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August 2, 2009

RSM McGladrey mulls legal action as McGladrey & Pullen plot breakaway

RSM MCGLADREY + MCGLADREY AND PULLENMcGladrey & Pullen’s (M&P) decision to split
with RSM McGladrey is fraught with risk and not in the best
interest of its partners, employees or clients, according to
H&R Block, the owner of RSM McGladrey.

In a major US mid-tier shake up, McGladrey and
Pullen (M&P) announced plans this month to terminate its
relationship with RSM McGladrey.

M&P is a CPA firm that offers audit and
attest services. RSM McGladrey offers accounting, tax and business
consulting services but is not a licensed CPA firm. The two
organisations have operated in an alternative practice structure
since 1999. Combined, they were the fifth-largest professional
services organisation in the US in terms of fee income, bringing in
$1.47 billion in the year ended April 2008.

On 21 July, M&P issued formal notice of
intent to terminate its administrative services agreement with
H&R Block. The notice period is 210 days.

M&P managing partner Dave Scudder said the
existing operational and financial model is not serving the firm
well in terms of future goals for client service, opportunities for
partners and growth.

“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 said.

H&R Block has warned if the split goes
ahead it will exercise non-competition rights.

“In the event the notice is not withdrawn
prior to becoming effective, RSM [McGladrey] will enforce the
extensive rights it has under all agreements with M&P to the
fullest possible extent, including contractual non-competition
provisions limiting the future activities of both M&P and
certain individual M&P partners,” the company said in a
statement.

It noted that RSM McGladrey has discussed
possible modifications of the terms of the services agreement with
several individual M&P board members and discussions will
continue during the notice period.

H&R Block president and chief executive
Russ Smyth said the path currently proposed by certain M&P
leaders is “fraught with significant business and financial
risk”.

“Whether the full M&P partnership is
willing to assume these immense risks remains to be seen,” Smyth
said. “We would prefer to continue working co-operatively to build
better client service capabilities and to capitalise on
opportunities for future mutually beneficial growth.

“However, if necessary, we are fully prepared
to replace M&P in the overall business and to make the
necessary arrangements to assist clients transitioning their attest
work,” Smyth added.

RSM International chief executive Jean
Stephens said at present the split has no impact on either
organisation’s membership of RSM International and the dispute is
between both firms’ leadership.

“I am in regular contact with the leadership
of both and, as always, the priority is to ensure clients of all
member firms continue to receive the same high quality service to
which they are accustomed,” Stephens told International
Accounting Bulletin
.

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