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Tom Bloch's No.1 Reason For Leaving The Fold


People: SCIONS

TOM BLOCH'S NO.1 REASON FOR LEAVING THE FOLD

On a chilly Thursday morning last April, Tom Bloch decided to break the news. For 20 years, the 41-year-old scion of H&R Block Inc. had centered his life on the tax business. Twenty years, heck--taxes had always seemed his destiny. He was a year old when his father and uncle, Henry and Richard Bloch, founded the company they would build into the world's largest tax-preparation service and ultimately into a diversified holding company with annual revenues of $1.2 billion. For Thomas M., the only one of the brothers' seven children with an interest in business, the path to the company's corner office had been as straight as a ledger column.

But three years after taking over as CEO, Tom Bloch stepped into his father's office with what felt like a confession. "I don't want to do this anymore," he told Henry, who, at 72, still serves as chairman. "I want a different kind of fulfillment. I've decided to resign."

For Tom Bloch, the decision ended an agonizing two-year internal debate that had led to a fundamental conviction: He wanted more time with his family and more gratification from his work. In particular, he liked the idea of teaching in an inner-city grade school. For Henry Bloch, it was the end of a dream. In announcing Tom's 1992 ascension as CEO, the elder Bloch had declared: "I have worked for this my entire career." For H&R Block, it marked the first time the company would be run by someone outside the family.

H&R Block today is a very different company from the one Tom Bloch went to work for as a tax preparer in 1976. Once focused solely on taxes, over the years H&R Block had diversified into such areas as temporary personnel, legal clinics, and online services (table, page 128).

Indeed, if Tom Bloch is at a crossroads, so is H&R Block. While the tax-preparation business generates lots of cash, the company's most aggressive growth comes from CompuServe Inc., the granddaddy of online services, purchased in 1980 for $23 million. But CompuServe, which has 1.9 million subscribers worldwide, is facing increasing competition from other online services, including Prodigy, America Online--which has overtaken CompuServe in subscribers--and, soon, Microsoft Network. Meanwhile, Block's core business is under assault. For only the second time in the company's publicly traded history, tax earnings this year are expected to fall, owing to a new Internal Revenue Service rule that lets fewer people qualify for Bloch's profitable refund-anticipation loans.

"VERY GOOD JOB." On the news of Tom's resignation, effective Aug. 31, H&R Bloch's stock price shot up 10%, to 461/4. Alexander Paris, an analyst with Barrington Research Associates Inc., says investors hoped "that a technology manager would come in and more aggressively manage CompuServe, which is the key to success." The stock later settled in the mid-30s, presumably because of the anticipated poor year for the tax unit.

Still, by most accounts, Tom has delivered a strong, if not exceptional, performance. He "has done a very good job and has kept the company as successful as it had always been," according to Jonathan Braatz, an analyst with Fahnestock & Co. Since Tom became president in 1989, earnings have doubled, from $100.2 million to $200.5 million last year. Much of that growth came from the electronic-filing and Rapid Refund programs he pioneered.

There's no evidence Tom's resignation was anything but voluntary, and he's part of the committee searching for a new CEO. Despite analysts' interest in technology, company insiders want to see a wide net cast. Says William Andersen, senior vice-president and chief financial officer: "I'd like to know what kind of person I'm going to be working for, and I'm not sure that a technology person is that critical."

In the weeks since he told his dad he was leaving, Tom has grown more definite about his next career. He has been consulting teachers and administrators about everything from earning a teaching certificate to problems in public schools. Recently, he sat in on classes at Westport High School, in a poor, rough section of Kansas City.

Inner-city schools are hungry for qualified teachers, Bloch notes. "I've had a life full of opportunity, and I'd like to make a difference in the lives of people who haven't." He is fortunate, he adds, "to be able to do something where the reward is not financial." At the current stock price, Tom's 0.34% stake in H&R Block is worth some $13 million.

