SKANSKA USA BUILDING INC:
Best Practices for Strategic Management
Mary Welch | November 21, 2013
Skanska USA Building Inc.'s in-house legal department's organization chart is a matrix of dotted lines, direct lines and criss-crossed lines. It involves geographic territories as well as subject expertise in four regions and 30 offices. Added to the mix are Skanska's "preferred outside counsel," the lawyers in a handful of law firms who support the in-house counsel on a geographic and subject expertise matter.
Confused? The department's structure was built in response to a business model that relies on regional contacts. Clay Haden, senior vice president and general counsel, helped create the matrix when he joined Skanska in 2004.
"It revolved around how do you solve the problem of having a relatively thin staff, deal with this vast geography and a wide array of topics in a quality manner that provides consistent, responsible service, bring costs down and improve results," Haden recalls.
He had a few things in his favor. "The company was already in flux because of all these acquisitions, so we were inventing the company," he says. "I had the luxury of being allowed some room to create because I didn't have a longtime institutional legal department to overcome. I almost had a fresh slate and we cut against the normal grain of how things are done."
Swedish-based Skanska entered the United States through the purchase of several construction companies, including Atlanta's Beers Construction, in 1994. At the time, Alston & Bird's John I. Spangler III served essentially as Beers' general counsel from within the firm. As Skanska expanded, the legal work was performed by a small number of in-house lawyers and dozens of external lawyers.
"It's a very progressive organization," says Spangler, who remains with Alston & Bird in its construction and government contracts group. "The outside counsel have all been long-term clients. We work to resolve and preserve the relationship by aligning to the business interests. It's a unique setup and ahead of its time."
Skanska USA consists of four business units—USA Building, USA Civil, Infrastructure Development North America and USA Commercial Development. Haden's business unit, USA Building, annually supports between 500 and 700 active construction projects spread across the country. The matrix that is his legal department includes a total of eight attorneys located in Atlanta, Parsippany, N.J./New York, San Antonio and Oakland. Skanska USA Building has about 30 offices across the country and is involved in projects such as airports, health care facilities, power plant construction, office buildings and sports arenas, including the Met Life Stadium in New Jersey.
Haden says that his team is at its capacity. "A regional counsel can handle optimally $800 million in revenue. I can kind of stretch that to $1 billion, but once we get over that, we are at risk and we have to start looking for other solutions."
Each in-house attorney reports directly to Haden with a dotted line obligation to the geographical business operations leader. The regional attorney has the day-to-day responsibility to handle everything that comes across the desk.
Haden says this decentralized approach works. "Our attorneys are embedded in the region, are trusted business partners and have more insight," he says. "Construction is a relationship business. [Local counsel] have more credibility than some distant legal department because they live there. It's more important for my people to be more accessible to the people they serve than to me."
Each regional attorney also is an expert in certain subject matters and works on those cases regardless of geography. California-based Tim Harvey, for instance, is the go-to lawyer for aviation, condominiums, human resources, information technology and intellectual property. If a regional attorney has an IP issue and needs more expertise, Harvey answers the call.
If a legal matter requires greater legal resources than the department can handle, an outside attorney, whom the company calls preferred outside counsel, is brought in. About 80 percent of the company's outside legal fees are spent with about a dozen firms.
"With the preferred outside counsel, we have attorneys who understand us better, know us, are more loyal to us and we get a better and faster product," Haden says.
The department's operating budget includes a line item lump sum for general and contract advice from outside lawyers, but if the case is going to be complex, or expensive, they open up a separate file, mostly to better track the case and costs.
"We made the decision not to go with junior, less expensive [staff] lawyers to hold down the fort. If our attorneys were in a law firm, they would all be junior or senior partners," says Haden. As a result, the in-house attorneys have full authority to call upon outside counsel without having to ask permission, Haden says.
The exception is litigation, which hits the operations budget, rather than legal, he says. The operations managers, who are ultimately responsible for a project, oversee an entire transaction, including any litigation. "It is important that the operations managers understand the cost of litigation," he says. "You don't want a situation where someone can pursue litigation while being insulated from the costs. That creates a bad incentive. You need to have these things aligned."
