ANALYSIS: LA controversy raises questions for all firms

While Fleishman-Hillard faces accusations of overbilling in Los Angeles, some tricky issues have begun to emerge about agency management.

While Fleishman-Hillard faces accusations of overbilling in Los Angeles, some tricky issues have begun to emerge about agency management.

A client shared by Fleishman-Hillard and another firm recently received an unexpected call. On the phone was John Graham, Fleishman CEO, telling the client about the investigation of alleged billing improprieties in the firm's Los Angeles office and offering reassurance that the firm would not tolerate it, if found to be true. Meanwhile, LA Mayor James Hahn's (D) decision to suspend all city PR contracts was implemented last week, costing other area firms business - firms unconnected to the issues that are putting PR in the headlines. "My contract [with the Department of Public Works] has come to a screeching halt," says Kim Hunter, CEO of LaGrant Communications. "This has tarnished the reputation of the industry. People already believe that PR people embellish or lie." Everyone, it seems, is pondering and talking about the predicament facing Fleishman in LA - some on the record, many others not. The constant refrain is "this is very bad for the industry." The perception of wrongdoing has an impact beyond the organization in question. Nor is Fleishman the sole firm contemplating how things can go so wrong. If the investigation reveals the allegations to be true, the focus of attention must necessarily turn to the local office's leadership, and the oversight of that office from both regional and national headquarters. Even if true, errant billings are widely believed to be an aberrant practice, not only for Fleishman, but for the industry at large. There is no sense that any alleged billing problems are endemic to the entire organization. In fact, Fleishman still enjoys one of the most solid reputations in the business. Nevertheless, as other professional-services firms have found, local problems can endanger the reputation of an entire organization. "This is what I would call a generic risk," says David Maister, an author and consultant to professional-services firms. "Professional firms live or die on reputation or trust." In services, not all malfeasance creates the same level of problem. "You must make a distinction between someone who rips off the firm and someone who rips off the client," adds Maister, speaking generally on the types of problems that can occur. "There's a big difference in impact. You can probably survive someone who rips off the firm, but [possibly not] someone who rips off the clients." Local authority and culture Even before the recent problems, Doug Dowie had already made a distinct mark at Fleishman. He also enjoyed a high profile locally. He was a force behind moving the LA office from a consumer, technology, and corporate shop to one focused more on public affairs. A former Marine, Dowie was once managing editor of the Los Angeles Daily News and chief of staff for a city assemblyman. He joined Fleishman in 1991, under then-GM Jerry Epstein. Dowie's leadership of the office has been an object of speculation and interest in the competitive LA market for at least the past year and a half, and certainly since the LA Times and other media began investigating ties to Hahn. Former employees willing to go on the record say Dowie's management style could be challenging. Todd Cooley, communications director for RSM EquiCo and the president-elect of the Orange County chapter of the PRSA, worked for Fleishman in LA from 1987 to 1994. "I would say that I did not share Doug's values," he says. He declined to go on the record about specifics, but did not level any more damning accusations either. "On the other hand, I was never asked to do anything unethical by him or anyone else in the organization," he adds. Under the best of circumstances, it can be difficult to ensure that local offices adhere to the same cultural mandate headquarters avows. "I always felt a big part of Fleishman's success was due to Graham's emphasis on values and corporate culture - such as encouraging diverse offices to work together, rather than compete for billings," says Cooley. He adds that it is possible that Dowie's approach was not always consistent with that philosophy. Of course, that does not mean that Dowie was engaged in any wrongdoing. But the number of former employees willing to speak to the media, on the record, about their views of the office processes is a sign that not everyone left the firm with a positive view of management. Fleishman is largely mum on Dowie. "Part of the challenge here is, on July 16 the city attorney of LA filed a civil suit against Fleishman," says Richard Kline, the firm's regional president and Los Angeles GM. "Because Dowie had management responsibility during the time of the allegations in the lawsuit, it would be inappropriate to answer specific questions about [him] at this time." Kline says Dowie is a forceful personality, but that doesn't alter his contributions to clients. "Doug is a tough, demanding guy," Kline says. "He is greatly respected for his counsel, particularly in the public affairs arena, by a significant number of people, including current and former employees." Local leadership, Kline asserts, must have some authority in determining the way its offices are run. "We are a people business, and we have to trust and respect those in our system to serve clients well and to do the right thing," Kline says. "It would be inappropriate to micromanage from a corporate level. But we also have the obligation to make sure we do the right thing. If we find in any instance that someone failed to do the right thing, it's critical to take action." Adhering to that philosophy, Fleishman was the agency that famously resigned the Firestone account on principle during the Ford Explorer debacle. Any hint that an individual office's profitability would be perceived as more important than its adherence to the firm's culture of ethical and professional conduct would seemingly be anathema to Graham and the other executives of the firm. Kline vehemently denies that any office within Fleishman would be pressured to engage in unethical behavior to improve the P&L. As for Dowie, he is on paid administrative leave from the firm, pending the results of an investigation. E-mail requests for an interview were returned, marked undeliverable, by the e-mail server. Requests for an interview made directly to the Fleishman office were not responded to. Focusing beyond performance Common in all discussions about the Fleishman controversy is the question of whether agencies have been - particularly during the tough times - more focused on performance than on ethics and accountability. The question of the efficacy of hourly billing has emerged, as it does periodically - it's a tricky question to resolve. Junior staff members, in particular, need clear guidelines about what constitutes an accurate timesheet. Holding companies (Fleishman is owned by Omnicom) can be accused of exerting unfair pressure, a charge Kline also dismisses. "All of us have obligations to our companies who pay us every month to be credible financial fiscal managers," he says. "We have that obligation whether we are public or private. And it's all too easy for someone in a subsidiary company to fall back on the excuse that corporate or parent demanded or commanded, when in fact it is simply our fiduciary duty." It's not always easy to make money on a public affairs account. Of course, some accounts, may simply not be worth having. Better to walk away from an unprofitable one than create an environment where the pressure to make it pay overwhelms common sense. Firms that are part of these publicly traded holding companies have been working with their parents to comply with the regulations, which are supposed to make individual agencies and executives within them more accountable than ever. Meanwhile, Fleishman will continue to publicly answer the tough questions about how things seemingly got so out of control, even if only on the reputation front. Other firms should probably be pondering those questions as well. This article will be published in PRWeek's August 2nd edition.

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