TOO TAXING. Bloch also quit, he says, because "my family is the most important thing in the world to me, but that wasn't reflected in the way I was living my life." Even during evenings and weekends with his wife, Mary, and two sons, aged 7 and 10, he had difficulty focusing. "Part of me was still at the office."

Bloch attributes much of his disenchantment to a lack of exposure to other experiences. The second of four siblings, he grew up in the affluent Kansas City suburb of Shawnee Mission. Henry Bloch wasted little time introducing his sons, Tom and Robert L. Bloch, to the business world. But while Bob--who now works for the family's charitable foundation--showed little interest, Tom relished skipping school to travel with his dad on business. As a teenager, he could knowledgeably discuss taxes and other financial matters. His soft-spoken demeanor belies a competitive nature that helped him graduate as valedictorian from Shawnee Mission East High School and as an honors student from Claremont Men's College in Claremont, Calif.

Tom joined H&R Block right after college as a tax preparer in a Kansas City office. By 27, he was president of the tax business. He held several other executive positions before becoming president in 1989 and CEO in 1992. The pressure to succeed, he says, was unremitting, partly because of others' expectations and partly because of his fear of failure and of embarrassing his father: "I always wanted to prove to myself and others that I was earning my success at the company." Henry Bloch says Tom was too hard on himself. "People don't inherit [positions] in our company," he says. "Tom was a good leader, and I'm sorry he won't be at the helm anymore."

Henry Bloch admits he has trouble relating to Tom's desire to leave his $764,000-a-year post. "For his sake, I'm happy. But it's not something that I would do." About Tom's alienation and stress, his father seems genuinely surprised. "I always thought Tom was happy doing what he was doing," he laments. "It is disappointing and sad that he wasn't." But he acknowledges that he was concerned by a basic difference in their personalities. Tom, he says, "took his worries home with him. I don't take mine home with me." Then again, Henry was bound to be surprised. For a long time, Tom says, he feigned satisfaction rather than disappoint his father.

NO GOLF. As time passed, Tom found himself meeting each professional challenge more mechanically and less passionately. The further he rose, the worse it got. "Being the CEO of a holding company like this puts you fairly far from the action," he says. "My most satisfying job was as a tax preparer, helping people with that annual burden and, hopefully, saving them money by finding a deduction they didn't make, and watching that person leave happy about their decision to come to H&R Block. That was great."

Over the past two years, Tom has begun consciously putting his family before his work. He has given up golf. Some weekends, he and his sons bag groceries at a food bank. At other times, the family unwinds at their new farmhouse a few miles from Kansas City.

Nonetheless, he's now growing impatient to get his successor in place and move on, even as others try to come to grips with his departure. Recently, a longtime employee pulled Tom aside and expressed shock at his resignation. "I've always thought there were three certainties in life," the employee told him. "Death, taxes, and that a Bloch would run this company." Henry Bloch, for his part, hasn't quite given up on his son's coming back to the family business. "I would like that to happen," he says. "He could prepare taxes if that's what he wants to do."

BUILDING BLOCK

1946 In Kansas City, Mo., Henry and Richard Bloch open United Business. Services

include free tax preparation.

1955 After IRS stops offering individual tax-preparation

service, Bloch brothers focus on former sideline, reincorporate as H&R Block.

1962 75,000 shares sold in public offering.

1978 Acquires Personnel

Pool of America, a temporary

services company.

1980 Acquires CompuServe; also 80% of Hyatt Legal Services, a chain of law offices (sold in 1987).

1985 Buys Path Management, a seminar business (sold in 1990).

1989 Tom Bloch succeeds Henry Bloch as president.

1991 Personnel Pool of America buys Interim Systems.

1992 Tom Bloch succeeds Henry Bloch as CEO.

1994 Company launches first ad campaign in 20 years that doesn't feature Henry Bloch. Jettisons temporary services unit in IPO to focus on electronic and computer services.

APRIL, 1995 Tom Bloch announces resignation effective Aug. 31, 1995.By Ron Stodghill II in Kansas City, Mo.


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