The Pr Problem At Hill & Knowlton

For a firm that specializes in getting its point across, Hill & Knowlton Inc. has been sending out a lot of static lately. The buzz started in June, when the largest U. S. public relations firm announced the creation of a new committee to manage its 1,760 employees and 64 offices. Staffers wondered why the committee's chairman was the head of Hill & Knowlton's Europeandivision, not its forceful chief execu-tive, Robert L. Dilenschneider.

Now, current and former Hill & Knowlton executives say Dilenschneider has been gradually stripped of most of his operating responsibilities. They say the 47-year-old PR man has been discredited as Hill & Knowlton struggles with poor business and embarrassing controversies (table). "The firm really needs a good leader right now," says Peter G. Osgood, who resigned as vice-chairman of the firm in February after clashing with the CEO. Dilenschneider didn't respond to requests for an interview.

BIGFOOT. Dilenschnei-der's plight illustrates the hazards of modern public relations. A Hill & Knowlton veteran, he was valued for his aggressive pursuit of new business. To expand beyond the mundane business of getting favorable press coverage for big clients such as Pepsi, Procter& Gamble, and Eastman Kodak, Dilen-schneider pushed into political lobbying. After he became CEO in 1986, Hill & Knowlton became an instant bigfoot in "Gucci Gulch," Washington's lobbying world, when it paid $21 million for Gray & Co. With his direct line to the White House, Robert K. Gray is one of the nation's most powerful lobbyists. And last year, Craig L. Fuller, a former top aide to George Bush, and his partners sold their influential public affairs and lobbying firm to Hill & Knowlton.

For a while, Dilenschneider's strategy appeared to be paying off. Revenue at the firm, a unit of Britain's WPP Group PLC, rose from $114 million in 1987 to $197 million last year. And rivals such as Burson-Marsteller scrambled to build a presence of their own in Washington. But now, the recession has pared spending by Hill & Knowlton's traditional clients. As a result, revenues should drop to $185 million this year, the firm says. Profits, one insider says, may fall to $10 million from $12 million idesign an antiabortion campaign for the National Conference of Catholic Bishops. In May of this year, it resigned the Church of Scientology account after some of its pharmaceutical clients complained about the cult's campaign against Eli Lilly & Co.'s antidepressant Prozac.

And when it wasn't controversial, political PR proved to be volatile. The Washington office gained attention for its work on behalf of the Kuwaiti government, but Kuwait later yanked its $5 million account just before the start of the gulf war. All told, the lost accounts forced Washington to lay off 24 staffers.

Dilenschneider has also stirred up some controversy of his own. In Power and Influence, his May, 1990, book about the PR business, he praised the management style of client Kellogg's former president, Horst W. Schroeder. But Schroeder had been forced to resign nine months earlier. Kellogg was embarrassed by the praise of Schroeder, say former executives, and it pulled its U. S. business from the firm a month later. Kellogg says its decision was unrelated to the book.

Hill & Knowlton's mergers and acquisitions business is another weak spot. The firm made millions in the 1980s by managing PR for deals such as Batus Inc.'s acquisition of insurer Farmers Group Inc. But as merger mania began to wane, Hill & Knowlton watched that business evaporate. Thomas E. Eidson, the firm's chief operating officer, insists that the firmhas adjusted and plans no wholesale layoffs. "Unlike Wall Street,we don't have floorafter floor of M&A experts playing checkers," he says.

SHUFFLE. Top Hill & Knowlton executives say the account losses began to worry Martin Sorrell, CEO of Hill & Knowlton's British parent. WPP acquired the firm in its 1987 acquisition of J. Walter Thompson. After some of the firm's top managers complained to Sorrell about Dilenschneider last May, he approved the idea of an executive committee. Sorrell insists Dilenschneider proposed the idea himself as part of an effort "to develop the firm further."

Other top executives agree that the management shuffle frees Dilenschneider to focus on his strengths--client relations and developing new business. But given the new clients and new businesses at Hill & Knowlton lately, that may be a mixed blessing.


Hill & Knowlton accounts recently affected by controversy:


CATHOLIC BISHOPS The firm angered many employees and clients by agreeing to mount an antiabortion campaign

SMITHKLINE BEECHAM The drug company yanked a $1 million U.S. assignment because Hill & Knowlton handled the Church of Scientology. The firm then resigned the $1 million to $2 million Scientology account

QUAKER OATS The cereal maker yanked its $500,000 account because the firm also handled Kellogg--which subsequently pulled its business, too


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