Taxman Henry Bloch

By 'listening for the thank-yous' his HR Block has won the loyalty of one in 10 American taxpayers

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There is everything midwestern about Henry W. Bloch. Friendly: here's the chief executive of a more than $700-million company who's not too busy to refill your coffee cup or take you to Gates for the "best ribs in Kansas City." Generous: Kansas City's art museum counts him as its foremost patron. Provincial: he works where he lives, lives where he was born, and insists on hiring people he already knows. Unflashy: a mathematician by training, a bookkeeper turned entrepreneur, he has succeeded less through farsighted brilliance than through plain old common sense (the sign on the company door says Block, not Bloch, just so the pronunciation won't be in doubt).

But don't mistake Henry Bloch for a rube. With his brother Richard, now retired, he not only invented the tax-preparation industry but still owns it 32 years later. His only significant competitor is the American who insists on completing his own tax return. Bloch's company has been a pioneer in the areas of employee training and employee stock options. He was one of the first executives to use franchising to help establish his company's reputation, and one of the first to see the wisdom of protecting that reputation by gradually buying back some of those exclusive territories.

From Kansas City, Bloch and a staff of 2,800 now manage nearly 9,000 tax offices worldwide, 40,000 seasonal employees, and subsidiaries offering computer services (CompuServe), temporary-help services (Personnel Pool of America), and management services (Path Management Industries). Their foray into legal services ended last year when Joel Hyatt bought back the 80% stake that H&R Block Inc. had held in Hyatt Legal Services. Bloch describes the parting as both friendly and profitable.

To interview Bloch, we sent an editor and a writer who both learned enough in law school never to do their own tax returns: Stephen D. Solomon and Paul B. Brown.

INC.: As anyone who has recently been in a department store knows, good service, even of the most rudimentary sort, is a rare commodity in a large retail organization. Yet here you are, sitting in Kansas City, operating some 9,000 offices around the world, offering a rather technical retail service to a mass market. You are forced to do all your business in a very intense four-month season. And you have to rely on seasonal, part-time help. Given all that, how in the world can you control the quality of what is being dispensed in your name?

BLOCH: Probably because we are not controlling it. We tried to in the beginning -- we had somebody working for us and we would tell him what we thought he should be doing, and judge him accordingly. But the operation grew too big for that very quickly -- at one point, we were opening 1,000 new offices a year. And so we had no choice. We couldn't very well say to every one of them, "Now we want to know what you're doing every day and we want you to follow every policy." Yes, we have a policy-and-procedures manual, which is a guide to help the managers make decisions. We also have plan-ahead calendars that tell them by what date they should have the office rented, and by what date the furniture should be in place, and what months to do the hiring, and so forth. And, of course, once tax preparation begins, we have rather extensive manuals on all the intricacies of the tax code. But in terms of the quality of the returns that get prepared, those things are really just the fallback. In reality, we are forced to rely on people, which is why we put so much emphasis on training them, on keeping them, and on moving them up through the organization.

INC.: You make it sound like an easy transition.

BLOCH: I don't mean to. I struggled with it for a long time. Shortly after we started in Kansas City, I hired a man to run the operation here and I made his life miserable -- just miserable.

INC.: Were you looking over his shoulder?

BLOCH: Constantly. I was nervous about the quality of the work. "Why don't you do this?" "Why don't you have more people in here today?" And I really was absolutely wrong. When you delegate, you've got to delegate.

INC.: In the case of H&R Block, of course, you do more than delegate. Half of your outlets are franchise operations, which are even more difficult to control.

BLOCH: When we first franchised, we didn't even know what the word meant.

INC.: So you sort of backed into it.

BLOCH: It was 1956, the year after we had started in Kansas City. That first season had been rather successful by our way of thinking, so we decided to expand and look for another city. Should it be St. Louis? Or Des Moines? In the end, we decided to go to New York City because it was bigger than these other cities combined. And so in October, I moved to New York and opened seven offices in the different boroughs, each one as near as we could to the Internal Revenue Service offices. Now at that time, the IRS did tax preparation for people -- for free -- and they had long lines of people that needed help. And so we thought, being nearby, we could attract people who didn't want to bother waiting in line. We charged only $5 back then for the federal and state return combined. And it was moderately successful -- for the seven offices, I think, we broke even. The only problem was that neither my brother nor I wanted to stay there and live in New York. So we put an ad in The New York Times offering to sell it. Two local CPAs answered the ad and said they were interested, but they didn't have any money -- they had something like $10,000.

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