On the morning on May 12, 1998, Peter Georgescu, CEO of Young & Rubicam Inc., surrounded by a small group of his top managers, rang the opening bell at the New York Stock Exchange. It was the public debut of their newly listed concern and, as it would turn out, the beginning of the end of their Y&R careers. Presiding over a company valued at close to $2 billion at the close of trading, the newly minted millionaires popped their champagne corks. But there was little exuberance among the rank and file that day. In fact, the disaffection already apparent between the haves and the have-nots hinted at a larger sense of betrayal that would play out damagingly in the years to come.

"What got to people was, all of a sudden, the hypothetical money became real money. The [IPO] prospectus was a devastating document," recalls Ed Vick, who was then Y&R Inc. COO. "For years and years, compensation was a mystery. Suddenly, with the IPO, it was like, 'That guy—I'm senior to him, and he's got more shares. Or, that guy—he's been hanging on for 20 years, he's a jerk, and he has more shares.' Suddenly, there it all was, in black and white, in your face, and it drove a serious wedge into all sorts of situations."

Adds another Y&R executive from that time: "The problem with Y&R that haunts it to this day is greed. You had a bunch of top guys who made out like bandits with the IPO, pocketing $25 to $80 million each and then leaving. Making the money was OK, but they had an obligation to stick around afterward and run the company."

On that sunny spring morning, it was hard to see the clouds already gathering over Y&R. But that day would arguably have more impact on the company than any other in its 75-year history. As CEO, Georgescu insisted that the industry's fifth-largest player needed to go public to move ahead—or risk falling behind larger competitors that enjoyed access to the capital markets to fund expansion and change in a consolidating industry being transformed by technology. Yet today, Y&R's IPO is remembered more for cashing out a generation of critical managers than for financing growth. Seven years later, Y&R's advertising operations are diminished in size, talent and reputation, and the legacy of its public flotation associated more with what was lost than gained, as an iconic Madison Avenue brand became a stock symbol.

"Leo Burnett and Y&R were the only big [industry] companies that weren't public," says Georgescu. "We had Mexican pesos in comparison to public companies in trying to buy things like PR companies, direct marketing companies. Our people were saying, 'There are all these stock options out there [being offered by competitors].' We couldn't retain our people and compete. We needed capital to stay on the cutting edge of technology. I always said, 'This is not about making money. It's about having the currency to keep good people and to make acquisitions.' "

In fact, Y&R's selling shareholders stood to pocket more that day than what was earmarked for company coffers. At the IPO's offering price of $25 a share, proceeds to selling shareholders were worth, on paper, $228.9 million, compared with the $163.3 million in stock being sold by the company, according to the prospectus. Nearly 20 percent of the company's shares, a holding valued at $292 million (at $25 a share), were in the hands of just 11 Y&R executives, all of whom would be gone from Y&R within four years. Georgescu, with 2.9 percent of shares and vested options, had a holding valued at $44.6 million. (These are conservative estimates, as Y&R shareholders did not sell all their shares at the IPO. The stock closed at $28.06 after its first day of trading, hit a high of $73.25 during its 876 days as a public company, and sold to London-based WPP Group in 2000, in a stock deal valued at $53 a share.)

Georgescu insists that the group that left in 1998 after the IPO—including John McGarry, Y&R Inc. president; Joe DeDeo, chairman of Latin America and Canada; Tim Pollak, worldwide director of client services; and Fernan Montero, CEO of Europe—were part of an anticipated management transition, timed to his own retirement in 2000. "The reality is, through 2000 there was no brain drain. They were planned departures, planned in that they were going to leave with me," Georgescu says.

But one former Y&R executive from that era echoes the view of many contacted for this story. Few were willing to comment on the record, saying they still feel great loyalty to the company. "We were all surprised at how easily, after the IPO, [much of senior management] walked away from [employees] who were committed to them, sweated for them," said this source. "That began the process that created a very seriously damaged place."

How permanent is the damage? Increasingly, that is the question about Y&R Advertising—the unit that, for better or worse, has largely defined the profile of the larger marketing-services company. Four years into a turnaround at the agency, morale continues to plummet amid account losses, layoffs and a revolving door of managers, as WPP is searching for the shop's sixth CEO in 10 years. The flagship New York office, which had more than 1,000 staffers at the time of the IPO, is less than half that size now. (A Y&R rep says that partly reflects the departure of 500 staffers at The Media Edge, which was merged into Mediaedge:cia in 2001.) In a once-inconceivable turn of fate, the prospects for an agency that was the largest in the world 20 years ago are now being likened to that of companies like D'Arcy Masius Benton & Bowles, N.W. Ayer and Wells Rich Greene—venerable shops that disappeared.

For WPP CEO Martin Sorrell, typically shrewd in his due diligence, the agency he acquired in 2000 has become his Achilles' heel. He paid $4.7 billion for Y&R, which had $1.5 billion in revenue. That raised eyebrows in an industry that usually values companies at about one to one-and-a-half times revenue. In June 2001, for instance, IPG paid $1.6 billion for True North, which rung up $1.5 billion in revenue; last September, WPP spent $1.7 billion for Grey, which had $1.3 billion in revenue.

"Y&R was expensive because WPP paid over three times revenue, but it wasn't as expensive as if he had paid cash because he paid using expensive [WPP] equity for more expensive [Y&R] equity," explains Lorna Tilbian, an analyst with Numis Securities in London.

Meanwhile, the problems at Y&R's advertising unit have only worsened under Sorrell's current top-management team, Y&R Brands CEO Ann Fudge and worldwide creative director Michael Patti.

Sorrell did not respond to interview requests for this story.

It would be an oversimplification to blame all of Y&R Advertising's recent troubles solely on the post-IPO defection of senior management. The loss of independence and tensions with new owner WPP exacerbated the management turmoil. But at a company known historically for the depth of its relationships with clients, the IPO set in motion a disastrous exodus of institutional knowledge and experience. What used to be the ultimate insiders club—in the '80s, Y&R Advertising was loathe to go outside for senior-level positions—has become a place where the last three CEOs of Y&R Inc. have had little or no experience in the ad-agency business. That amount of turnover in that top post itself is telling; Y&R Inc. has gone through half as many CEOs in the past five years as it did in its previous 75 years. (Georgescu was only the sixth person to sit atop the company.)