The company considers mediation an important tool to resolve litigation issues. The company didn't have one litigation matter proceed to a judgment or arbitration award last year, and is on track to do the same this year, according to Haden. Skanska consequently has reduced its outside litigation costs to less than 0.07 percent of the company's annual revenue, which was more than $4 billion in 2012.
Since 2006, Skanska's total outside legal spending has decreased 43 percent, and its spending for outside attorneys for litigation dropped even more precipitously—67.73 percent. Litigation spending decreased 48.7 percent from 2011. Haden expects the dollars spent on outside counsel in 2013 to remain at the same low level as 2012; he also expects the outside legal spending to decrease as a percentage of company revenue.
Haden's philosophy on litigation also contributes to the bottom line. He says he wants good business outcomes, not legal wins. When a litigation issue bubbles up, the external and internal attorneys meet. "The outside lawyer looks at it in terms of their ability to win the case and what it will cost to get there," he says. "They are less focused on broader business considerations. The internal lawyers understand our business goals and the broader impact. The two perspectives give us a balance."
The team then gives Skanska's business partners a realistic view of the investment and cost benefit to litigate. "We're not about wasting money but when we do fight, we're not afraid to go the distance."
Another direct line in Skanska's legal matrix is for preferred outside counsel who work on major public-private partnership opportunities that have a very high pursuit cost, such as toll roads, airports and other major infrastructure. It may take months, if not years, to assess the risk, deal with procurement-related issues and financing, and put the proposal together. In those cases, outside counsel agree to put a significant part of the fee at risk so that if Skanska doesn't win, a portion of the fee will not be paid; if successful, a bonus is given.
"These projects don't come along often and due to the size of the investment and risk, it is necessary for all participants to have a stake in the outcome," says Haden.
Bennett D. Greenberg, a partner in the Washington office of Seyfarth Shaw and co-chairman of its national construction practice, works on this alternative fee structure. "I like it because you think about keeping costs down in a way that allows us to be part of the deal. It forces you to have a team mentality because you are vested in winning," Greenberg says.
Whether it is to take a more realistic view of risk management in order for the costs to line up or set a litigation, the motto of Skanska USA Building's legal department is: Find ways to say yes. Responsibly.
"Our goal is not to be a naysayer but to find a solution," Haden says. "We do have a compliance function but we are also part of making the business a success."
"We actively try to push the business forward ... of being a solution provider and figuring out a good legal and ethical way to accomplish the business goal," he says.
Haden says he operates at 30-foot and 30,000-foot levels. "I fundamentally must have the more strategic view but I also evaluate where I can add value and insert myself into transactions that are high stakes for the company, high-profile, or need that extra push that I can bring in terms of focus and resources. My challenge is to balance that."
Another project Haden recently participated in was revamping the company's intranet, and evaluating and reorganizing the company's core corporate documents, including those related to contracting and compliance. The result is an easy-to-use web-based portal in which the company's core set of operating documents is aligned with how the company works. Every document is categorized into one of four major categories: policies, standards, procedures and resources. Thousands of documents were eliminated.
"We defined things in simple language and maybe one paragraph. We say: 'This is our policy and if you don't follow it, it will lead to disciplinary action, including possibly termination.' Then, we have standards that say 'there's a lot of ways to do something but this is our way. If you decide not to follow the standard, it might be a good thing and you might get rewarded; or you might get fired.' But at least it's clear. It's open communication."
Communication and clear, simple processes are vital to a decentralized matrix, he says. The legal team gathers for a monthly meeting. In between there are lots of conversations.
Haden tracks spending at each office as well as each case. "But it's done in a streamlined way. One paragraph. I want to know the status of the case, and next steps," he says. "I expect the strategy to have been done on the front end, so all I need to know are major strategic shifts and where we are relative to the budget. If I see something out of line, flags go up and the dialogue begins."
Possessing the "in-depth knowledge of how people work within the company and how the business goals are to be pursued and achieved" is key, Haden says. "Then you marry the structure to that. You must be informed, entrusted, be trusted and responsive."
"I don't think, the way our company is organized, that a centralized legal department could have achieved the level of knowledge, trust, level of quality and responsiveness that is necessary," he adds.