PR Firm in Billing Probe Failed to Take Own Advice

Despite the storm surrounding Fleishman-Hillard, the public relations firm under investigation for allegedly submitting fake bills to the Los Angeles Department of Water and Power, no one has been convicted of a crime or even charged with one.

Months ago, however, Fleishman broke a different sort of law, one sacred to every public relations professional: Don’t become the story.

The public relations community is watching in wonder -- and, in a few cases, carefully concealed glee -- as a prominent local PR agency, an arm of one of the biggest national firms, becomes enmeshed in headlines, accusations and investigations.

Fleishman, based in St. Louis, prides itself on two things: its moral principles and its skill at crisis management. “We must not waver in our commitment to observe the highest standards of ethics in everything we do,” Fleishman Chairman John Graham wrote in a recent article on the company’s website.

Those ethics, he said, cement the “solid bond of trust” between Fleishman and its clients, which have urgent need of the agency when they’re hit by a natural or man-made disaster. If a crisis is recognized too late and handled improperly, Fleishman experts tell beleaguered executives, it can jeopardize a company’s very existence.

“Which will history and consumers judge more kindly: the organization that says, ‘We have a problem here that we’re addressing,’ or the one that says, ‘What problem?’ ” Fleishman senior executives asked at a 2001 crisis management seminar.

It’s been 14 months since Fleishman’s close ties to Los Angeles Mayor James K. Hahn first began to be explored in the media. This immediately threatened to explode into, if nothing else, a public relations disaster. But Fleishman’s basic response seemed to be “What problem?” according to numerous people in the public relations community and current and former Fleishman employees.

“The consensus is that Fleishman waited way too long to take action,” said Joe Kessler, president of California operations for Weber Shandwick Worldwide.

“One of the reasons public relations agencies are so successful is that we have the benefit of being objective,” Kessler said. “It’s much more difficult to be objective when it’s your own situation. What’s that old saying about the doctor’s children being neglected?”

Fleishman did extensive pro bono work for Hahn, contributed to his campaign coffers, had a revolving-door relationship with his staff and had a $3-million annual contract to extol the merits of the DWP to its captive clientele. Fleishman executives charged the utility as much as $425 an hour for their services, which included writing press releases, clipping newspaper articles and giving strategic advice.

In April, City Controller Laura Chick refused to pay Fleishman invoices that she said were vague and questionable and began an audit of the contract. Fleishman responded by saying it would not seek a renewal of the DWP contract.

This month The Times reported that Fleishman employees were strongly encouraged to inflate their DWP billings. Fleishman launched an investigation, at the same time that Los Angeles County Dist. Atty. Steve Cooley launched a criminal investigation.

“When companies take forever to address a crisis, they’re either trying to cover up or, more typically, they have their head in the sand,” said Larry Smith, president of the Institute for Crisis Management, a consulting firm in Kentucky. “They say to themselves, ‘We run a good company, and nothing like that can happen here.’ So they ignore the problem and expect it to go away. And it usually doesn’t.”

In February, Douglas Dowie, general manager of Fleishman’s L.A. office, was promoted to a position in which he would oversee the agency’s public affairs specialists in Los Angeles, Sacramento and San Francisco. He also became co-chair of Fleishman’s national public affairs practice.

In a March 1 interview with the industry trade publication PR Week, Dowie took a defiant tone, dismissing the critics accusing Fleishman of unseemly coziness with elected officials.

“If I’m doing something wrong,” he said, his competitors “might all want to start doing it.”

Contributions to politicians, Dowie said, “allow you to build relationships....While they are not necessarily required in order to do public affairs work, they are door openers.” He also noted that the contributions “are certainly something that is appreciated” by their recipients.

Ten days ago, after The Times published its story on overbilling, Fleishman put Dowie on paid administrative leave.

In the five years that Dowie ran the L.A. office, the former journalist and Marine built up the public affairs side of Fleishman to the extent that it comprised more than half the annual billings, which a source said were about $12 million. (Fleishman said it could not confirm any figures.)

In 2000, Fleishman was named the best PR firm in Los Angeles in the annual Thomas L. Harris/Impulse Research client survey. It received nearly twice as many votes as the runner-up, Hill & Knowlton. Last year it was again the winner, but its margin over runner-up GolinHarris had shrunk to 2 points.