"The IPO was the beginning of the unraveling of Y&R," says one former company executive from the IPO era. "You had a lot of people who used to put up with crap who now had a lot of money and didn't need to put up with crap anymore. You had a lot of people who didn't like each other before and now didn't bother to hide that fact because they had money. With Peter [Georgescu], it's like the Charles de Gaulle quote: 'Après moi, le deluge.' When he left, he 'retired' a lot of his contemporaries as well. It was presented publicly as people wanting to retire, but in fact they were being pushed. Asking people like John McGarry to leave was almost self-destructive to the agency. In the months to come, almost every client he had a relationship with left."

Within two years after McGarry left in December 1998, Y&R Advertising lost an estimated half-billion dollars of business from clients with which he had strong contacts, such as Citibank, American Home Products, Kraft and Kentucky Fried Chicken. Other longtime company executives who left after the IPO in 1998 included Mitch Kurz, vice chairman, client services, at Y&R Inc., who was a critic of the public offering; Barbara Jack, CEO of Wunderman Cato Johnson; and Frank Anfield, vice chairman of Y&R Inc. Longtime Georgescu confidante, Y&R Inc. vice chairman Alan Sheldon, also left, as did Stan Stefanski, who was chief administrative officer, Y&R/Wunderman Cato Johnson.

The sequence of events that has led Y&R to its current state begins with Georgescu's belief that the company needed fresh blood to revitalize a place that had become too inbred. To prepare for that next generation of leadership, he needed to redistribute share ownership in Y&R. To do that, he needed a recapitalization plan involving an outside investor, which made an IPO all but inevitable. With an IPO, of course, came the possibility of yet another sale or takeover.

It's the generation of Y&R senior managers who left after the IPO that may best typify the company's gentlemen's-club atmosphere and the Byzantine, insular politics underlying its genteel Ivy League facade. Many of its Manhattan competitors had been changed by the scrappy, street-smart contributions of copywriters and art directors who fueled the creative revolution of the '60s, but Y&R—known for its research and account strength, not its reel—continued to operate more like a white-shoe law firm. (Even at the time of the IPO, the company's sixth floor, housing its top executives, still looked like the interior of "a bank in Cleveland in 1953," says one former staffer. "Dartmouth green," wood paneling and hunting prints were the favored aesthetic; the only advertising on display was some Eastern Airlines print work from the '60s.)

Georgescu still maintains an office at Y&R's midtown Madison Avenue offices but has no involvement with Y&R or WPP business. In retirement, the 66-year-old has lost none of the elegance and professional poise that characterized his 37-year tenure at Y&R. In his first book, The Source of Success, to be published in September, he shares ethical lessons learned during his career, his belief in the power of meditation and the formative influence of his Romanian childhood, where he spent seven years in a Cold War labor camp. (While there is much in the book about values in business and enlightened leadership, he writes little about Y&R's IPO.)

When legendary Y&R chief Ed Ney retired in the mid-1980s, Georgescu was passed over in favor of Ney's creative prodigy, Alex Kroll, another Y&R lifer. The autocratic Kroll presided over a decade at the holding company that included lawsuits with WPP over a breakaway agency; a bribery connected with former Y&R New York president Art Klein and the Jamaica Tourism account (Klein was indicted but cleared); and several agency restructurings that didn't work. But also preceding his retirement was a stunning streak of new-business wins, including DuPont's Lycra account, Radio Shack, Molson Breweries and Digital Equipment Corp. Kroll had been criticized for not setting up a clear line of succession, and a group of ambitious men at the top—Georgescu, DeDeo, Pollak and McGarry—vied for position.

"So much of the time, all that political stuff was thriving, but Alex didn't want to hear about it," says one source. Kroll did not return calls for comment.

Georgescu's own experience rising through the ranks at Y&R may shed some light on his backlash against the company's insular culture as he planned for its future management. In 1990, he leapfrogged his contemporaries to become president of Y&R Inc., while DeDeo was CEO of Y&R Advertising and Pollak became head of Y&R New York. In his book, Georgescu describes a painful period that many sources refer to. Using a pseudonym, he discusses "Mike." Mike, who started in research, as Georgescu did, had set out to undermine him, "lying" about him to others, turning a large part of the creative staff against him and making him feel a "deepening sense of pain, humiliation and frustration." He writes, "I felt everything I achieved in my life beginning to slip away ... and through it all, a deep-seated feeling of resentment, even rage, was building inside me. ... I was ready to quit."

Georgescu refuses to reveal the identity of "Mike."

Others also expected that Georgescu would, in fact, leave Y&R, when, in 1993, Kroll set up a meeting with him to discuss succession strategy at the company. Georgescu, then 54, close in age with Kroll, identified five candidates and met his boss in the 25th-floor conference room. Georgescu had another item on his agenda: his own resignation. Before he could quit, however, Kroll surprised him by saying that he intended to retire and the board wanted Georgescu to take over as Y&R Inc. CEO.

After taking the helm in 1994, Georgescu set out to mend fences, and included one-time rivals like McGarry, DeDeo and Pollak on a new executive committee. "The politics were before I became CEO," he recalls. "It was real. It was painful. But we had our 'Come to Jesus' period and as a group took the high road. The [1998] departures of people like Joe and Tim were not about vindictiveness; they left on their own terms."

DeDeo is deceased; Pollak declined comment.

Georgescu and McGarry had both been given their first jobs by Y&R at about the same time, in 1963. While the new Y&R Inc. CEO viewed himself as an agent of change, his top client man epitomized the continuity of marketer relationships at the company. In contrast to Georgescu, described as an intellectual manager who was inclined toward abstraction and ambiguity, McGarry connected with clients through an uncommon emotional empathy and understanding of their business, colleagues say. (Both enjoyed friendships at CEO levels and spent most evenings out at marketer-related dinners and events.)

Georgescu formed an integrated brand strategy around key corporate accounts—KCAs—which became a potent point of difference for Y&R in the industry and, later, won over investors during the roadshow prior to the IPO. (According to SEC filings, in 1997, KCAs accounted for 46 percent of consolidated revenue at Y&R Inc.) Y&R had been an industry pioneer in acquiring companies like Sudler & Hennessey (healthcare), Wunderman, Ricotta and Kline (direct) and Burson-Marsteller (PR) in the '70s, and marketed a "whole egg" offering in the '80s. But in reality, the units more often competed for business than cooperated on it. Georgescu envisioned a better way. He and his executives across Y&R operating units targeted 35 core clients, and the KCAs became a driving strategy behind Y&R's success in the mid- to late '90s. Georgescu formally linked Y&R's two biggest units, Y&R Advertising and Wunderman Cato Johnson, into a new partnership. "With the KCAs, we changed the company's structure, compensation, bonuses," he explains. "People began to have a loyalty not just to their company but also to the client, because the compensation was based on client results."

