The Practice

An entrepreneurial approach

Unlike partner compensation schemes, where at the end of the year partners count up the firm's net rubles and divide them up, M&R principals share in what their specific profit centers make or lose each year.
"We have equity principals who make under $100,000 a year, and those who make well over $1 million a year," says Bradley Smith, the firm's chairman, who heads the life/health insurance practice in Dallas. "Everybody is comfortable with that, because it represents the efforts you are making."

Given its entrepreneurial approach to the business, M&R's unique structure may today have greater appeal to consultants than at anytime in the past. "Somebody who is here a few years is working directly with the person who is effectively paying their paycheck and making the business decisions," says Ehrhardt, who was the third employee to join the New York employee benefits practice back in 1982. Now, the New York practice, which is spread over four locations, has 150 people.
"If I have a student who wants to try something new for one of our clients, he doesn't have to fill out a requisition. I just say, 'Go ahead, go do it.' It attracts those kinds of people."

Collective wisdom

The same entrepreneurial spirit that helps advance M&R's individual practices, however, can also undermine the firm's efforts to respond to client requirements collectively.
"By being entrepreneurial and profit center–oriented, we can react quickly to client needs. But at times when there are issues that require large capitalization, or a decision needs to be firmwide, it can be harder because we have to get a consensus among the various partners across the firm," concedes Ehrhardt. "It's not the CEO who decides we're going in this direction. So, you get different offices sometimes going in different directions, when it might have been more efficient to do things more on a corporate basis."
Each of the four practices has a steering committee that acts like a board of directors and makes strategic decisions. The different partners of the firm rotate as committee members.

The firm is today one of the leading actuarial consulting firms in the insurance industry in North America, and is an expert in the area of demutualizations. When insurance companies started transforming themselves from mutual forms of operation into for-profit companies, M&R was often called in to assist. In fact, it had a hand in the first major demutualization, that of Union Mutual of Portland, ME, 10 years ago, says Bob Collett, the firm's CEO. Now, the firm is going global. In Asia, M&R has been involved in practically all of the largest 24 demutualizations that have occurred.
"We're quite proud of the role we play in terms not only of helping companies transform themselves for the 21st century, but also in protecting policyholder interests along the way," says Collett.
It's unusual for a firm to operate in this fashion for so many years, since in professional services this type of model is typically used on the path to becoming something different, says Stephen Lane, research director, professional services, Aberdeen Group, Inc., Boston. For example, in roll-up-type situations, the acquired company tends to operate autonomously during the transition period.

Keeping profits within the practice

Even in the early days of the Big Five firms, when partners ran local offices and came together to make strategic decisions for the company, there was probably still more central control than at M&R, Lane says. Ensuring brand quality is more difficult when you have this network of semiautonomous organizations, he adds.

Brand quality is not a problem, because the firm has peer review guidelines, M&R officials say. Offices are reviewed by rotation, and high-risk projects need to be reviewed by other principals.
The principals at M&R say that their model gives them a recruiting edge over the traditional partnership, where it can take up to 10 to 14 years to become partner. Then, newer partners typically earn substantially less than more senior partners.
"Our system is not based upon longevity with the firm — it's based on production," says Smith. "Some of our highest-earning equity principals are the newer equity [ones], because they are the most aggressive and they aren't supporting this overhead structure of older equity principals who are taking it easy in the later stages of their career."

Profits are not sent to a pool at the central office to be redistributed among partners. The profits stay within their own practices, and the wealth is shared with others. "If you generate profit by being productive, you should be rewarded. That goes all the way down to the staff level. Staff-level compensation is salary plus bonus, and bonus is clearly based on their productivity," Smith says.
At M&R, going from full professional status to equity principalship can take between five and 10 years. However, Smith did it in record time. Smith was 30 years old in 1986 when he joined the firm. He became a nonequity principal two years later, and a full-equity principal in 1990.
Partners are not admitted into the firm the traditional way. When somebody becomes a new principal, he or she is buying someone else's practice. A certain percentage of the new income that comes goes to the retiring partner. Essentially, the firm loans the new partner the money to make those payments in the early years.
 "After you stop buying in, you get to keep all of the revenue. When you retire, the opposite happens," Ehrhardt says. "We are very concerned about intergenerational equity — that is, making sure we are developing future partners who will keep the business and grow the business. That's the formula for success."

Sidebar: At a Glance: Milliman & Robertson

Headquarters: Seattle
Founded: In 1947, by Wendell Milliman, who was later joined by Stuart Robertson in 1950. The firm was incorporated as Milliman & Robertson, Inc., in 1957.
Average Annual Growth Rate: 12–15 percent
Total Employees: 1,700, including 900 consultants
Consultants expected to be hired in the next 12 months: 100
Percentage of Women: 50 percent in entire organization; 25 percent among principals

Sidebar: M&R CEO Touts "Actuaries Without Borders"

In the United States, few areas have supplied actuarial consultants with as many challenges and opportunities as the nation's health care system. And few consultancies have pursued these opportunities with more gusto than Milliman & Robertson.
Currently, the firm provides consulting services to more than 1,600 life insurance companies worldwide. In addition, it has served as an actuarial consultant to more than 25 state employee retirement plans in the United States, covering 2.5 million employees.

Not all nations can boast the wealth of health care data and statistics now accessible in the U.S., however. Health care consulting becomes far more daunting in developing countries, where it may never have occurred to government officials, or even private companies, to gather statistics and measure the costs of providing health care, says Bob Collett, M&R's president and chief executive officer.
Today, Collett has a mission. The actuarial consultant would like to create an organization that is similar to the renowned Doctors Without Borders, but for actuarial consultants. Collett chairs the Advice and Assistance Committee of the International Actuarial Association.
"The mission of this committee is to reach out to countries where the profession is non-existent or not strong, but where there is an interest in getting something into the system, as far as responsible actuarial oversight in social insurance programs goes," he says.
The group of about 20 volunteers has held training sessions for actuaries coming from countries in difficult economic or political straits such as the former Eastern bloc countries, Baltic countries, Cambodia, and Bosnia. In most of those countries, the professional help is not available and there is a lack of funds, help, materials, and advice.
"They don't have the money necessary for those purposes," says Collett. "They have a system that's breaking down. They know it is, but they don't know where to go next."