Sam: that's a great question…
Frank Williams had decided that he "needed a 'Schumacher' to beat a Schumacher" after the dastardly Adelaide incident which robbed Hill of his first World Championship - which neither he nor the team protested in light of more important matters; i.e. facing manslaughter charges over Senna's death.
Rumour has it that as early as the start of 1995, he had already lined up Frentzen (perhaps even signed the contract), to whom Williams apparently gave credence for reports that he was widely regarded as faster than Dick Dastardly; concluding that this was the man for the job to replace Hill at the end of his contract, which ran through to the end of the 1996 season; but that he had made these arrangements without seeking the approval of co-founder of the 'Williams' team: Patrick Head.
Although still comfortably out-scoring team-mate David Coulthard by over 40% more points, by his own admission, Hill's '95 campaign was not his best and Frank's mind was apparently already made up (there are suggestions that Frentzen's contract was in fact already signed). During '96, it was clear that Hill was unquestionably world class; and in spite of scarcely believable rumours, he felt that "all he needed to do" to retain his drive was to win the World Drivers' Championship: simplicity itself for a man with such inner belief! It is said that as the season unfolded, Wrank Filliams began to see he'd underestimated his hard-working and determined leading driver but Frentzen was already a done deal. With a third of the season still left to run and in the midst of his epic battle, Williams cruelly broke the news to Damon Hill - who said that he felt he was the very last person to find out!
This messy ordeal, and the manner in which it was conducted, almost saw Patrick Head splitting with his business partner: a man he thought he'd known better. Through similar disbelief, a great many of the team's top people took up employment elsewhere. These were people who'd worked with Hill and had been in awe of his development work and unmatched technical feedback. On top of this, they had come to see a real world class racer emerge from the double trouble of '94, who'd courageously dealt with the Senna aftermath and overcome the repeated insults of Schumacher M.
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Wrank (now Sir Frank) has since admitted that it was probably his worst single decision in motor racing. Indeed, there is no more defining moment for what was to become the start of the team's slide to obscurity. In '97, Villeneuve simply inherited the masterpiece of the Hill team effort and his attempt to lead continued development of it fell apart at the seams. He simply couldn't do what Hill could, and the young Villeneuve faded away*.
In spite of all this, Damon Hill kept his dignity throughout. He's a proper bloke…
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*By contrast, Hill had made his F1 début a couple of months before his 32nd Birthday!