(The company posted a net loss of $238.3 million in 1996 and $23.9 million in 1997. Former insiders say that reflects Y&R's recapitalization accounting.)

Georgescu also spearheaded development of Y&R's BrandAsset Valuator, in which the company claims it has invested $100 million. The data-driven tool measures more than 20,000 brands in 44 countries.

If Georgescu was creating new ways of looking at clients' business, McGarry represented Y&R's traditional cultivation of those relationships. The seasoned exec commanded a rare respect from marketers. Faced with a problem that could cost Y&R business, Georgescu was known to exclaim, "It's McGarry time!" In 1995, for instance, a Kraft client called after a brand realignment to say that Y&R was doing well but would not receive any new assignments. McGarry said that was unacceptable. In the end, Y&R was awarded additional brands, including Crystal Light. More jaw-dropping on Madison Avenue was Citibank's decision in 1997 to pull business from its three roster networks and hand its entire $800 million in estimated global billings to Y&R. (Citibank had been looking for help only with a corporate branding assignment; McGarry's friendship with Citibank evp Bill Campbell helped sell through Y&R's KCA expertise.)

McGarry is said to feel he deserved the CEO job that went to Georgescu, according to former colleagues. Georgescu says he never felt any rivalry with McGarry and points out that he promoted him to president of Y&R Inc. But sources say McGarry was bothered that Georgescu may have respected his client- handling skills but never thought he was very smart. McGarry did not return calls.

(McGarry's new agency, mcgarrybowen, meanwhile, has grown to $550 million in billings after three years, thanks to the relationships he forged at Y&R, including that with Campbell, who awarded JPMorganChase's $300 million account to McGarry's shop in 2004.)

Georgescu says that when he took on the CEO job, at age 55, he viewed it as a five- to seven-year mission. Looking back, it appears he had a clear plan in place: He began a recapitalization of the company in early 1996 as a way to relocate equity. In 1998, the company went public. By 2000, Georgescu was gone.

He wasted little time in shaking up Y&R's inbred culture and bringing in executives he felt were more suited to running the company as it emerged from its private past.

From 1991 to '93, Y&R Advertising in New York was in a new-business slump at a time when it also lost clients such as Johnson & Johnson, RJR's Camel cigarettes, Nynex corporate, Unisys, Motorola, AT&T, Kodak camera, Terminex and Citizen Watch. It was also in the process of regrouping after an unsuccessful Kroll initiative that split the office into three management units. In 1994, Georgescu brought Ed Vick back to New York as the office's president and CEO, after two years turning around Y&R's Landor unit in San Francisco. (Vick, a veteran of Ogilvy & Mather, Ammirati & Puris and Levine, Huntley, Schmidt & Beaver, had once interviewed with Jay McNamara, president of Y&R Advertising North America, in the '70s. He was bemused to see, more than 20 years later, that the look of the sixth-floor executive wing was little changed.)

Georgescu liked Vick's street-fighter determination and ad smarts. While his predecessors, like Tim Pollak, put a premium on strategic insights, Vick also appreciated great creative work. Rather than sit on the stuffy sixth floor, he moved up to the ninth floor with the creative staffers, occupying the old office of former New York creative head Helayne Spivak, a colleague of Vick's at Ammirati. Spivak had recently left the company after a three-year tenure marked by frequent turnover in the creative department and several large account losses. She left Vick a bulletproof vest with a note advising him to wear it backward, since she felt the hits at Y&R usually came from behind.

But Vick, who had served as a riverboat lieutenant in Vietnam, wasn't shy about engaging in battles. He brought in other outsiders, such as Rosenfeld, Sirowitz, Humphrey & Strauss president Linda Srere, with whom he had worked at Ogilvy, putting her in charge of new business. He also called on London-based worldwide creative director Ted Bell, who had been recruited from Leo Burnett in 1993, to help revitalize the work after Spivak's departure.

Srere, who would go on to become Y&R New York's first female president, CEO and chief client officer, recalls her initial impressions: "As Carl Jung would say, everyone's strength is their greatest weakness. The flip side of Y&R's strength—its extraordinary brightness and smarts—was its arrogance. The agency had very bright people and tools like BAV, but what we needed was creative spark, entrepreneurship."

The outsiders set out to infuse that entrepreneurship into a place that was often bogged down in meetings and bureaucracy. It didn't take long to see results: In 1995, Y&R Advertising, boosted by wins like Showtime, 7Up and the consolidation of Colgate-Palmolive business, boosted billings by 12 percent, double the increase of a year earlier. Vick became Georgescu's right-hand man and was promoted to head the worldwide operations in 1996. As presumed heir apparent, Vick worked closely with Georgescu for a few months in preparation for that, but he changed his mind. Concerned about the toll the job would take on his already-strained marriage and the time away from his young children, Vick turned down the job. (Georgescu confirms this, saying Vick was his first choice.)

That led Georgescu to Tom Bell, CEO of Burson Marsteller. The Y&R chief thought Bell was smart and smooth, and liked his Wall Street connections from his days as vice chairman of Gulfstream and his political contacts gleaned from his jobs running Burson's public affairs business, as CEO of think tank Hudson Institute and as chief of staff for Sen. Bill Brock, R-Tenn. There was only one key issue: Bell lacked advertising credentials. So in 1998, Georgescu named Bell CEO of Y&R Advertising.

Y&R was already considering options: Before the recap, Bell brought in a friend of his, millionaire Teddy Forstmann, to discuss the possibility of doing an LBO, but that plan was rejected after it became clear that it would raise only pennies on the dollar. (Georgescu organized a dinner with his top Y&R execs at Rockefeller Center's Rainbow Room to discuss the idea. "Peter had them prepare lamb shank. We always knew a dinner was going to be about a serious matter when Peter had lamb shank," recalls one attendee.) Before the IPO, Daniel Snyder, who went on to sell Snyder Communications to Havas and now owns the Washington Redskins, visited Y&R and suggested the two consider a merger since his company was already publicly held. Georgescu left after 10 minutes in the meeting, sources say. Among themselves, top Y&R execs pondered options like a corporate hook-up with AOL or Yahoo! Georgescu also considered an alliance with Internet concern CKS.

