Creator of Images, JWT Must Now Refashion Its Own

J. Walter Thompson Co., the ad giant that made quality “Job One” for its client Ford, suddenly has a new Job One at its own firm: convincing clients that one of the nation’s oldest and largest ad firms is still up to the job.

After the events of this week, that will take more than a coat of wax. On Sunday, the firm’s chairman was fired, and late Thursday the president got a pink slip too. Although officials at the parent company, JWT Group, insist that there will be no more layoffs at the top, a hastily called board meeting is scheduled for today in New York.

While the 123-year-old company generally rates very high marks for its creative work in recent years, advertising industry executives and analysts accuse the company of being bloated and poorly managed. And two weeks from now, the company is expected to release earnings that show a second consecutive year of reduced profits.

But the agency is not embarrassed by its size.

“We’re bloated--like the New York Giants are bloated,” said Don Johnston, 59-year-old chairman and chief executive of JWT Group, in an interview Thursday morning. “You’ve got to fill the skilled positions, and that requires spending money.”

But Wall Street critics say that Thompson’s creativity is eclipsed only by its spending. And the company has yet to announce actions that will put a major dent in that area. No massive layoffs are planned.

Unlike many competitors who began making substantial staff cuts early last year, J. Walter Thompson was among the last to shrink its payroll. Nearly 200 workers were let go last year, primarily from the New York office. And although the agency saved some money in 1986 by shutting down its Washington, D.C., office, it has no plans for any substantial closing of its branches, which operate worldwide from Australia to Thailand.

“It’s not like running a factory line,” said Johnston. “You can’t just go shutting down lines in a business like ours.” Although 1986 was a lousy year for most ad agencies across the board, Thompson was among the last to react to the downturn, he admits. “We had a lot of new people in place who might not have reacted quickly enough,” he said.

But this week Johnston had little choice but to react. Joseph W. O’Donnell, 43, chairman of J. Walter Thompson Co. and heir apparent to Johnston, was fired after he tried to gain early control of the company by masterminding a proposed leveraged buyout, with himself at the helm. Then, on Thursday, the company said that John E. Peters, 55, president and chief operating officer of the ad division, was also let go, reportedly for his support for O’Donnell’s plan.

To calm clients, Johnston said he has been on the telephone “constantly” for the past week. He has spoken with 40 of the firm’s office managers worldwide and 30 of its key advertisers. He echoed the same words Thursday, which he has been telling clients such as Burger King, Miller Brewing, Eastman Kodak, Chevron and the U.S. Marine Corps--all week, “I see a period of stability ahead.”

Trim the Fat

Stability, at least with clients, has long been a hallmark for the firm, which says its 20 largest clients have used its services for an average of 30 years. Although the parent company’s greatest pride--and bulk of its revenue--are derived from its Thompson ad firm, the company is also made up of Hill & Knowlton, one of the world’s largest public relations firms; ad agency Lord, Geller, Federico, Einstein, and a research operation, MRB International.

But critics say that beyond stability, Thompson needs to trim the fat. JWT Group’s payroll has ballooned to 9,800 employees worldwide--among the highest in the industry. Combined, the company’s divisions expect to post 1986 worldwide billings of about $3.6 billion, ranking fourth internationally. Saatchi & Saatchi Co. of London is first, with billings of about $7 billion.

Most people, however, know Thompson not by its billings but by the ads it has produced. In its earlier years, Thompson was best-known for handling such big-name products as Pond’s cold cream and Yuban coffee. More recently, its Ford Division commercials met widespread acclaim within the industry, but the company also created the embarrassing “Herb” campaign for Burger King, which left egg on Thompson’s face.

Today, some analysts insist, Thompson continues to spend money about as fast as Burger King sells Whoppers. “They do great ad work,” said Alan Gottesman, analyst at the New York brokerage house L. F. Rothschild, “but their profit margins are awful.”

One competitor, Edward H. Meyer, chairman of ad giant Grey Advertising Inc., says he is baffled by Thompson’s problems. “It’s a paradox how an agency that performs so well for its clients can’t get its own act cleaned up.”

Not that Thompson isn’t trying. And Johnston admits that he is hardly overjoyed about once again filling the same chief executive’s shoes that he placed on O’Donnell’s feet last year. “My personal plans are now in a suspended state for God knows how long,” he said. But Johnston refused to speculate on how long he would hold the chief executive post--or for that matter, remain with the agency.

But that question--the issue of who is in charge--may be the focus of Thompson’s board meeting today, said Norman Campbell, chairman and chief executive of the competing ad firm, BBDO Worldwide. Big changes may take place at Thompson during the next year, Campbell said, perhaps via a friendly or unfriendly takeover attempt.

50-50 Chances

“Don (Johnston) has been a pretty good survivor in adverse conditions before,” said Campbell, but Johnston’s chances of staying in his post for another year “may be about 50-50.”

Johnston’s company has faced a string of administrative troubles during the past decade. In 1978, some billing irregularities were discovered in its Detroit office. Then the company charged $30 million against pretax earnings for 1978 though 1981 as a result of accounting irregularities that it discovered in its TV syndication department. Staffing at the top has also been a problem. Chief financial officers have found a revolving door at Thompson. And now two of its most senior officers are also being shown the exit.

Said the chairman of one giant competing agency: “The saying is, you can have a great career at Thompson--until you get to the top. But it’s like the Iranian army, there are always more people to move in.”

Johnston, however, reacts with irritation at suggestions that Thompson is unique in its current administrative turmoil. “There seems to be some sort of attitude out there that you can prevent evil. That’s a strange way of looking at life,” he said. “But we have an impeccable record of addressing these kinds of things, even if they are embarrassing.”

JWT GROUP AT A GLANCE The advertising and public relations company says its 1986 worldwide billings totaled $3.6 billion, ranking fourth in the industry. It is the parent firm of J. Walter Thompson Co., which accounts for about 75% of JWT’s revenues. JWT Group also owns public relations firms, including Hill & Knowlton Inc.

9 mos Year ended Dec. 31 1986 1985 1984 Sales (millions) $460 $569 $519 Net income (millions) 11.4 18.5 20.5

Assets: $654 million Employees: 9,800 Shares outstanding: 9.3 12-month price range: $24.625-$41.50 Thursday close (NYSE): $35.375