Last month, Howard Paster got a call from an attorney representing a very large corporation that was involved in a takeover battle.

The lawyer wanted to hire public relations giant Hill & Knowlton Inc. to handle his client's communications strategy. It was a big, tasty account that Paster, chairman and chief executive of Hill & Knowlton since in 1993, found difficult to refuse.

He refused it anyway.

The lawyer's client was an indirect competitor of one of Hill & Knowlton's clients. Accepting it wouldn't have been a direct conflict, Paster said just the kind of thing that makes you feel a little edgy. So, just to let his client know how loyal he is, Paster called the CEO and told him about how much money Hill & Knowlton had just left on the table.

"Number one, I sleep better at night, and two, I made the right business decision," Paster said. "That's part of why we're back."

Once-flailing Hill & Knowlton does appear to be back since Paster's arrival. Nationwide, its revenues grew by 14 percent in 1996 over the previous year and it was the first year since 1990 that the agency has turned a profit, Paster said. The Los Angeles office, the fourth biggest Hill & Knowlton branch in the country, saw a 24 percent revenue gain last year, he reported.

New York-based Paster, in town recently to attend a forum for chief executives, has been credited with engineering the turnaround. And he has picked an unusual way to do it. Most turnaround specialists earn plaudits by cutting staff and salaries, increasing profitability and running leaner, meaner operations. Paster did it, at least in part, by cutting paying clients.

If people are often judged by the company they keep, so are P.R. agencies. And Hill & Knowlton used to have a reputation for hanging around with some pretty shady characters. The firm, for example, represented bank BCCI in the midst of its international financing scandal.

Remember the scandal that erupted after a young Kuwaiti girl testified before a congressional committee about Iraqi atrocities in order to drum up support for the Persian Gulf War, and then it was learned that she was the daughter of the Kuwaiti ambassador to the United States? The whole thing was orchestrated by Hill & Knowlton.

Paster is credited with cleaning house, although he still won't divulge his agency's client list. He has dumped such clients as Hooters of America Inc. because of its controversial hiring practices. (It only hires women to wait on tables, and they allegedly tend to be well-endowed.)

He also turned down Saddam Hussein himself Iraq has tried on two separate occasions to hire Hill & Knowlton to lobby against the United Nations embargo.

"For a P.R. firm to permit its reputation to suffer is like the cobbler letting his kids go barefoot," Paster said. "It was essential to take away any question about that, and I think we've accomplished it."

The L.A. office saw its third consecutive year of billings growth last year, after a disastrous period in 1992 and 1993, according to Ron Hartwig, general manager of the L.A. office.

Hartwig attributes last year's 24 percent growth rate to improvements in the California economy and a shift in strategy. Instead of relying on regional specialists, Hill & Knowlton is now taking a "matrix" approach, calling on experts throughout its various offices around the world to handle individual clients.

"In the past, we might have been tempted to handle everything (using personnel based) in L.A.," Hartwig said. "Now, if the best person to handle a bankruptcy situation, say, is based in the Chicago office, you better believe that person is going to be part of the team."

Both nationally and locally, Hill & Knowlton is staffing up to handle its growing business, and industry observers point out that the agency is hiring higher-caliber talent than in the past getting top ex-journalists or corporate executives in addition to the usual marketing types.

Maureen Crow, president of Hill & Knowlton subsidiary Carl Byoir & Associates, is very pleased with the new management.

"Howard (Paster) has a ton of integrity," Crow said. "When he talks to me, his questions are not, 'How are your numbers?' His questions are, 'Do you have enough staff? How are you feeling?'"

Tomlin defection

Los Angeles P.R. veteran Carl Terzian says the highly surprising split between himself and his long-time partner was an amicable one even though former Carl Terzian Associates President Tom Tomlin took several Terzian clients with him when he set out on his own earlier this month.

Tomlin, who joined Terzian when the agency was formed in 1969, announced in mid-July that he was forming his own agency in Century City under the name Tom Tomlin Associates.

The move surprised some local P.R. types not only because of Tomlin's long history with Terzian, but because he's in his mid-50s and was already in a profit-sharing partnership with Terzian.

Tomlin's main area of expertise is in building public coalitions to support real estate developments, and he has brought several of his real estate clients to his new agency, including The Arba Group and New Urban West Inc.

He also took along Executive Vice President Julia Norris, a seven-year Terzian veteran, and a couple of lower-level staffers.

Terzian seems nonplussed. "He left in a very friendly way," says Terzian. "His firm will be strong, and our firm will be strong."

Terzian explained that Tomlin came to him with a plan to start his own agency, and Terzian agreed to part with those clients that had been brought in and developed by Tomlin.

Dan Turner covers the marketing, media and public relations industries for the Los Angeles Business Journal.

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