Ernst & Young Shifts Focus to NW Arkansas

It's been a fixture in central Arkansas for more than 75 years, but Ernst & Young LLP is adapting to the current market and shifting its emphasis to northwest Arkansas, where its two-year-old Rogers office and growing business opportunities have now eclipsed Little Rock's in demand.

The national firm, which had operations in Little Rock, Fort Smith and Rogers, has almost completed a transition that will completely phase out its Little Rock location, putting more of a focus on its two northwest locations — particularly in Rogers.

"Where we have had most of the growth in our client portfolio in recent years has been in northwest Arkansas," said David Alexander, southwest area managing partner out of E&Y's Dallas office. "There's much more of a concentration of major companies' headquarters up there, fueled by Wal-Mart and Tyson. We had to follow the market, and that's where the concentration was for us."

Actually, that's also been the case for the rest of the "big four" accounting firms in central Arkansas: Deloitte & Touche LLP and PriceWaterhouseCo-oper have minimal presence in central Arkansas, while KPMG pulled out of Little Rock in 2000.

"Out of our competitors, and I'm speaking of the big four, none of them have any significant presence in Little Rock," Alexander said. "We probably are the last firm to say we have to reallocate our efforts, which is unusual for a city like Little Rock. It just shows you that it's not really a big four market."

Hot Stove

Benefiting most from E&Y's decision to close its Little Rock office is BKD LLP, which is already the state's largest accounting firm.

The former managing partner at E&Y's Little Rock office, Johnny McCaleb, reached a deal with BKD on Oct. 31 to join that firm as an audit partner and is taking a chunk of his clients and a handful of co-workers with him.

"There were some clients that had agreed to come over to join BKD that I will work on, and there are some new clients that I will pick up over here, as well," said McCaleb, who had been managing partner at E&Y for the past two years. "The transition has been pretty seamless, and I'm excited to have this opportunity."

The transition is somewhat bittersweet for McCaleb. He began his career in 1976 with Russell Brown & Co. in Little Rock, which ended up merging with Arthur Young & Co. in 1982. That firm, one of the "big eight" accounting firms, merged with Ernst & Whinney in 1989 to form E&Y.

"So in a long answer, I guess you could say I've spent my entire career with Ernst & Young," said McCaleb, who cited client confidentiality when asked to elaborate on which direction his major clients and former co-workers went in the transition.

Alexander says that even though the Little Rock E&Y location no longer exists, the firm's presence in the state is not shrinking.

"With some employees going to Rogers and Fort Smith and still having a few who are telecommuting from Little Rock, our presence won't diminish much, if at all," he said. "We should end up being just as big in Rogers as we were in Little Rock."

Market Shift

On this year's Arkansas Business list of the state's largest accounting firms, E&Y reported the loss of seven certified public accountants during the previous year.

The loss dropped E&Y to No. 4 on the list with a total of 28 CPAs, which is a steady fall from its glory days.

"We've gone from an office that probably had at one point in time up to 100 people and maybe as many as six partners to less than 50 people in the office and one partner," said Alexander, who oversees E&Y operations in Texas, Oklahoma and Arkansas. "A lot of the reason for that has been a big change in our mix of clients."

Alexander said the firm experienced a "major market shift" toward the northwest part of the state with clients like USA Truck Inc. of Van Buren, Wal-Mart Stores Inc. of Bentonville, J.B. Hunt Transport Services Inc. of Lowell and the growing opportunities in that area. The market shift, the loss of clients exiting Little Rock, such as TCBY Enterprises, and the growing strain on employees commuting to clients in northwest Arkansas were early signs that a change needed to be made.

"That's where a lot of our business resides, and we were trying to serve that market out of Little Rock for so many years," Alexander said. "But the logistical challenges of that, including having to have our people work long days and add that commute on top of the work, was also causing us a lot of people challenges."

Job Shuffle

Both Alexander and McCaleb acknowledged that a deal was made between BKD LLP and E&Y to accommodate clients and the shuttering firm's employees, though neither of them would disclose the terms of that deal.

"The client and employee transition plans have been finalized just as we hoped, and several clients will continue to be served by E&Y, while others, mostly upon our recommendation, have considered other options," Alexander said. "The good news is that through the relationship that (McCaleb) had with clients and with BKD, they were able to secure the transition of several of those clients other employees to their firm."

That's good news for BKD, which topped theArkansas Business list in September with 61 CPAs and a professional staff of 107.

Alexander said E&Y's client services employees were given multiple options when the office decided to close its doors, including the chance to transfer to another E&Y location.

"We have some people who actually telecommute to clients from Little Rock. We haven't totally abandoned the market there," said Rita Shankel, director of marketing for E&Y. "All of our people were given the opportunity to transfer to any E&Y office, not only in Arkansas but also other places in the country. A number of them did, and some of them went with BKD or made other choices. We also had outplacement counselors on hand to help them, and I would say that it went very smoothly."

Alexander said those who chose to cut ties with the firm were offered severance packages depending on the length of their service. When the dust settles there will be very little — if any — loss of employment, he said.

"It's always a difficult thing to go through some change," Alexander said. "Some people obviously are deeply rooted in a community and for other personal reasons they can't just pack up and relocate, so we do the best we can with outplacement services."