Radical Evolution

With the merger of Burson-Marsteller and Cohn & Wolfe and the absorption or integration of Ogilvy Public Relations into a new kind of holistic agency, there’s been plenty of action at WPP’s public relations firms this year. But that excitement has largely passed Hill+Knowlton Strategies by. And last week’s announcement of a restructured management team, with new roles for EMEA regional leaders Lars Erik Grønntun and Richard Millar, is unlikely to generate the same kind of industry buzz that greeted those earlier moves.

In fact, many observers are likely to respond to the elevation of Grønntun and Millar with the same skeptical reaction that greeted last month’s other big WPP announcement, that holding company veteran and former chief operating officer Mark Read would succeed Sir Martin Sorrell as the group’s CEO. Given declining performance and the circumstances of Sorrell’s departure, there were those who would have preferred to see an outsider—a more obvious disruptor—take the reins.

There is perhaps an even stronger case to be made for disruption at Hill+Knowlton, which declined more dramatically than any of its global agency peers in the 90s and the early 2000s and where greater stability over the past few years has looked a lot like stagnation—in the US at least—to many observers.

And there was clearly a disruptive candidate available to global chairman and CEO Jack Martin, who in June of 2013 acquired digital content shop SJR and in May of last year named its founder and CEO Alex Jutkowitz to lead Hill+Knowlton’s still-struggling US operations. (Jutkowitz has also continued to lead SJR and serve as CEO of WPP’s Truffle Pig joint venture with Snapchat and the Daily Mail.)

While the combined resources of H+K and SJR had given the firm real critical mass in the US—something H+K lacked in comparison to its global peers, even after it merged with Martin’s Public Strategies seven years ago—and added much needed digital and creative credibility to what was still largely an analog business, the merger and Jutkowitz’s tenure have been problematic in another, important regard: a personality clash between Jutkowitz and many of those with whom he worked closely.

A tale of two mergers

In many ways, there are similar aspects to the two big mergers that H+K has gone through over the past decade. In both cases, the global giant was absorbing smaller, domestically-focused firms that specialized in higher value, higher margin sectors of the business. In both cases, an agency that was in turnaround mode brought in firms with strong, charismatic leaders and a culture of winning.

But Martin and Jutkowitz appear to have handled their respective mergers quite differently. Martin made every effort to ensure that the coming together of PSI and H+K looked like a merger of equals, elevating several people from the legacy business into senior roles alongside the people he brought with him from the public affairs business. Jutkowitz sometimes found it difficult to mask his frustration with what he seemed to see as the stodgy, slow-moving culture of H+K.

Talking to H+K insiders, it’s clear that there were two significant differences between the two mergers.

The first is that while Public Strategies had concluded its WPP earnout before its merger with Hill+Knowlton, SJR was acquired by H+K and almost immediately integrated into the larger, full-service agency.

The way holding companies structure their earn-outs almost inevitably creates perverse incentives, more or less forcing the entrepreneurial owners of the acquired business to focus on maximizing the returns of their old firms, rather than seeking opportunities that benefit the acquiring agency. That can be difficult even if the founder of the acquired firm is totally focused on his “own” business—and appears to have been made even more challenging when Jutkowitz was put in charge of H+K’s entire US business.

The second difference is that, talking to H+K insiders, it seems clear that Jutkowitz continued to see himself as an SJR person first and foremost, and that throughout his tenure he found it difficult to hide the fact that he considered the larger agency—and many of its senior people—to be practicing an approach to communications that was old-fashioned and uninspired.

While Martin had made changes to H+K’s culture, and its senior management team, he had done so while making it clear that he respected the agency’s heritage. Many insiders felt that respect was not there in Jutkowitz’s case. And in the end, Martin became convinced that Grønntun and Millar would be better able to provide the balance of change and continuity he was looking for.

Radical evolution

“We have a 90-year legacy that helps us,” says Martin. “The Hill+Knowlton brand still carries a lot of weight. But at the same time, we have the opportunity to be an insurgent, to be the scrappiest kids on the block. That’s how we have done it in London, and across Europe, drawing on that legacy but also being innovative, offering a network that works together but where every office operates like a boutique.”

That’s a model Martin, Grønntun and Millar now look to implement globally, in a move that looks like an evolutionary change, rather than the full-scale revolution many observers believe is needed to restore H+K to the preeminent position it enjoyed during the 80s, when it was the largest public relations agency in the world and—along with WPP sister agency Burson-Marsteller—one of the blue-chip brand names in the PR business.

Grønntun doesn’t claim that the new leadership team is a dramatic change of direction, but insists that insiders can be disruptive in a positive way. In fact, he borrows a phrase Read used to describe how he planned to lead WPP forward: “radical evolution.”

