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Leadership battle
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RSM board buys out old partners to shore up control

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An ownership shake-up at besieged RSM has put power almost entirely in the hands of current partners and the company trust, after the group bought out the powerful lobby of retired partners.

4th May 2022
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The board of RSM has bought out its former UK partners, wresting control of the firm in the latest twist of a leadership wrangle that has dragged on for more than a decade.

The takeover will “strengthen the firm’s ability to execute long-term strategy, and to facilitate an exit route for those retired partner shareholders,” an RSM UK spokesperson said.

It marks consolidation of power by the company trust and working partners after the previous board and management team were ousted in 2020 following a huge accounting blunder. 

A year earlier, the seventh-largest accountancy firm by income found £10m of misstatements in its personal accounts. Shareholders voted to clean house in response, forcing the resignation of the entire board along with the chief executive and chief finance officer. 

The buyout gives RSM’s new management team control of 95% of all shares. Former partners – 215 in total – held about 60% of total shares prior to the deal, inked in May, the firm said. 

RSM did not reveal how much it had paid per share. 

“The share buyback forms part of the board’s commitment to continue to create sustainable value and growth,” the spokesperson said.

Last year, the firm reported a 6%, or £21m, increase with revenues of just over £375m. Its audit department increased revenue 13% to £96.8m.

RSM’s bumpy ride

Turbulence has surrounded RSM since its formation in 2009 following the merger of Tenon Group and RSM Bentley Jennison. 

A year later, the UK’s seventh largest accountant prepared to launch on the London Stock Exchange, but not everything was rosy behind the scenes. 

A disclosure statement detailed £4.6m in costs arising from the acquisition and other items including sanctions for misselling Lehman Brothers financial products. In addition to the £700,000 penalty, the firm made a £400,000 provision for client redress not covered by insurance.

RSM Tenon ran hot in the post-financial crisis market and couldn’t bargain its way out of a £33m debt, leading to a downbeat trading alert in December 2011 and a restatement of its 2011 accounts.

In December 2012, RSM Tenon dropped PricewaterhouseCoopers as its auditor after discovering bookkeeping errors that the Big Four firm had missed. RSM Tenon informed investors at the beginning of that year that it was restating its accounts, and the firm’s profits dropped from £7.3m to £683,000.

Administration and rebranding

Several years later, PwC was fined a then-record £5.1m as auditor of RSM Tenon for “extensive misconduct” in the course of approving the accounts for the accounting year 2010/11. PwC initially claimed RSM Tenon misled it during the audit work, but rowed back later and said the audit carried out in 2011 “fell short of professional standards”.

By August 2013, the debts had forced the crisis-hit RSM Tenon into administration, with Baker Tilly controversially picking up its profitable trading operations and rebranding the firm RSM.

Matt Smith, Nick Edwards and Clare Boardman of Deloitte were appointed joint administrators, and the trio failed to find a buyer initially until Baker Tilly stepped in with a pre-pack administration deal that saved 2,300 staff but wiped out shareholders.

Accounting expert David Winch said at the time it appeared that the holding company had gone into administration, “meaning shareholders will get nothing for their shares and Lloyds Bank will lose money on its lending to the group”. The successful trading business was sold to Baker Tilly who would otherwise have had to take on debt but for the terms of the pre-pack.

With mounting anger over the collapse, investigations into the implosion of RSM Tenon began to gather pace. 

Former Tenon CEO Andy Raynor, who oversaw the rise and fall of the firm, was reprimanded and penalised £26,500 with £50,000 costs in October 2016 for approving certain significant parts of the 2011 accounts. And in 2018, former RSM Tenon finance director Russell McBurnie was banned from the accountancy profession for five years and fined £57,000 for his part in RSM Tenon’s downfall. 

Internal wrangling

McBurnie’s replacements didn’t last much longer. The embarrassment of an accounting blunder in the accounts of a supposed challenger to the Big Four was too much for some shareholders when news of the £10m misstatement broke.

In April 2020, despite the ongoing pandemic, a group moved to clear the boardroom out and install a new team. Their grievance also stated the process for selecting a new CEO was rigged, and attempted to block the appointment of Jill Jones, acting chief operating officer, as chief executive. 

In the fallout, Laurence Longe, the long-time chief executive of the firm who managed the merger between Baker Tilly and RSM Tenon in 2013, resigned from the board while RSM's chief executive David Gwilliam, chief finance officer Nigel Tristem and chief operating officer Robert Ross were all demoted.

Managing partner Jez Filley took on the acting chief executive position until April 2020 when Rob Donaldson, head of corporate finance and a partner of 20 years, was named as his replacement at a fiery annual meeting. 

Incentive to restructure

If profits continue to stack up, accounting experts believe the new management has plenty of incentive to restructure. 

In 2009, Tax Advice Network chairman Mark Lee wrote about Tenon’s slim chances of success following the merger. He also touched on why having retired partners on the payroll can drag profits, and how restructuring the LLP may be the best way to reduce exposure.

“The one key issue that all consolidators have had to face and will continue to face is that payroll costs for the ex-partners will increase by around 13% to cover employers’ NICs that were not payable on their previous profit shares,” said Lee. “Partners’ profit shares (in both conventional partnerships and in LLPs) constitute self-employed earnings.

“Once the practice is incorporated, the ex-partners receive remuneration in the same way as all other staff and directors, and this means that employers’ NICs are payable. The only way around this would be for the consolidated practice to retain some form of LLP structure. Whether external investors would still be interested in such practice remains to be seen.”

Replies (3)

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By Silver Birch Accts
10th May 2022 10:43

This is the accountancy version of Game of Thrones, huge cast of characters, lots of fast moving action.

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By Arcadia
10th May 2022 11:01

Surely the early history of RSM Tenon is irrelevant to this latest news about what we might call 'new' RSM. Tenon went bust in 2013 and is no more and its leadership have clearly gone. What is the relevance to 'new' RSM of what somebody said about RSM Tenon in 2009?

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Pile of Stones
By Beach Accountancy
10th May 2022 19:35

You assume that none of the staff who were there in 2009 are not there now. I expect that is not the case, and so, have they all really improved? After all, the middle managers then are probably the leaders now.

A firm of accountants can't even get its own accounts right, and a bigger firm of accountants doesn't spot the mistakes. Why would you be a client of either firm?

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