McGladrey cuts the cord with H&R Block

This could be the official end of “the alternative practice form” era.

Here’s the complete news release:

McGladrey & Pullen announces decision to terminate agreement with H&R Block

Chicago (July 21, 2009)-McGladrey & Pullen LLP today issued formal notice of its intent to terminate its administrative services agreement with H&R Block (NYSE:  HRB).  While McGladrey & Pullen’s audit practice is an independent, partner-owned firm, related professional services have been offered through RSM McGladrey under an agreement with H&R Block since 1999.

McGladrey & Pullen anticipates it will take at least seven months to fully unwind its relationships with RSM McGladrey and H&R Block.  The process is expected to be seamless to the firm’s clients.

“This arrangement made sense in 1999,” said Dave Scudder, managing partner of McGladrey & Pullen LLP.  “However, that operational and financial model does not serve us well as we address our future goals of client service, opportunity for our partners, and continued growth.”

“We are taking this action because we believe it to be in the best interests of our partners, our employees and our clients.  We see great opportunities for success and growth for McGladrey & Pullen as a traditionally structured firm able to provide full service across all industry segments,” Scudder noted.

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About McGladrey & Pullen LLP
McGladrey & Pullen LLP (a partner-owned CPA firm) delivers audit and attest services. It operates in an alternative practice structure with RSM McGladrey, a leading professional services firm providing accounting, tax and business consulting services to middle-market businesses. Through separate and independent legal entities, they work together to serve clients’ business needs. Together the companies rank as the fifth largest U.S. provider of accounting, tax and business consulting services (source: Accounting Today), with 8,000 employees in nearly 100 offices. McGladrey & Pullen LLP and RSM McGladrey Inc. are member firms of RSM International, an affiliation of independent accounting and consulting firms.

As usual, Art Bowman has the juicy inside story. In a newsletter alert to subscribers, he told them:

In a 90-minute conference call with M&P partners, Dave Scudder, the firm’s MP, was adamant that HRB didn’t follow through on its promises to invest in M&P’s core services. HRB’s business strategy is not ours, he said. The organizations have different goals, and HRB did not consult with M&P before making strategic commitments, he said.

“This is not what we signed up for,” Scudder said. He thinks the shared service agreement – M&P paying HRB a fee for leased space, back-office services, payroll, etc. – is onerous and that it can get the same services for a lot less money.

M&P was hamstrung by the alternative service structure, Scudder told partners. M&P wasn’t owned by HRB but it was treated as if it were. M&P couldn’t penetrate certain industries because the marketplace didn’t understand its relationship with HRB, he said.

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Posted on July 22, 2009