“What we are trying to do is build on our legacy position, and the strength of our culture and people and traditional services, while at the same time increasing the pace at which we are modernizing the business,” says Grønntun. “To be able to do that successfully requires a level of understanding of and respect for where we come from and a clear vision of where we are going.”

But Grønntun firmly rejects any suggestion that he and Millar will be less willing to shake things up than an outsider like Jutkowitz might have been. “In EMEA, we have closed seven offices. We have shifted more than 20 market leaders. There has been a respect for continuity, yes, but there has also been a ruthlessness when it comes to performance.”

Striking a balance

Just as the new leadership team will seek to balance respect for H+K’s legacy with innovating for the future, it will also attempt to balance the firm’s heritage in the corporate realm with the need to offer creative solutions in the consumer marketing space—where the industry’s biggest budgets now reside.

In this regard, H+K was facing another stick-or-twist dilemma. Burson’s merger with Cohn & Wolfe clearly brought together the corporate reputation and public affairs credentials of the former with the creativity and consumer excellence of the latter. Ogilvy’s new integrated model also seems like a response to the reality that marketing budgets are growing considerably faster than those of corporate communications departments.

Would H+K zig—developing new capabilities to better compete the consumer space—or would it zag? Doubling down on the corporate, financial and public affairs capabilities for which it is still best known.

“We have some people who feel the future needs to be about top-level boardroom counsel and who don’t particularly want to move into the market space,” says Grønntun. “Then you have another school of thought that says if we want to grow then we have to go after the CMO budgets, go fully into that very competitive space.”

In EMEA, Grønntun and Millar have responded to that choice by refusing to make a choice. A cynic might suggest that they’ve been straddling the fence, hoping to have their cake and eat it too. A more generous interpretation might be that they have found what business guru Jim Collins called “the genius of the and” rather than surrendering to “the tyranny of the or.”

A case can certainly be made that they have earned the benefit of the doubt: first, because of the process that has led to this point and second, because of the success they have enjoyed in EMEA.

Strategic mistakes?

The process has not always been tidy.

When I profiled Jack Martin shortly after the Public Strategies merger, he quoted PSI general counsel Meredith Marks (who now holds the same title at H+K) to me. “There have always been people everywhere I worked who thought I was crazy,” he said then. “Meredith always says ‘one thing is for certain, which is that Jack Martin is going to make mistakes, and it won’t take him long to make them.’

That comment came to mind as I looked back over the long and winding road that led H+K from where it was when Martin took over to where it is now. Because one of the things Martin has done, almost from day one, is given top talent the opportunity to compete for larger roles and greater responsibility.

It was clearly necessary to make big changes. “Jack Martin came in because Hill+Knowlton globally had been stagnant,” says Millar. ”There was little innovation in the business. It was living on past glories. Jack cut it up into smaller pieces and gave them the opportunity to innovate and grow.”

Sometimes, his willingness to experiment with new structures and to give people new leadership opportunities has looked a little random to outside observers.

In Asia, for example, offices in South Asia, Central Asia and Australia were folded into a new unit called AMEASCA, which also housed the Middle East and Africa, under the leadership of Dave Robinson. James Heimowitz, who had previously headed North Asia and China, took charge of the remaining Asian markets.

That experiment lasted about 18 months and was ended by the death of Robinson and the departure of Heimowitz, whereupon Ye Yu and Ivy Soonthornsima were appointed to lead China, reporting to Martin in the US, while John Morgan took over the rest of the Asia-Pacific offices. In November of 2013, the region came back together under the leadership of H+K veteran Viv Lines.

In the US, there has been less experimentation in terms of structure, but there has been a succession of changes at the top of the organization. Jutkowitz was the fifth US CEO under Martin’s tenure, following Dan Bartlett, the former Public Strategies exec who left to run corporate affairs at Walmart; veteran H+K corporate practice leader Andy Weitz; former Canadian CEO Mike Coates, who briefly led all of North America; and Beth Balsam, who joined from Citizen Relations.

In EMEA, meanwhile, Martin’s first move was to split the region into five parts: Millar ran the UK and Germany; Grønntun ran North East Europe; Jeroen van Seeters ran Benelux; longtime Italian market leader Cesare Valli led the South East; and the late Dave Robinson led the Middle East. In fact, the Middle East became part of the larger AMEASCA region.

At the time, the various restructurings and the rapid turnover at the top raised plenty of eyebrows. With hindsight it appears that Martin was giving some of the senior people from the legacy H&K business—as well as some of his former PSI colleagues and a smattering of outsiders—a sink-or-swim opportunity.

