At the beginning of 2010, Towers, Perrin, Forster & Crosby Inc. and Watson Wyatt Worldwide completed their merger to form Towers Watson & Co., the world's largest employee benefits consulting firm with annual revenues of about $3 billion.

The two firms were especially well known for their expertise in retirement plan and health care consulting. In addition, Towers Perrin offered risk management and reinsurance brokerage services. Watson Wyatt had about 7,500 employees and operates in 33 countries, while Towers Perrin had more than 6,300 employees and operates in 26 countries.

Former Watson Wyatt CEO John Haley, who now is chairman and CEO of Towers Watson, and Mark Mactas, Towers Perrin's former CEO now serving as Towers Watson's deputy chairman, president and chief operating officer, discussed with Business Insurance Senior Editor Joanne Wojcik how the merger will affect their business operations in the future.

Q: What are Towers Watson's biggest competitive strengths now that the two consultants have merged?

Mr. Haley: We're going to have broader, deeper and more comprehensive services. A lot of the services that we have are ones we've both been in. For example, we've both been among the world's leading retirement consultants. We'll now have a deeper bench to draw from. We'll have a broader set of services in the sense that there are some services that each of us brings to the table where the other one didn't play in, or maybe only played in to a limited extent. That would include, for example, the reinsurance brokerage that Towers did. It would include the investment consulting that Watson Wyatt did, and a whole host of other services. I think we will have expanded geographic coverage and also an ability to grow. This kind of merger has really excited and energized both our client base and our consultants, and I think we'll emerge as the firm of choice for both clients and consultants.

Mr. Mactas: Both organizations had a common set of values that formed the foundation of each organization and forms the foundation of Towers Watson. In particular, we both share a client-first mentality. That commonality of purpose, along with integrity, respect, professionalism, collaboration, is a galvanizing thing that brings our people together in the pursuit of serving clients well.

Q: Many benefit managers use more than one consultant because they say each has different expertise. What additional services will the combined company be able to offer former Towers and Watson Wyatt clients that may have been supplied separately before?

Mr. Mactas: For example, Towers clients now would have access to the investment consulting expertise that Watson Wyatt had. In addition, Towers Perrin clients will have access to the technology and administrative solutions business that Watson Wyatt had, which nicely complements what we had.

Going in the other direction, Towers Perrin has quite a large health care consulting practice. In addition, Towers Perrin has quite a good employee research capability, which is important in the context of designing HR programs, including benefit programs.

If you broaden it beyond benefit manager domain, Towers Perrin brings a reinsurance brokerage operation to the benefit of clients as well.

Q: Prior to the merger, Towers provided risk management and benefit consulting services, while Watson Wyatt was primarily a benefits house. Do you plan to cross-sell these services to reach risk managers at companies where you already serve benefit managers?

Mr. Mactas: Watson Wyatt has quite a strong insurance consulting business in Europe and Asia. Towers Perrin's insurance consulting business is across the globe. The short answer to the question do we plan to cross-sell is yes. That applies across all our disciplines.

As an example, we've organized the business into three segments: a benefits segment, a talent and rewards segment, and a risk and financial services segment. The risk and financial services segment has three businesses in it: insurance consulting, reinsurance brokerage and the investment consulting business that Watson Wyatt brings to the combination.

The investment consulting business, for example, had a strong linkage to the benefits business, in particular, the retirement consulting. But we think that combination of insurance consulting, brokerage and investment consulting has enormous growth opportunities across those businesses as well as to the benefits segment.

We think there's a lot of opportunity there because there's a lot of client need in those areas.

Q: How will Towers Watson approach the defined benefit plan administration market given the fact that so few companies now are starting new pension plans while those that already have them in place are freezing them?

Mr. Haley: The administration of the plans is a rather long-lived enterprise. There's a very long runoff to those liabilities. Administration, indeed, will go on for a long time.

At Towers Watson we have some services we provide in North America that would be around helping companies that do would what we call “co-sourcing,” not so much where companies are looking to just totally outsource everything they might have, but where the company has some sort of involvement, but we would provide call centers, we would provide software and everything to manage a lot of that. In the U.K., and in Germany and the Netherlands, in particular, we do a great deal of outsourcing of defined benefit plans. That's a market that has been growing for us over the last several years. Indeed, even as some of the plans have been frozen and are in runoff stage, we find that it's attractive to turn to a third-party administrator.

Mr. Mactas: There's a lot of opportunity for our investment consulting services in the context of defined benefit plan because of the dynamics that John just mentioned. There's a very long tail to these obligations.

Q: What business consulting areas present the greatest growth opportunities for the merged Towers Watson?

Mr. Haley: Risk management and the way we've put together our risk and financial services sector. We think there's lots of opportunity not just in the existing businesses, but in taking a more expansive approach to risk. We have extraordinary quantitative skills that both sides bring to the table. With the brokerage and the consulting, we may be able to develop solutions in this area.

We have our talent and rewards segment, and the fact is that human capital in organizations is more important now than it ever has been, and it's only going to be increasingly so in the future. We see talent and rewards, the issue of engagement, making sure organizations are doing the right thing for their employees and getting the most out of them, as a terrific growth area.