Behind the scenes, meanwhile, another recently recruited player was playing an important role on Georgescu's new team. Mike Dolan was hired as CFO in early 1996 because Georgescu wanted to put in place a person with public-company experience. The one-time Booz Allen consultant came to Y&R from PepsiCo International, where he ran the company's European snack-foods venture. After early talks with venture capitalists, Y&R settled on San Francisco's Hellman & Friedman, a private equity firm that had made its name taking Levi Strauss & Co. private in 1985 in a $1.6 billion LBO, which at the time was the largest-ever buyout of a U.S publicly held company. In December 1996, H&F took a stake in Y&R after pumping some $224 million into the company to enable it to buy back employee shares.

The stock buyback allowed Y&R to distribute a greater number of shares to top executives like Vick, Bell, Dolan and others associated with company's changing of the guard. "We had a cadre of older guys, aged 50-plus years old, who were large shareholders. If we're going to go public, 50 percent to 60 percent of those shares are going to the beach with those guys, while 1 percent of Y&R rank and file had shares," Georgescu contends. "All of us had to sell 30 percent of the old shares to create a larger pool for the next generation."

Yes—and no. The recap left a bitter taste among rank-and-file staffers who sold their shares back to Y&R as part of that redistribution, only to see them resold at a higher value during the IPO.

Former top Wunderman exec Mitch Kurz argues that the recap concentrated Y&R's shares within a smaller group of insiders. (According to the IPO prospectus, the recap put Y&R's shares into the hands of approximately 325 shareholders.) "We had 10,000 employees and 1,100 shareholders," Kurz says. "The whole thing about going public was to reduce the number of shareholders. One of the intangibles of a service company is its employees, and you don't want to disenfranchise 800 of those 1,100 shareholders. At first it looked good, but those people saw what they sold it for to Y&R, and then they saw the IPO and what the shares went for."

After H&F took a stake in Y&R, a change in ownership—whether through an IPO or otherwise—was almost inevitable, given the need for H&F to realize a return on its investment.

In his time as CEO, Kroll had used Y&R's private status as a point of difference and had been outspoken in his opposition to taking Y&R public. So it is ironic that his anointment of Georgescu would quickly lead the company down that very path.

One other senior executive shared Kroll's commitment to staying private. Kurz, who had spent his career at Y&R, argued that, pre-IPO, the company had access to capital but didn't want to take on what he says was a "manageable" amount of debt. "I was the lone dissenter [of the IPO], but Peter was totally convinced we couldn't compete, and at that point it became too late—the train was already out of the station," he says. "We were told [by Georgescu] that we wouldn't do an IPO for seven years, and then [the] Citibank [win] happened, and it was a great story for an investor road show."

Citibank was the crowning glory in a year of aggressive wins that included additional work from Sears and Ford. Several Y&R executives from that time strongly deny industry scuttlebutt about the agency cutting fees to win new business in advance of the investor roadshow. Says Georgescu: "We were not slashing fees. Our margins went up, not down. So how could that be if we were slashing fees?"

But while Georgescu and Vick's refocusing of Y&R resulted in that slew of new business, the IPO process itself became a distraction. "There was a lot of tension created during the recap; everybody wanted more stock," Vick recalls. "After the recap, it became far more evident of the potential, and people got dizzy, distracted. Peter, myself, Fernan [Montero], Mitch Kurz, Tom Bell—we did the best we could to keep people successful. But everybody was distracted because there was self-interest because so much was at stake [financially] with the IPO."

Based on the IPO offering price of $25 a share, among those with the biggest net worth, on paper, after Peter Georgescu, were Ed Vick, with 2.4 percent in shares and vested options ($37.4 million); Tom Bell, 2.3 percent ($36.6 million); Mitch Kurz, 2.2 percent ($34.9 million); John McGarry, 1.9 percent ($28.9 million); Fernan Montero, 1.6 percent ($24.5 million); Tim Pollak, 1.6 percent ($24.5 million); Alan Sheldon, 1.5 percent ($22.7 million); Ted Bell, 1.3 percent ($20.7 million); Stan Stefanski, 1.1 percent ($16.9 million); Barbara Jack, 1 percent, ($15 million); and Mike Dolan, 0.7 percent ($10.5 million). The amount of Joe DeDeo's holding is not clear, as he did not sell shares in the IPO but did so in secondary offerings. (He is said to have been one of Y&R's biggest shareholders who sold some stock during the recap.) As with Georgescu, the actual amounts earned by Y&R shareholders were higher. Like Georgescu, shareholders did not sell their entire holdings during the IPO; there were also classes of restricted stock and unrestricted shares.

In the IPO prospectus, Y&R pledged to investors the continuing involvement of top managers. It read: "As part of Y&R's client focus, [Georgescu, McGarry, Vick and Tom Bell] will retain ongoing responsibilities for individual KCAs in addition to their managerial roles."

About a year after the recap, Kurz told Georgescu he was thinking about a change in career. In 1997, after the Citibank win, he became convinced he had to go. After being given just hours to tell American Express, Wunderman's largest client, that he had to resign the account so the company could work for Citibank, Kurz felt Y&R was losing its client focus. "My whole belief system about Y&R was crumbling. With Citibank, that's when the new Y&R began. I didn't think I could work at a company that was firing large clients," Kurz says. "I was made to feel unethical, and no amount of money makes up for that.

"I was running Wunderman at the time and was made fabulously wealthy. But it's still not obvious to me why this [IPO] was necessary. A lot of guys made a lot of money, but after the IPO a lot of the work got worse, and people perceived a dilution of purpose. The fact that one event made such a difference showed me how private Y&R was as a company, more so than other private companies."

Kurz is now a participant in the Teach for America program, has co-started one charter school in Harlem and is about to co-start a second. He says: "I sold [my Y&R shares] as soon as I could, even though we knew WPP was going to buy Y&R. All I needed to do was maintain a pulse and I could have collected another $12 million. My accountant said I was crazy—I paid $20 million in taxes. But I needed to be cleansed and look forward."