“I’m not sure the results are relevant to the current situation,” Impulse President Bob Novick said. “We’re asking clients about things like how prompt the agency is, how good they are about placing stories in the media. We don’t ask about honesty and all those kinds of issues. Local ratings are just for bragging rights.”

Bragging by PR firms is a little more difficult now. The image of not only Fleishman but also all the other firms has taken a hit.

“It taints everyone in the industry,” said Ron Rogers of Rogers & Associates. In 35 years in the field, he said, he couldn’t remember a public relations firm at the center of a scandal.

Others did come up with a precedent, although it involved an individual rather than a firm. In 1986, the president of the Public Relations Society of America was investigated by the Securities and Exchange Commission for alleged insider trading in a client’s stock. He never told his colleagues at the society until charges were filed. When he resigned, the society wouldn’t admit the real reason. Much bad press for public relations ensued.

“PR firms that get too much notoriety risk their futures,” longtime industry critic Jack O’Dwyer wrote in an editorial in his newsletter last week. He blamed Fleishman’s parent company, Omnicom Group Inc., saying it and other advertising conglomerates “are manic about max hours being billed out to clients. F-H execs have got to ‘make their numbers’ or face severe consequences.”

In an interview, O’Dwyer said the industry had taken a wrong turn 20 years ago when it started to bill by the hour. “If you hired a writer, would you want to pay him by the hour or the word?” he asked. “If you hired someone to do your portrait, would you want to pay by the hour?”

But billing by the hour was too lucrative, O’Dwyer said. “You can spend all these hours schmoozing the client -- ‘Tell us all about yourself!’ -- and running up the bill. The bean counters love it.”

The Public Relations Society of America e-mailed a professional standards advisory last week to its 20,000 members, reminding them that they should not claim “compensation or credit for work that was never performed.” Such a practice is “unethical and weakens the public’s trust in the public relations profession” and may be illegal, the e-mail said.

The society’s ethics board chairman, Dave Rickey, said the e-mail was written “because the issue was clearly in the public spotlight.” Fleishman was not specifically mentioned.

“Friends who know I’m in the PR industry are asking me, ‘Does [overbilling] go on all the time?’ ” said Hal Dash, president of Cerrell Associates. “I say it doesn’t, that [the allegations are] an aberration. It’s a rarity. But when one entity is under a cloud, the industry is under a cloud.”

Richard Kline, the Fleishman executive who now runs the Los Angeles office, said it was “a very, very difficult time” for the agency. “We’re looking at the billing records for all our clients. We want to make sure we have absolutely no issues. Any irregularity, we’ll reimburse the client.”

Although Kline said clients had contacted him out of concern, he said none left because of it. Many clients declined to be interviewed, including SBC Communications Inc., Mitsubishi Motors Corp. and the California Avocado Commission.

The nine-campus Los Angeles Community College District decided to review invoices from Fleishman as soon as the news broke of the city’s DWP audit in April. “No funny transactions, no funny charges” turned up after examining the $395,000 annual contract, said Blair Sillers, executive assistant to the college district’s chancellor. “But any hint that this has legs beyond the DWP, we would go back and take another look.”

The contract ends next month. When the colleges solicited bids for a new contract, Fleishman did not submit a proposal.

Legal Research Network, a Westwood firm, said it severed its relationship with Fleishman after only a few months last year, but not for billing reasons. “We had set forth with a series of business objectives and didn’t feel we were making sufficient progress,” said Eric Pinckert, head of corporate affairs. No billing review is planned, he said.

Not everyone thinks this is a watershed crisis. Bill Imada, chairman of IW Group Inc., a subcontractor to Fleishman on the DWP account, said the long-term effect would be minimal, even on Fleishman. “They’re an impeccable agency,” he said.

As for Mayor Hahn’s newly implemented ban on city agencies’ contracting with public relations firms, Imada doubted that it would last, either.

“There are so many different neighborhoods where people don’t speak a word of English,” he said. “In order to communicate effectively, you need partners. Cities cannot do this on their own.”

The Public Relations Society no longer punishes members for ethical violations. Although it encourages the reporting of “questionable behavior,” the incidents are used only as teaching tools.

“When our ethics month comes around in September, I’m sure we’ll be doing a lot to talk about this with our members,” said Cynthia Harding, president of the society’s Los Angeles chapter.