Management: Too Much Flak Downs a Flack

By RICHARD BEHAR

It was the beginning of the end for Robert Dilenschneider when the Hill & Knowlton chief executive rose to give a pep talk to his 30 senior executives at New York City's Lotos Club last winter. "Our women," declared the boss of the largest U.S. public relations firm, had been insulted by bad language used by an executive from McDonald's, a prospective client. As a result, Dilenschneider boasted, he refused to accept the fast-food giant's business, even though he was awarded the account. "We didn't know whether to laugh or cry," recalls a top official who attended the dinner. "It simply wasn't true. We had placed third in a recent bidding for the account. Bob lied straight to our faces."

Five months later, Dilenschneider, 47, was stripped of his day-to-day duties at Hill & Knowlton, whose list of blue-chip clients ranges from Pepsi to Procter & Gamble. Last week he suddenly resigned as chief executive, still denying reports that he had been shoved out. For Dilenschneider, it was a . heartbreaking fall, 24 years after he began to climb the company ladder. The man seemed to have a tragic flaw: the more powerful he became, the more he believed in his own greatness.

Long known as a genteel giant, Hill & Knowlton rarely had to hunt for clients. They simply came knocking and stayed aboard for decades, as did the firm's employees. That atmosphere changed when Dilenschneider took charge in 1986 and began to buy up 10 smaller companies. Revenues rose from $77 million in 1985 to $197 million last year. Dilenschneider's goal was to supplant the British firm Shandwick (1990 revenues: $211 million) as the world's largest p.r. firm by creating a one-stop supermarket for clients seeking everything from lobbying and management consulting to research, direct-mail campaigns and traditional public relations.

But his dream got derailed. The recession pared spending by the firm's traditional clients; both sales and earnings are likely to drop in 1991. Yet the pressure for profits has been escalating since 1987, when British magnate Martin Sorrell bought Hill & Knowlton's parent company, the J. Walter Thompson ad agency. Hill & Knowlton is also alienating a growing number of clients, sometimes by overcharging them for mediocre work. "It got to a point where we were trying to sell products to clients whether they needed them or not," says Peter Osgood, a vice chairman who quit earlier this year. "It was a revenue game."

Morale at the firm is so bad that more than 50 top executives have left since 1989. Current and former staff members place much of the blame on Dilenschneider. They describe him as a Machiavellian leader with an oversize ego, a brilliant yet cunning bully who compulsively lied and reneged on promises. Insiders say he was so mistrustful of underlings that he rarely delegated, slept little and was often overextended. "One of his bad habits was not showing up for appointments," complains a leading industry consultant, Edward Gottlieb. "This was an indication of the problems he had keeping the huge firm together." Dilenschneider couldn't be reached for comment.

His obsession with growth at any cost sometimes infuriated important clients. In 1987 he persuaded chemical conglomerate Monsanto to scrap its entire in-house p.r. staff and turn the work over to Hill & Knowlton. The move ultimately failed after causing severe dissension inside Monsanto. Meanwhile, rival Du Pont, a Hill & Knowlton client for decades, was so irate at the - conflict of interest that it pulled its account.

Dilenschneider's reign may be remembered most for the long list of dubious and controversial clients he took on, from China and Kuwait to the U.S. Conference of Catholic Bishops and its antiabortion campaign. One of his biggest clients, the Church of Scientology, paid the p.r. firm more than $5 million since 1987. Hill & Knowlton canned the account following a TIME cover story last May on the notorious money cult.

Yet perhaps Hill & Knowlton's most infamous relationship was with the Bank of Credit & Commerce International, which began after the bank's indictment for money laundering in 1988. The firm and its client got so close that top Hill & Knowlton official Robert Gray became a director at B.C.C.I.-controlled First American Bank in Washington. At a Senate hearing in August, former Customs Service Commissioner William von Raab said U.S. officials failed to pursue B.C.C.I. more aggressively because of the "incredible pounding that they were taking by the influence peddlers in Washington."

The new man in charge at Hill & Knowlton is Thomas Eidson, 47, a well- respected insider who knows that any p.r. firm worth its salt does not try to draw unnecessary attention to itself. One of his first tasks will be to improve the firm's public image by avoiding bad associations. "Our client list is the most precious asset we possess," he says. "We should only take clients that the people of Hill & Knowlton can be proud of." That would go a long way toward boosting in-house spirits as well.

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