The people from PPL have chosen Duck as the boss of the new agency. When they met at the end of episode 13 (from Season 2), they tell Don that Duck will be his new boss. The people from PPL know that Don is the genius mastermind behind everything and without him, the agency is nothing worth. Don is beware of this and tells the people from PPL that he will quit as soon as Duck will be the new boss. This is his right since he doesn't have a contract, so he cannot be forced to work with them (In the beginning of Season 1, Roger gives Don more money but without having a contract).
The main scene leading to the events you discribed reads is here:
(Don) I think it sounds like a great agency, and I think Duck is the man to run it. I just don't think I'll be a part of it.
(Duck) You can either honor your contract or walk out that door with nothing and start selling insurance.
(Don) I don't have a contract.
(Roger) We're close.
(Don) We didn't think we needed one.
(Don leaves the room; Duck is mad about Don; Cooper looks very angry at Duck)
(Man from PPL) Duck, would you excuse us for a minute?
If they really wanted him to become the new director they would not ask him to leave the room after such a scene. Off screen they would have decided about firing Duck and keeping Don in order not to lose money and get a better agency.