Indeed, since the recap in 1996, it was an open secret that WPP CEO Martin Sorrell had been coveting Y&R, with its roster of shared clients like Ford and Kraft. Y&R's IPO prospectus, however, details a poison pill whereby the company's CEO could effectively thwart takeovers. For up to two years after the IPO—the time frame within which Georgescu planned to retire—he or a successor CEO had the deciding vote in Y&R's management voting trust, unless outvoted by six of the other eight voting trustees. "We went public because we needed public financial currency," Georgescu says. "I saw no strategic reason to entertain the possibility of a sale of the company."

After the IPO, Sorrell approached Hellman & Friedman about buying the firm's Y&R stake at a premium above market value. (Y&R's margins still trailed those of its competitors; Sorrell believed he could take out costs to further boost them. At the time of the acquisition, Sorrell told investors WPP could realize $30 million in annual savings at Y&R by Dec. 31, 2001.) H&F consulted with Georgescu about selling its Y&R stake and declined. Over breakfast at a restaurant in Georgescu's River House apartment building on Manhattan's East Side, Sorrell made overtures to Georgescu and Vick directly. Vick says they were rebuffed.

Meanwhile, Y&R Inc. had begun making the acquisitions promised by Georgescu, with mixed results. In April 1998, it acquired Capital Consulting & Research, whose CEO, Jay Bingle, would implement a short-lived rebranding of Wunderman as Impiric. The following year, Y&R acquired KnowledgeBase Marketing, paying a hefty $175 million, and in 2000 bought Robinson Lerer & Montgomery for a reported $30 million—about the same amount as the firm's revenue. In 2000, Ed Vick brokered a deal to acquire London shop Rainey Kelly Campbell Roalfe. While that shored up Y&R's weak London presence, three of the shop's four principals have left over the past two years. Sources say the decisions of MT Rainey and Jim Kelly to leave were as much about disagreements with current CEO Ann Fudge's management of Y&R as they were about their final earn-outs. Rainey and Kelly both declined comment.

While the company was adjusting to the post-IPO management exodus and the new rigors of public ownership, Georgescu surprised many when, in August 1999, he announced his retirement. He says his plan was always to leave when he turned 60, which he did in March 1999. "It didn't feel right [to stay longer] because I had a team in place [with people like] Tom Bell, Ed Vick and others."

The choice of Bell as Georgescu's successor left many at the company scratching their heads. "Tom Bell's a political operative. I don't know why Peter picked him," says one observer, echoing the thoughts of other Y&R insiders at the time.

Bell, now CEO of Cousins Properties in Atlanta, did not respond to multiple interview requests.

Georgescu's retirement removed the major obstacle to Sorrell's overtures. "Martin Sorrell couldn't have done a hostile takeover of Y&R, given my client relationships with Colgate and Ford," the former CEO contends.

Sorrell wasted little time getting back in touch. In the early weeks of 2000, Bell and Dolan flew to Miami to meet Sorrell, who had been in Latin America, sources say. The Y&R execs checked into their hotel, and Bell headed down to say hello to the WPP CEO. It wasn't long before the two clashed and Bell stormed back upstairs. So much for breaking the ice: Bell and Dolan checked in and out of the hotel quickly.

Talks were on again around St. Patrick's Day. This time, the location was the New York offices of Y&R's investment bankers, where Y&R executives gathered for a Saturday meeting with Sorrell on speaker phone, sources say. "Martin was complaining about the projected revenue of Impiric and severance costs," says one executive. Another source says: "[Sorrell] implied Tom was not showing information, not being accurate. Tom exploded and hung up, saying 'We're finished.' "

There would be another breakdown in talks, over price: "At that point, Tom was so pissed off, he was going to get every penny," says a source.

In May 2000, the sides finally struck a deal, with WPP paying $4.7 billion for a company ringing up $1.5 billion in revenue. "Everything was rocky, clients were unhappy. If he had waited another six months, he could have gotten it for $1 billion less," recalls one former Y&R executive.

After the heated negotiations, it was obvious that Tom Bell would not stay on after the deal was done. (He would be replaced by CFO Dolan.) Graham Phillips, then Y&R Advertising's CEO, and who had worked for Sorrell at Ogilvy, would leave as well in 2001 when his contract ran out.

During the WPP talks, Y&R sought alternative buyers, contacting Publicis. CEO Maurice Lévy recalls: "Top [Y&R] management didn't like a deal with WPP; there was strong opposition to it. We had been invited by Tom Bell, and I looked at the model of Y&R. Why we didn't make a formal offer was because [Y&R] was a very strong, very solid culture, like an enormous block of granite that would be very difficult to integrate into Publicis."

Within Y&R, what once looked like a rock-solid culture was cracking. "We had a couple of years where we had a great new-business run, then it imploded," says Kurz. "We became a new-business company instead of a client-services company."

Outside media leaks about Y&R's on-off talks with WPP were a further distraction at a place already struggling internally in the aftermath of the IPO. Jim Ferguson, recruited from DDB Dallas to become president and creative chief at Y&R New York in mid-1999, remembers: "I walked into a place where a lot of people made a lot of money. There was a lot of resentment, and it wasn't only directed at the people on the sixth floor. People weren't opening up The New York Times to read about their clients in the business section—they were opening the paper to read the stock tables to see how their stock was doing."

It wasn't just the have-nots who were miserable. Some of the haves appeared none too cheerful, either. "We called it 'the unhappy millionaires club,' " says one former Y&R exec. "You never met so many people who made so much money and weren't interested in building a company. There was professional indifference among people who would attend a meeting and then have nothing come out of it—they've just made $3 million [in the IPO], and what are you going to do, threaten to fire them? [Worldwide creative director] Ted Bell ... would show up at work at 10 a.m. and leave at noon. He didn't bother to see clients, and there was no follow-up after meetings."

Bell, now a Palm Beach, Fla.-based novelist, denies that. "Sure, there was a period when everyone was a little distracted with 'What does this mean to me?' " he says. "I had personal distractions, but it's not quite accurate to say I came in at 10 a.m. and left at noon. There was some lessening of my allegiances and loyalties, but my disaffection or alienation could have been avoided."

Bell felt his role was being undermined and says he was surprised when Vick assumed the title of chief creative officer of Y&R Inc.. Y&R execs counter that Bell's personal distractions rendered him unable to fulfill his responsibilities. Bell took a leave of absence and left Y&R in 2000, after 10 years.

