Joe Adams, managing partner and CEO of McGladrey, expects the firm to expand more in the Western part of the U.S. and into technology consulting areas such as cloud computing.
In an interview with Accounting Today staff on Monday, Adams explained how the firm now has ready access to bank financing to help fund future acquisitions since the firm reunified last year. H&R Block sold the RSM McGladrey side of the firm back to the McGladrey & Pullen partners last August (see Block Sells RSM to McGladrey & Pullen).
“I think one of the core competencies that we were able to build in the last 10 years is assimilation and integration,” he said. “So we do see that as something we would continue to do. Right now, we took on bank debt with the acquisition. We made our first payment. The banks are thrilled. I was talking to one of our bankers the other day and he said, ‘You know, we love you guys.’ It’s rare that after a leveraged buyout, or whatever you want to call what we did, the first payment was not only on time, but it was the full amount that was originally expected. They’re very willing partners if we were to going to see something.”
Adams said the firm has continuous conversations with other accounting and small consulting firms. “I think you’ll see some acquisitions from us in the next couple of years,” he added. The firm acquired Boston-based Caturano & Co. two years ago (see McGladrey to Acquire Caturano). Adams said he would like to expand out West in locations such as Texas and San Francisco, as well as Atlanta in the East.
“In general, when you get Colorado out, and in St. Louis we have a small office,” he said. “Texas, all we have is Dallas right now. So there are certainly key markets for us we’re already in that we need to deepen, and those would be San Francisco and Atlanta. And in Houston, we have people there, but we don’t have an office there. We’re in Dallas, but we really need to build a deeper presence in Texas. Those would be three geographic markets. And then consulting, I would say technology is probably an area where we might look to an acquisition to build capabilities and skill, and to spot trends that are happening now, cloud computing and things like that. We would look at specialty acquisitions and then possibly geographic. If something else came along bigger, we would certainly go through a conversation and see if it made any sense.”
McGladrey announced plans last month to move its headquarters to Chicago from Bloomington, Minn., near Minneapolis (see McGladrey Moves HQ to Chi-Town). “Over the years, Chicago had grown,” said Adams. “Through a couple of other small mergers, we had grown to be the largest office at the firm, and in fact looked at moving the headquarters in the late 90s. For whatever reason, we changed managing partners at the time, and as a result we decided to table the discussion about moving the headquarters. It just kind of sat as Block bought us and all kinds of other things happened over the years. It just seemed like now was the right time to revisit that. As we looked at our business, and where we’re trying to take it from a global perspective, we just felt we needed a headquarters office where people knew where it was. Chicago may not be the greatest global hub in the world, but it’s certainly well known around the world, and from our point of view, from a national perspective, it’s very centrally located. A lot of our consulting is headquartered in Chicago. Our international group hub is in Chicago. Our general counsel is in Chicago. I’m in Chicago. Our chief operating officer splits his time between Chicago and Minneapolis. It was time to move, and the board very much supported the move, so we continue to look to expand.”
Diversity and Succession Planning
One area where Adams acknowledged the firm needs to expand is in its diversity. “Where we’re really lacking—and I think it’s true in the profession—is when it comes to diversity in the accounting profession. I know at the AICPA it’s a big project for them right now, and we’re certainly supportive of that. We’ve not been as successful. When we come to being more intentional about succession, I think we’ll become much more intentional on the diversity aspect of it than the overall aspect of succession. I think we’ve had a number of people who have been good leaders, and it’s really more about putting them into roles and then coaching and mentoring and training them and providing them more responsibility and broader responsibility. I was the Great Lakes leader, and before I was the leader, the person before me did a really good job of developing me, by giving me opportunities across a spectrum of the client side, the people side and the growth side. And then I did the same with my person, David Shane, who has taken over Great Lakes, who’s a great leader. I think it’s about being intentional, about making sure there is someone coming up and that you’re providing opportunities.
“One thing I say, we’re better at managing than leading sometimes, and when it comes to succession, sometimes I think we put good managers into leadership roles when we should be putting good leaders into management roles,” said Adams. “I think you can teach management a lot easier than you can teach leadership. I know there’s all kinds of books that you can teach leadership to, and I think you can, but some people get that things are gray, and most accountants don’t.”
Mandatory Audit Firm Rotation
Adams testified recently before the Public Company Accounting Oversight Board about the proposal for mandatory audit firm rotation during a recent roundtable meeting (see Big Four Audit Firns Accused of 'Duopoly' and PCAOB of 'Mission Creep). He does not believe that such a requirement would necessarily bring more business to his firm from the Big Four, however.
“I think it’s a big unknown,” he told Accounting Today. “I don’t believe rotation helps quality. There’s been no proof that that’s the case. I’m a capitalist. I believe that people with great skills who want to be in a business have an opportunity to be in that business, and if they choose to and work at it, they can make an inroad. I think Grant Thornton tried that, and maybe they weren’t as successful at it as they had hoped when they brought all those Andersen people in back during the early 2000s, they still weren’t able to make the big dent in the Big Four. That would be the only reason why rotation might have some benefit.
“But then again, it’s about skill,” he added. “And the Big Four have the depth and the skill right now, and other firms don’t. Are we creating a fifth or sixth largest firm to do audits? Is that in the best interests of the investors if they’re not as skilled as the Big Four? It doesn’t seem like that would be the case to me. So I would say it could happen because of political pressures, but I don’t think it will reach its intended goal of creating these other accounting firms or audit firms because I think there are skills that are needed. And the other firms don’t have them.”
Adams pointed out that China may be an exception, however. The government recently announced new rules to begin requiring auditing firms to hire more Chinese citizens as partners (see China Tells Big Four Audit Firms to Hire More Chinese Partners). Under an order in May from China’s Ministry of Finance, by August no more than 40 percent of partners at the four major audit firms would be allowed to be foreign-certified, and by 2017 the cap would be lowered to 20 percent. All senior partners by that time would need to be Chinese nationals.
“Now, China, they’re taking a much different approach, and I think it will work, and then maybe work across the rest of the world,” said Adams. “They’re actually putting firms together, building the skills, and then requiring that those firms be owned by Chinese partners. We’ll see how that plays out. I don’t think the U.S. will be a leader there. I think, if anything changes in the long term, it will be because of success that China might have at trying to create this even playing field of auditing firms.”