Mr. Mactas: I would echo that. In fact, we see opportunity even now when you might otherwise think that it might be an area of discretionary spending. Companies that may have had to cut back on spending, including people, are concerned about how they are going to come out of this recession. They realize that their success depends on having the right people in the right place at the right time, so we're even involved in work now helping companies that have downsized, helping with the engagement of their people and talent management strategies, planning for the future. We expect as the economy rebounds that to be a vibrant area of growth for us. But we see growth across all the segments.

If you want to take a geographic look at growth opportunities, clearly there's a lot of opportunity for us in the mature markets of North America and Europe, but we see a lot of opportunity in Asia currently but even more so down the road.

That's one of the attractions of the combination. We've really filled out the global footprint of the organization. In a sense, we've filled in each other's gaps, not only from a practice standpoint, but from a geographic standpoint as well.

Q: What services are you providing now that you didn't five years ago, and what services do you expect to be providing in the years ahead?

Mr. Mactas: There's a lot of work now in pension plan “de-risking.” These are large, complex liabilities and obligations these companies have. By “de-risking,” we mean having the assets and liabilities move in the same direction or you can offload some of those liabilities. So that's a huge area for us right now.

An area that we've done a lot of work in the last couple of years is what we call workforce effectiveness. This includes the employee research business. It gives insight into the motivations, the psyche and the feelings of your employees. Towers Perrin a few years ago acquired a firm called ISR, International Survey Research. We bring that capability into Towers Watson. That business has grown quite nicely since it became part of the family, and we expect that to be a primary foundation for further growth in the future. That's something that we dabbled in prior to the acquisition, but are in a real substantive way now.

Q: What changes is the recession having on benefits departments in regard to their needs and decision-making? What is Towers Watson doing to assist benefits managers in coping with economic conditions?

Mr. Haley: The thing that has most impressed me about this downturn is that companies are more concerned with engagement and alignment of the workforce they've kept than I've ever seen before. We see a lot of work going on right now in that area.

Q: What are the key challenges for benefits consultants in the federal health care reform arena? Do you think the enactment of health care reform legislation will significantly boost your business?

Mr. Mactas: One of the challenges is to keep abreast of the changing news that you hear on the health care reform front, many times daily. There's a big part of health care reform about covering the uninsured; that piece of it doesn't really apply to our business. What our clients would be concerned about on the one hand is if the nature of what's enacted is likely to change in a fundamental way how health care is provided in this country, and maybe more importantly, what is health care reform going to do to the cost trajectory. In terms of the effect on our business, anytime there is change or legislation that requires either scrutiny or change for our clients, it drives revenue growth in the short run. Then, longer term, it's a function of whether that legislation is positive for health care or positive for pensions.

Q: Prior to the merger, Towers Perrin sold off an outsourcing unit—ExcellerateHRO Corp.—in which it was a minority partner, to Hewlett Packard. How does the merged company plan to provide outsourcing services to clients?

Mr. Haley: Watson Wyatt already has an extensive outsourcing business. This is one of the areas where we think there's lots of opportunity for growth. In fact, there's sort of a natural market for some of the Towers Perrin retirement clients for our technology and administrative solutions.

Mr. Mactas: A number of the services that ExcellerateHRO provides overlap or are the same as what's provided by Watson Wyatt. Our selling of our interest in ExcellerateHRO is a completely separate occurrence.

Q: Many analysts predict the merger could create near-term disruption that may help your competitors. How do you respond to this?

Mr. Haley: Anytime you do a merger, there's always the possibility of near-term disruption. And we've certainly been cognizant of that. I think we've done a pretty good job so far of trying to minimize that. We've had a senior person from each side—Bob Hogan, who had been CFO of Towers Perrin, and Kevin Meehan, who was Watson Wyatt's North American regional manager—working together running an integration office, trying to get things integrated as quickly and smoothly as possible. We're very pleased with the way things have gone so far. That doesn't mean that we think we're finished or there hasn't been a little disruption, but I think there's a lot less than we had any right to expect.

Mr. Mactas: We outlined a number of guiding principles for the integration of the firms, and the first one is to stay focused on the market and our clients. When we talk about the considerable amount of work to integrate the options, for most people serving the clients on the first day was very similar to the day before the merger closed. We just continually emphasize that fact. I think we've been able to galvanize our people in the marketplace as opposed to worrying about when the software or applications are going to come together.

Q: How long do you anticipate consolidation to take?

Mr. Haley: Overall, we have a three-year plan that we had announced to analysts. Things like merging all of our ERP and getting all of the systems worked on are a much longer time frame.

Q: After a merger, most companies downsize, although they call it “right sizing.” What do you anticipate will be Towers Watson's “right size” after consolidation? How many employees, if any, will be let go and how many offices will be closed?

Mr. Mactas: We will have some cost synergies as a result of the merger. But we anticipate them to be relatively modest, maybe 2% to 3% of revenues. They're in places where you'd expect. There will be some duplication in some of the corporate functions and in management. But for the everyday consultant and people serving clients, we don't anticipate there will be downsizing.

Q: Have you decided on a corporate headquarters yet? Where is it going to be?

Mr. Haley: We're going to have a small corporate headquarters in New York, but we're not talking about moving a lot of the infrastructure.

Q: Why was “Towers” chosen to appear ahead of “Watson” in company's new moniker?

Mr. Haley: Mark and I thought briefly about going to a totally different name. But that's ridiculous. There's a lot of brand equity in each of these names. We wanted something that got down to two names, and one of us had to go first.

Mr. Mactas: Besides, Watson Towers sounds like the name of a retirement community.