Grønntun and Millar have emerged from those tests with greater responsibility and (even more critical in terms of what happens next) shared responsibility. In May of 2014, Grønntun was named chairman and CEO of a reunified EMEA, with Millar as CEO of the UK reporting directly to Martin.

Says Martin, “I like to try things as an entrepreneur. I know I won’t always get them right and have and will make mistakes. But these changes are a natural evolution of the experimentation that has taken us from a broken, very siloed model seven years ago to where we are today, announcing one H+K.

“I have a firm belief in the notion that everyone should have a chance to succeed. And I like to take risks on ideas and people. I start off with the notion that the people of H+K should get a chance to realize their ambitions.”

Success in EMEA

It might have gone unnoticed in North America, where competitors still don’t fear H+K, but the firm’s European resurgence is a great story.

Hill+Knowlton is our reigning EMEA Consultancy of the Year, coming off a year of high single-digit growth and continued margin improvement (tripling in the past three years), built on new business from the likes of EY, GSK, China’s Wanda Group, Hankook, Nespresso, Colgate, Pfizer, Lockheed Martin, Johnson&Johnson, Duracell, Huawei, Oculus, Activision and more. It marked the second time in three years that the firm took home our top agency recognition in the region—and in the off year, H+K was our UK Consultancy of the Year.

One reason for that success is the way Grønntun and Millar have worked together, bringing complementary skills to their partnership.

“He is more of a consumer person, I am more of a corporate person,” Grønntun says. But it’s more than that. “He comes from our largest single office, London, which is the creative hub for a lot of our global accounts. I come from EMEA, which is really a lot of smaller markets—the Nordics, the Netherlands, the Middle East, Germany—where we have to be strong locally and where we have focused on the strategic corporate business more.”

Another is that Grønntun, Millar and their country managers have turned a weakness into a strength. Without a steady pipeline of business from the US, even smaller markets—Norway is a great example—have been forced to win a greater share of business in their local markets, developing new business muscles that some competitor agencies don’t use nearly as often.

Says Grønntun, “We have more local business than a lot of others. We have never relied on imported business and it has become a strength because it means we need very strong local leadership teams that are able to win locally. And the reality is that much of the business we win in EMEA is regional or global business”

And finally, the EMEA region has been developing some impressive intellectual property: crisis simulator Flight School was launched in 2015; in 2016 the firm partnered with social intelligence company Brandwatch to introduce real-time monitoring service Sherlock, created behavioral science unit Smarter, and a specialist purpose consultancy offer, which was extended the following year with an offer called Better Impact, which aligns purpose-driven initiatives with the UN’s sustainability goals.

All of these products refute the idea that H+K is stodgy, or less innovative than its peers. All of them have helped to attract new business, provide additional mission-critical services to existing clients, and bring in talent. And with the exception of Flight School, none of them has been widely adopted in the US or other global markets.

One Hill+Knowlton

Presumably, they will be now. That’s one of the things Martin is talking about when he describes the new leadership team’s focus on “one Hill+Knowlton.”

So Grønntun and Millar will bring with them a host of innovative ideas that can be adopted more globally—although their vision for the business is not just about sharing intellectual property; it’s also about a unifying purpose.

“I don’t want clients to come to us because of our consumer expertise, or because of our crisis expertise,” says Millar. “I want them to come to us because we understand the public. If you are in the energy sector, for example, then we understand all of your stakeholders, all of your audiences, and that’s the perspective we bring to the table.”

So in addition to the EMEA intellectual property, the new agency will also be re-emphasizing Martin’s concept of the “fifth seat,” which is described at the firm’s website: “When faced with significant strategic decisions, companies traditionally turn to four advisers: legal counsel, investment bankers, management consultants and forensic accountants. Each is trusted to review their area of expertise, but none factor public trust into their final analysis. We fill a Fifth Seat in your boardroom, helping transform your corporate reputation into competitive advantage.”

The fact is that very few PR firms consistently fill that kind of fifth seat for their client, and Martin’s self-effacing management style means he has not really imposed it on the rest of the agency (although it is clearly second nature to senior people who have been with him since his Public Strategies days).

But Millar believes there is unleashed potential there. “It’s an opportunity we have not really maximized,” he says. “It’s a compelling idea and it has become increasingly relevant to a number of our clients in London and in Europe, where it has helped us to become more relevant to our clients at a more strategic level.

“That has to be a priority for us, to advise the chairman and the CEO and the board of directors on the challenges they are facing at a global level, and how the public is viewing those challenges.”