If those at the top were losing interest, staffers handling the day-to-day needs of clients were still trying to keep their focus. "We at Colgate don't usually talk to the press," says Emilio Alvarez-Recio, vp of global advertising. "But I want to say that our people at Y&R, led by [global client leader] Steve Forcione, are the best we've ever had. The [Y&R] IPO had no impact on our business. They are very dedicated to our business and understand what we want very deeply. We are very pleased; they are very professional."

Vick's CCO title was one of many hats he wore during his seven years at Y&R. He also served as president and CEO of Y&R New York, CEO of Y&R Advertising (twice) and COO of Y&R Inc. He proved to be a polarizing influence, described variously as a great motivator, hard-driving but fair, or conversely, highly political with a "my way or the highway" management style.

"When Ed was on the floor, it was all hands on deck. He could bust your ass, but he was right to do so," says Ferguson, echoing others. "Ed was a leader."

"You're either with me or against me—he's that kind of guy," recalls a former Y&R executive. "After the IPO, you knew how it would work; people who were loyal to Ed were going to do well."

Vick says: "I always felt that when you're in a difficult situation, taking action is very important. Even if it's not exactly right, you can find your way in midstream. Some people had a legitimate point of view that didn't agree with mine, but I didn't have time to discuss it."

The IPO clearly marked a changing of the guard at Y&R. "The management at the time, having done well, elected to take the company to a different place," says one exec who left. "I wasn't going to leave after the IPO, but it was clear to me I was not part of that plan."

Under Vick, as yet another round of politics played out, many executives simply walked away. The IPO money and golden parachutes triggered by the WPP acquisition made for a soft landing from an increasingly troubled place. The revolving door of executive changes spun ever faster. After the WPP deal, Y&R Inc. CFO Dolan took over for Bell as CEO. Corporate-level execs like Vick and Srere returned to the advertising operations. Y&R North America chief Peter Stringham and Y&R Inc. vice chairman Bruce Nelson walked.

In October 2000, Vick, in his second stint as CEO of Y&R Advertising, flew a Union Jack outside Y&R headquarters in New York to commemorate the company's handover to WPP. But it wouldn't be long before Y&R's relationship with its new parent became tense.

That fall, Dolan and Vick met Sorrell for drinks at Sorrell's apartment at Carlyle Hotel in New York. The two Y&R execs had parachutes triggered by change in Y&R leadership that paid out five years of salary. (Other top executives had three-year parachutes.) Sorrell persuaded the two to sign up for another year of service.

"After Martin Sorrell bought the company and Tom [Bell] left, I was going to leave too, since I always said I'd never work for Martin," Vick says. "Partly I stayed because of an attachment to Y&R." But in returning to head up Y&R Advertising again, "I either overestimated my abilities or underestimated the stress of working for Martin."

Dolan declined comment.

Over the coming months, the tension mounted. "[Martin Sorrell] hated all of us because he thought he overpaid, and too many of us made too much money, and he resented every one of us," says Vick. "I was being distracted by Martin and WPP to the point where it was clearly affecting the way I was doing my job. I was angry because he was always looking over my shoulder. He gets his tentacles in throughout the company—spies everywhere. Martin was on the phone all the time, getting into the minutiae of the business. He has a way of creating an intense paranoia among his managers so that they spend more time worrying about making mistakes than they do moving forward."

A primary difference of opinion centered on the KCAs. Vick and Dolan bristled, believing that Sorrell was dismantling the KCA bonus incentive system and having their top executives reporting directly to WPP rather than through Y&R Inc., Vick and sources say. The cooperation among Y&R units created under Georgescu was undermined when those unit heads had little incentive to work for another Y&R entity now that they reported directly to WPP, those sources add.

"Y&R Inc. was more than just the corporate headquarters of the public company," Vick says. "It was the mechanism that drove the KCA strategy. It was how we tied all the Y&R companies together and sold ourselves as a pioneer in integration, which we were at the time. Martin just saw the 'corporate' people as a layer of cost to be taken out. When he dismantled Y&R Inc., he dismantled the KCA strategy. He himself destroyed the very thing he had coveted."

Dolan and Vick sought to bolster management, bringing in Bayer Bess Vanderwarker founder Ron Bess as CEO in New York; Robb High, former COO at Kirshenbaum Bond & Partners, to lead new business; and former Hill, Holiday, Connors, Cosmopulos co-president June Blocklin as vice chairman, to oversee AT&T. An account/creative global leadership council was created, and Y&R New York's operating committee was expanded. But Vick was already emotionally checking out, deciding in the days after 9/11 that he would leave as soon as his one-year commitment was up on Dec. 1, 2001.

Sorrell didn't want to have Vick and Dolan leave at the same time, so Dolan agreed to stay on, sources say. The Y&R Inc. CEO added Vick's role as Y&R Advertising CEO. A medieval literature PhD in graduate school, Dolan was well-liked as a straight-shooter and appreciated for his willingness to listen, although some criticized him for indecisiveness.

Dolan told Sorrell he wasn't right for the Y&R Inc. CEO job, given their differences in operating philosophy for Y&R, sources say. While Dolan found himself enjoying his first hands-on advertising job, he is said to have advised Sorrell that he would need his own person in the Y&R Inc. post.

Dolan took a page from Georgescu's playbook and threw himself into business development. In a memo from January 2002, he writes: "We haven't put our best foot forward. We haven't started with the work and then explained how we got there. We've been too bureaucratic and institutional. ... Given all this, I've concluded that, for now at least, new business is a responsibility I cannot delegate, but is also one that I will need to share. ... So, as we begin this year, I'm taking on direct, personal responsibility for new business and will be calling on many of you to help us start winning."

As part of those efforts, Dolan felt he needed the kind of big creative hire that would send out a signal of Y&R's changing ambitions, sources say. From his time at PepsiCo, Dolan knew of Michael Patti, a BBDO star associated with Pepsi, and began talking to him. Patti says he and Dolan spent their first three dinners without even discussing advertising. The two chatted about their mutual love for the Yankees and their shared experience growing up in the outer boroughs of New York. Finally, the discussion turned to advertising, and Patti and Dolan exchanged reels (with Patti concluding Y&R's was "mediocre").

The glitzy Pepsi work for which Patti was known seemed at odds with the more durable packaged-goods ads created at Y&R. But Dolan convinced Patti he wanted to go in a new direction creatively and would work closely with him in supporting that shift. "At dinner, Mike said he wanted to have fun and was insistent on inspiring people and bringing them to the next creative level. There was a definite chemistry there," says Patti, adding, "I had two or three dinners with Martin Sorrell as well. He didn't say he wanted to have fun."

