Questions for the Board

NEW YORK There has never been a more critical time for shareholders to demand oversight of the boards of directors at advertising holding companies, which are navigating their industry’s transformation while trying to stay afloat during the worst economic downturn in modern times. Executive compensation may be the flash point amid soaring industry layoffs, but what are the other issues facing shareholders during this season of annual meetings? And who are the non-executive directors who represent the interests of those investors?
Outside of executive boardrooms, little is known about the current and retired corporate execs, academics, entrepreneurs and establishment figures who sit atop the industry’s management food chain.
While the advent of Sarbanes-Oxley in 2002 diminished the cronyism and token directors system that long characterized many publicly held companies, they still need to prove the credibility and independent decision making of board members who are supposed to bring an outside perspective to management.

With the exception of Robert Callander, the head of Omnicom’s audit committee, who resigned in 2002 after a disagreement, the board members of the three largest holding companies have, as a group or individually, never made waves or spoken out publicly, even during the Securities and Exchange Commission’s investigation of Interpublic Group. Omnicom Group, WPP Group and IPG have an average tenure per director of 11.6 years, nine years and seven years, respectively. Omnicom pays the highest compensation, an average of $191,633, and has the highest average age of director, 66. WPP pays the least of the top three holding companies, at $139,546, though its non-executive chairman, Philip Lader, took home a hefty $501,560 in cash last year for his service. (Unlike Omnicom and IPG, WPP does not include stock as part of its board members’ compensation.) IPG gave one board member, J. Philip Samper, a 15-year pension worth over $1 million when he retired last year.

For this story, Adweek, in conjunction with leading proxy and governance firm RiskMetrics Group, looks at issues facing shareholders of the big three. Compensation is a big topic. As a group, IPG’s top five executives, including CEO Michael Roth, were awarded pay equivalent to 7.8 percent of the holding company’s net income last year, according to RMG, which analyzes boards and corporate-governance practices of more than 8,000 public companies worldwide. At Omnicom, the top five, including CEO John Wren, received 2.3 percent of net income. Severance payouts are also an issue, whether it be those accorded to top Omnicom execs or the “at-will” notice terms in WPP CEO Martin Sorrell’s current contract.

The boilerplate of these annual meetings — the election and reelection of non-executive directors — is also under scrutiny, with questions about some board members’ actual independence from corporate management.

Omnicom’s proxy lists total 2008 compensation for CEO John Wren of $2.95 million. It notes, however, that Wren was also awarded 1 million standard time-vesting stock options on Dec. 29, 2008, with an exercise price of $25.48 per share-for a grant date fair value of $3.78 million, according to Omnicom. Including that $3.78 million puts Wren’s total 2008 compensation at $6.73 million, a decrease of 20 percent from $8.4 million in 2007. (The proxy lists the $2.95 million figure because it puts the options’ 2008 value at only $7,143-their pro-rated worth for the two days Wren held them last year, compared to their total three-year vesting time.)

At $6.73 million, Wren’s pay as a percentage of Omnicom’s net income in 2008 was 0.7 percent. The compensation of Omnicom’s top five executives-Wren, CFO Randy Weisenburger, Diversified Agency Services CEO Thomas Harrison, DDB Worldwide CEO Chuck Brymer and BBDO Worldwide CEO Andrew Robertson-was equal to 2.3 percent of the company’s net income last year.

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