As for Martin, he believes “the fifth seat idea is more relevant today than it was 15 years ago. It’s more necessary because of the democratization of corporate governance; companies need someone who understands the regulatory environment, the media environment, the public opinion landscape. The most important thing is that you have to have the right talent to work at that level, and I believe we have some of the best people in the business, not just at the top but throughout the whole organization.

“I think you have to keep it simple,” he adds. “If clients believe they can come to us and get good advice on their interactions with the public, if they believe we can deliver the right insights and the right talent, then we will earn our place at the table.”

There is—as one might expect—optimism that the “one H+K” approach will be enthusiastically accepted.

“I hope a lot of people in the US are going to welcome these changes,” says Grønntun. At the same time, he acknowledges that history might suggest otherwise: 16 years ago, Paul Taaffe (another leader who cut his teeth in a small market, Australia) made the move from an EMEA role to the US, and a global leadership position. It did not end well.

“I do think that operating with decency, transparency and openness in managing people, we can motivate a lot of people,” he says. “In EMEA, we have a very inclusive, international management team, we work to include the entire network, not to alienate it. The US has to be part of a global agency. It can’t see itself as separate, as us-and-them. It has to be us-and-we.”

A willingness to work together cooperatively across practices and regions—something most large agencies find challenging—will be key. To some extent, that can be addressed at a structural, cultural level—by creating the right incentives for sharing business and thinking, and eliminating any obstacles—but at some extent it is also about individuals and their personalities.

The ability of Grønntun and Millar to work together will be key. Millar will focus on clients and practices, on innovation, building on his successes in the UK. Grønntun will focus on finance and human resources, on sales, and on performance, building on his experience managing multiple markets.

And both believe their track record of working together in Europe will help. “Richard and I are both adamant that there won’t be anything competitive about the new arrangement,” Grønntun says. “Because we are both going to be responsible for the whole thing. I could have taken America and he could have take Asia-Pacific, for example, but we were both clear that one of the key objectives here is that we are creating one Hill+Knowlton.”

North America: Unfinished business

While the elevation of Grønntun and Millar is a significant step forward, it does not solve all of H+K’s problems. The search for a US or North American CEO is expected to take another couple of months, and finding the right person will be key.

The bottom line is that the US currently represents about one-third of Hill+Knowlton’s global revenues (which The Holmes Report estimated at slightly less than $400 million last year), with about a third of those US revenues coming from SJR. That makes H+K an outlier in relation to its global peers, most of whom derive at least half of their global revenues from the US.

If Martin, Grønntun and Miller can bring the US up to the level of the EMEA operations, it would be transformative—especially since the US would presumably then be in a position to export significantly more business to the rest of the network, in the same way Edelman and Weber Shandwick and others do with far greater consistency, creating a multiplier effect on any US growth.

But that does raise the question of whether the critical mass and the creative expertise that SJR brought to H+K will be lost with the content boutique’s return to standalone status within WPP—to say nothing of what will happen to high-profile SJR clients such as ESPN, ExxonMobil, and GE, all of which partner with the agency on a strategic level.

Jutkowitz declined to comment on the cultural fit between SJR and H+K, or on the challenges that still face H+K going forward, preferring to focus on the future of his own business: “SJR has always been a collective of storytellers, strategists, artists and journalists who are fast and flexible and follow their curiosity wherever it leads them,” he says. “As we strike out ahead, we look forward to joining with the many new partners who will help to build what we see as the agency of the future—a technology driven, boundaryless consultancy for innovation.”

Martin says the two firms will continue to work together on shared clients, and Grønntun points out that the EMEA operations in particular have developed their own content capabilities. “We have content teams all over the world,” he points out. “We have creative studios in Oslo and Dubai.” And in the UK, of course, there is Millar’s global Centre of Creative Strategy.

Grønntun also says he is confident that there is talent throughout the US operation, waiting to be empowered and unleashed. At the same time, he says, he and Millar will be willing to bring in new blood as necessary. He points to their track record in EMEA over the past few years: two-thirds of country manager appointments have been internal candidates, about one-third have come from outside the firm.

So while there will be challenges ahead for H+K in North America, and for its people, there will also be opportunities.

“The last seven years has been a fascinating journey, and at times a challenging one,” says Martin. “Our journey here has been to take a tough situation, do our best, and reward good human behavior and excellent talent. I’m not the least bit afraid to acknowledge mistakes, but with these latest moves, I can enthusiastically say the results of all of this hard work have paid off, and by the end of the first quarter of 2019 we will have in place a structure that values good people and an excellent plan for the future

“This is really our story: taking risks and giving talented people their chance.”

 

Originally posted on The Holmes Report here.

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