In March 2003, Patti joined Y&R as worldwide creative director and chairman and CEO of Y&R New York. His arrival would prompt more executive change: New York creative head Ferguson left, and Ron Bess was shifted from New York CEO to vice chairman for integration and business development; he also subsequently left. And still more change was on the way. Unbeknownst to Dolan, Sorrell was already courting his replacement as Y&R Inc. CEO: Ann Fudge, a packaged-goods veteran from Kraft and General Foods.

By April, Dolan's new-business efforts paid off: A group of Y&R Advertising executives spent nearly a year advising venture capitalists Texas Pacific Group, which was considering a purchase of Burger King. After TPG bought the fast-food retailer in 2002, Y&R pitched BK's $300 million in billings for its advertising unit and Wunderman, winning that piece of business as well as picking up work for WPP siblings such as MindShare, Landor and Uniworld. It was the agency's biggest win since Citibank in 1997, and as staffers crowded into a Burger King on 41st Street, near the agency's Manhattan headquarters, to celebrate, the upswing in morale was palpable. But no sooner had Y&R execs inked the contract than Sorrell surprised Dolan by saying he was hiring Fudge to replace him.

While sources say Dolan accepted that change, executives at TPG were not as understanding, sources say. (Dolan knew some of the TPG principals from Pepsi and BK board member Brian Sweeney.) Of the core Y&R group that worked for TPG before the BK purchase and won the business, Dolan and Y&R New York CEO Ron Bess would be out of the company in just months.

"Burger King was surprised by the [Dolan] change to say the least. They felt fooled," says one source. "There were other things involved, but that was the beginning of the end of Y&R and Burger King."

The change occurred just two months after Patti began. Patti got a call from Sorrell, who invited him to his Carlyle Hotel apartment in Manhattan for a cup of tea while the WPP CEO prepared for a black-tie event. Patti recalls that Sorrell said he was making a change, and 10 minutes later, Fudge walked into the hotel room as Sorrell exited. Patti says: "I had no indication there would be a switch. I liked Mike, but I also liked Ann. I threw my total support behind her." He disputes assertions to the contrary.

Sorrell's unilateral selection of a client executive with no agency experience to head Y&R Inc. and Y&R Advertising was a risky move, particularly given the problems Fudge, now 54, would inherit. Insiders gripe that Fudge's experience at Y&R shows how drastically the agency has changed—a place where Georgescu enjoyed client relations at the highest levels is finding its previous strength now one of its greatest vulnerabilities.

Some Y&R staffers wonder about Fudge's priorities, as she is said to focus on management process more than client service. She has introduced employees to Lean Six Sigma, a management discipline designed to increase quality through efficiencies, more associated with manufacturers like General Electric, where Fudge sits on the board. She also gave Y&R Advertising a new identity last summer, exchanging its well-known serif typeface with a cartoonish font. "With the new identity, she took the approach of any client with a new-product introduction," says one recently departed Y&R exec. "She changed the logo and the package to 'Y&R Brands.' Then she got into [the Six Sigma] process and downsized. In turning around the agency, she should have used her [corporate] contacts in new business."

Sources say that Computer Associates and Jaguar are examples of the client-service weakness, where Fudge was slow to reach out to new client marketing executives to solidify the relationship [Adweek, Jan. 10]. Fudge was also slow to respond when Burger King expressed unhappiness with the agency, sources say.

"Her sensitivities weren't properly aligned with a service relationship, agency partnership," says Russ Klein, BK's chief marketing officer. "It was not a highly functioning relationship from a service leadership point of view. We were not on the same page with strategic vision and in creative treatment. The philosophical divisions made for a sub-optimal situation. It's been fairly well-chronicled that it was a very threadbare and shredded relationship at the end."

A Y&R source defends Fudge: "I think that was fairly early in her tenure. She was trying to bring her [own] point of view ... to the other side. I don't think she was fairly seasoned in dealing with clients."

Perhaps most inexplicable to Y&R observers is Fudge's approach to Ford, a major Y&R and Wunderman account and WPP's largest client. Last fall, after Y&R's $150 million Jaguar account went into review, Fudge is said to have alienated the client by failing to attend a first meeting, a session attended by top executives from rivals in the review, sources said. Mark Fields, CEO of Ford Premier Auto Group, who formerly ran the Jaguar business, did not return calls. Y&R was eliminated before the finals, and the account moved to Havas' Euro RSCG.

Fudge declined to comment on those assertions, saying she does not discuss clients with the media.

In published remarks at the time of her hire, Sorrell said that "women are better managers than men" and said Fudge's short-lived "retirement" from Kraft was a "waste" of her management talent. Contacted by Adweek earlier this year, all Sorrell would offer was a terse "Ann is doing fine."

Billings losses during Fudge's tenure total about $650 million, according to Adweek estimates, from clients such as Computer Associates, BK, Sony, Jaguar and Philip Morris' Parliament brand. Even Fudge, the former Kraft marketer, couldn't stop the last of that company's billings from leaving last September. There's been no shortage of bad luck as well: AT&T, which was Y&R New York's largest account, stopped advertising to consumers, and the fate of Y&R client Sears is still unknown, after that company was acquired by Kmart in March.

Fudge says of her experience at Y&R: "I don't think anyone understands the scope of issues from the outside. You can get some sense of it, but it's not until you're in there day to day, dealing with the issues, that you understand what's going on and what needs to be focused on or addressed."

Tom Rosenwald, a Y&R alum and now a partner at executive search firm Ray & Berndtson in New York, says he is deluged by people looking to leave a company where its brightest once spent lifetime careers. "As a recruiter, I've never seen more résumés [than I have from Y&R now], some of them for very senior people," he says. "Morale is terrible, people are frustrated with the lack of leadership." But he adds, "You can't just finger point and say Ann Fudge is unsuccessful. This is a situation where succession plans were either too short-lived or given to the wrong people."

Carl Johnson, a former colleague of Fudge's at Kraft who is now chief strategy officer at Y&R client Campbell's Soup, argues that Fudge is doing a good job. "Running an agency holding company is one of the most difficult jobs in the world—so many masters to serve," he says. "Obviously it's difficult in a turnaround situation and expectations are high. She knows what clients want; she has great instincts for the consumer. While she's not run an agency before, she's smart and surrounded herself with good people."

