Even Golden Boys Can Tarnish

By Barbara Rudolph

As chairman of J. Walter Thompson, the fifth largest advertising agency in the U.S., Joseph O'Donnell was one of Madison Avenue's golden boys. During his ten years at the agency, he had raced ever upward through the ranks. At the start of the year O'Donnell at 44 had defeated several rivals to become the chief at Thompson and the heir apparent to Don Johnston, the 59-year-old chairman of the J.W.T. Group, the holding company (estimated 1986 sales: $650 million) that owns the ad agency. Further triumphs seemed assured.

No more. Just three weeks after his promotion, O'Donnell was suddenly missing from Thompson offices last week. He had been abruptly fired after presenting a plan to take the company private and oust Johnston as boss, according to members of the J.W.T. board of directors. The directors, who decided that O'Donnell's behavior was grossly inappropriate, deliberated for about an hour before giving Johnston the go-ahead to sack him.

The aborted palace coup and the wunderkind's sudden fall jolted the ad industry. It also roiled a 122-year-old agency that has been troubled by poor profits. Wrote Chairman Johnston in a memo distributed to all employees: "Nothing in my 36 years with this company has so saddened me."

The drama began when O'Donnell came to Johnston, his mentor, with a proposal to take the company private through a leveraged buy-out: a financial transaction in which investors, often company insiders, use borrowed funds to gain control of a firm. Johnston listened politely to O'Donnell but made no response. For the next few days the two men communicated only through intermediaries, until Johnston called the company's outside directors to an unscheduled meeting to hear what O'Donnell had to say.

Summoned before the board, O'Donnell told the members that he had been approached by representatives of the Claremont Group, a New York City-based investment-banking firm, to discuss a leveraged buy-out. O'Donnell presumably was inclined to consider such a transaction, since it would probably have given him and his fellow managers a more significant ownership stake in the company. Johnston and some board members, however, thought they should have been consulted before any powwows took place with investment bankers.

The next bombshell, according to two directors, came when O'Donnell proposed firing Johnston and installing himself in the top spot. Director David Yunich, retired vice chairman of R.H. Macy, says that O'Donnell's 1 1/2- hour presentation was "incoherent." At one point, Yunich reports, O'Donnell volunteered that he had been "kicked out of" Columbia Business School and thus had a weak grasp of finance. Says Yunich: "We couldn't figure out whether this person had flipped his lid or not." O'Donnell says he was merely passing on Claremont's unsolicited buy-out proposal and had thus done nothing wrong.

The management shake-up comes at a particularly difficult time for Thompson. Like all other agencies, it has recently been buffeted by a spate of mergers that has intensified competition in an already brutal business. But Thompson faces special problems. While the agency is admired for its creative flair, Thompson's pretax profit margins are estimated to be only about half the industry average. One likely reason for the poor performance: Thompson has been slow to cut costs and lay off workers.

O'Donnell's ouster had immediate repercussions. One of his allies, Agency President John Peters, was also axed. Insiders wondered how far the purge would go, but Company Spokesman Donald Deaton insisted that Peters' firing would be the last.

With reporting by Susan Kinsley/New York