Shandwick shares suffer as directors defect to set up rival

Shares in Shandwick International, the public relations group, fell as much as 12 per cent yesterday after five of its most senior staff announced their intention to set up a rival agency. The defectors include four of the 13 strong board of UK financial PR subsidiary, Shandwick Consultants, including its chief executive Chris Matthews.

There was a recovery later in the day after it emerged that the split was not the bust-up that many feared after the story leaked in the morning. Only Mr Matthews has left with immediate effect, with his colleagues staying until at least the end of the results season and one remaining with Shandwick until the completion of the planned flotation of the Halifax, on which it is advising. The shares closed 3.5p lower at 56.75p.

The new agency, to be named the Hogarth Partnership after the painter whose Chiswick house is overlooked by Mr Matthews' flat, will be based near Tower Bridge. The launch is planned for 1 April - coincidentally the same day that Shandwick, founded by Peter Gummer, brother of environment minister John, opened for business. Its five directors will share about 80 per cent of the company's equity in proportions determined by their seniority at Shandwick.

Although the five have contractual obligations not to work for Shandwick clients or employ its staff for 12 months, it is expected that several of their clients will move across to Hogarth. One of the five described their contracts yesterday as "a grey area" and it is widely seen as a difficult area for people businesses to police.

At Shandwick, the departures have prompted a restructuring of the business into three units, Shandwick Financial, to be headed by former journalist John Reynolds, Shandwick Public Affairs and Shandwick Corporate. The three businesses will be overseen by Colin Trusler, managing director of Shandwick's UK operations.

It emerged yesterday that it had been an open secret within Shandwick for many months that Mr Matthews was looking to leave the group. He had been instrumental in Shandwick's recovery from heavy losses in the early 1990s when its shares fell as low as 3.75p but he was not engaged in client work and felt his job at the company had been completed.

Last month Shandwick announced a 20 per cent rise in underlying profits to pounds 9.2m, saying it had benefited from increasing demand from global clients such as Digital and Mastercard for a world-wide one-stop service. Shandwick believes it is the world's largest independent public relations firm, with 90 offices in 20 markets.

The defection by the senior executives, who include John Olsen, James Longfield, Nicholas Denton and Rachel Hirst, is thought to be the largest breakaway since the late 1980s when several directors broke away from Streets Financial to set up Citigate Communications.

Comment, page 19