The Council of Institutional Investors, estimated that less than 10 companies in the S&P 500 Index have declassified boards.

Critics argue that classified boards reduce directors’ accountability, as they limit investors’ ability to evaluate directors annually.

Classified boards are seen as a common anti-takeover defense, since they prevent the majority of directors from being voted out in a single year. An unwanted suitor could remove a board, with shareholder approval, and replace it with directors in favor of a takeover bid. In addition, proponents say classified boards promote the independence of boards in that directors elected to multiyear terms are less subject to outside influences. They also argue that classified boards provide continuity to management.

Omnicom’s resolution needs approval by two-thirds of outstanding common shares. The company said the move to declassify its board was initiated internally and was not a response to shareholder requests.

Omnicom CEO John Wren declined comment. —NOREEN O’LEARY