Management: Too Much Flak Downs a Flack

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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.