Fudge explains her priorities: "From the day I walked [into Y&R], I said there are three things: our clients, our people and our work. On the client side, it was quickly meeting our clients and getting a sense of their business issues, what we needed to deliver. With our people, it's been about making sure I could augment the talent as well as recognizing the talent that was already here and understanding where some of the hidden talent is that hasn't been allowed to shine."

In February, Fudge added another level of agency management when she named Y&R veteran Gord McLean, formerly president of global client services for Y&R Brands, as CEO of Y&R Advertising North America. What the low-key Canadian lacks in star power he makes up for with his 16-year knowledge of Y&R and its historical client-handling strengths.

"Our No. 1 priority is that we have to focus on our clients," says McLean, the most senior account executive on global accounts Colgate and ChevronTexaco. "One of our problems is that we have lost the depth in our relationships at the top of our key clients. Georgescu, DeDeo, McGarry had relationships at the CEO level. We need to over-deliver to our clients."

McLean oversees the agency's six North American offices, which Fudge restructured last summer. She eliminated the CEO role at each one and named the individuals running the offices managing partners. As part of that effort, Fudge trumpeted her five-member "Catalyst Team" concept. Y&R sources say WPP's Sorrell had "grave reservations" about the group, which had no direct line of responsibility for clients. Within months, the group was disbanded.

Fudge says her plan all along was to move the Catalyst Team onto client businesses after six months.

Fudge's management restructuring last July removed Patti from his operating role in New York, as former TBWA\Chiat\Day exec Mary Maroun took over the office. Matt Eastwood, formerly of M&C Saatchi, was ecd of the Catalyst Team, then took the creative reins in New York. Patti, who was bumped to Y&R vice chairman, retained his role as global creative chief.

"I didn't want the CEO title; I'm not CEO material," Patti admits. "I thought the chairman title was good because creative people as chairmen set a creative standard."

Y&R is still working through the changes, however. There has been confusion: This spring, sources say, while Patti was on vacation, Eastwood summoned one young creative to move up near his creative department. When Patti returned, McLean called Eastwood, on Patti's orders, and instructed the employee to return to Patti's floor. Fudge recently met with New York staffers to explain the division of duties between Eastwood and Patti. That meeting, however, pre-empted another meeting that McLean had planned on the same topic.

Patti has also put off some staffers. "Y&R has always been known as a place that is gentlemanly to a fault," says a source. "Patti comes in with his BBDO über alles attitude. It's like oil and water, both from a cultural and strategic point of view."

Patti responds: "It was like oil and water. I was charged with in coming in here and revitalizing a creative department. The account side has been entrenched in doing things the same way for many years. I had to shake that up. I was concentrating on getting bigger ideas and selling them to the client. They weren't used to that. They would be happy if Y&R stayed the same as it was in '82."

In his refocused role, Patti is also is expected to lead creative efforts on significant new business, such as the upcoming re-pitch of the U.S. Army account. (He is also in the midst of producing a new global corporate-image campaign for ChevronTexaco, which was shot recently around the world, with Joe Pytka directing.)

But it's that kind of slick filming that rubs some at Y&R the wrong way. "It's tragically ironic, given the 'whole egg' heritage of Y&R. Michael Patti's not qualified for a new integrated mission. He's steeped in TV; he's more of a producer," says John Partilla, the founder of Y&R's integrated solutions unit, BrandBuzz, who is now president of Time Warner Global Marketing.

Patti responds: "That's an easy pot shot. A big idea is what you need in any media. Sorrell and Dolan saw a big idea on my reel: 'It's not TV. It's HBO.' That positions them forever, whether on a billboard or a Web site."

In negotiating Patti's contract, Y&R included a continuance of the terms of his lucrative contract at BBDO, where he worked for 18 years. Were WPP ever interested in dismissing him, Patti would be entitled to his full salary for 10 years. Patti declines to discuss the details of his contract. "Whatever I was compensated at BBDO, I earned," he says. "BBDO was famous for compensating people they valued very well. Whatever I was offered by WPP, they think I am worth it."

If Patti came in with a more than generous package, others complain that the company is still adjusting to the financial rigors of being owned by WPP. One creative staffer had an expense report questioned after leaving a $2 tip on a $4 taxi ride. (The employee was told the appropriate tip was 40 cents.) "It's a further demoralizing thing when the rank and file already think so many people are overcompensated," says a Y&R source.

Fudge, meanwhile, says she remains determined to get Y&R to turn the corner. WPP is seeking a successor for her Y&R Advertising CEO post, while she will remain CEO of Y&R Brands. "I don't think anybody could put more pressure on me than I do on myself in my desire for this company to succeed and move beyond the space we've been in," says Fudge. "Martin [Sorrell] continues to be supportive. We're working together on this [Y&R Advertising] CEO search; we work together in bringing in new talent."

It's not clear how much influence Fudge will have as she shifts into a single role of CEO at Y&R Brands. Her contract with the company is said to be for three years, ending in 2006. Fudge declined to comment on her contract.

Fudge now says that turning over her responsibilities at Y&R Advertising was always part of the plan. Although her name may be on the press release when a new chief is named, it is Sorrell who is is making that choice and to whom the individual will report, sources say.

Can Y&R recover a measure of its glory? "I would say I'm concerned. Y&R has been an issue for so long," says Alexia Quadrani, an analyst at Bear Stearns. "At the time of the acquisition, there was a timetable. To be fair to WPP, there were a lot of issues when WPP acquired Y&R. You get to the point where things get stale, and you wonder if the place can still be revived. But I wouldn't write it off."

Others aren't so sure. "You worry that Y&R will go the way of Ayer and disappear—we're on our sixth 'second chance,' " says a former Y&R staffer.

WPP's press release announcing its Y&R acquisition read, in part: "This transaction creates a worldwide leader. The two organizations are highly compatible. We share a common philosophy and culture of providing clients with integrated solutions to their marketing needs, and we seek to add value to our clients and our people. At the same time, the two complement one another from a client, functional and geographic point of view. ... Together we have the people and assets to create significant growth and value for our clients, our people and our shareholders."

How the promise was lost can be traced to a confluence of events unlikely to ever occur in advertising again. Yet the decline of one of Madison Avenue's most storied agencies may still offer a cautionary tale. Says Vick: "Y&R was a very insular culture, with all the best and worst of a privately run creative-services company that was jolted into a new era, where people try to do their best, but money and Martin Sorrell got in the way."