Some businesses can be explained simply and described in a single sentence. Then there are ones like Steel Partners Holdings, which are quite a challenge to boil down for a thirty-second elevator chat.
Launched more than twenty-five years ago as a hedge fund, Steel Partners has evolved into an intricately structured holding company that consists of about twenty-six controlled subsidiaries and other affiliates and businesses, which in total employ more than 13,500 people. Most of the companies under the Steel Partners’ umbrella rely on back-end shared services, including legal services, offered by the parent.
The attorney that heads Steel Partners’ legal services, Len McGill, says the company’s diverse structure presents challenges—learning about the businesses of two dozen entities and keeping up with their development is among them. But the complex corporate model also presents opportunities, such as the ability to save money through lean operations using the shared-services model.
McGill joined the company, which he compares in concept to Warren Buffet’s Berkshire Hathaway, in 2010 as its first general counsel. There was much to take in quickly. “It was like drinking from a fire hose at first,” he says. “We have a complex organizational chart; it doesn’t fit on a single piece of paper. But we’re actively working to simplify that business structure.”
During the first year, McGill learned as much about the businesses as he could and reacted to legal issues as they came up. During this period, he developed a couple of important insights.
First, more could and should be done to streamline shared services operations as they related to legal processes. Second, the company would benefit from a more proactive, more uniform approach to compliance and risk management. “I felt we would be more efficient having one set of policies that we felt good about as opposed to twenty different sets of policies, some of which may have been stronger than others in certain areas,” McGill says.
McGill formed a committee with representatives from different departments, including operations, to review existing policies from different entities. When there were differences between policies, the committee will rewrite the language, choosing the best elements from existing documents, and adding new language when needed to make policies current.
The finance group had begun its own review of risk management at about the same time that McGill formed his compliance committee. So, the efforts of finance and legal were combined, and other departments—most importantly HR—joined in as part of a full-scale governance, enterprise risk management (ERM), and compliance assessment review. “Best practice tells us that compliance should be integrated with governance and risk management,” McGill notes.
To speed up the process and enlist other points of view, outside consultants were hired to help with the ERM assessment. The work focused on the parent companies and two of the larger public companies that Steel Partners also controls, and the committee produced customized programs for each.
The effort resulted in a better understanding of compliance issues company-wide, followed by steps to streamline policies. “We now have essentially one code of conduct for the bigger public companies,” McGill says. The code was rewritten in plainer English to make it clearer. This exercise produced efficiency benefits, as well as better focused documents. “When we do the online code of conduct training, I can use the same online program for all the companies,” he says.
In the works is an effort to get all common compliance policies on an intranet to make the information easy to search and access. The compliance efforts of the committee went on hiatus for several months while the ERM process was ramping up, but McGill is gearing up to resume the compliance work. Early in 2016, McGill distributed a compliance risk assessment survey to gather input from throughout the organization. The results will help focus the committee’s work on developing good policies and training, he says.
The compliance streamlining effort illustrates how Steel Partners can provide organizational assistance via shared services. The parent company has to strike a delicate balance at times when working with its subsidiaries on sensitive issues like compliance. Each of the twenty-six businesses has its own culture and history. Several have their own independent boards of directors and management teams, and the independent directors have the option to contract for outside advice if they ever feel there may be a conflict.
So, McGill and his cohorts in charge of other shared services must demonstrate value to the managers of the subsidiaries—almost as if they are outside vendors themselves. McGill’s legal team has much to offer as insiders, though. Many of Steel Partners’ holdings are manufacturing companies that encounter similar legal issues. As a result, McGill’s team has developed a body of knowledge and expertise that is readily applicable to common challenges and has gained insights into the particular business challenges of each business by working with them over time.
McGill frequently visits businesses in the field, taking tours of manufacturing facilities and meeting with managers in order to build insight into their strategic and operational challenges. These efforts are appreciated by subsidiary leaders, and help to forge meaningful bonds between corporate headquarters and those in the field.
This relationship building is vital to establishing trust so that corporate’s judgment is respected when making some tough calls. “There are rare occasions when we have to say ‘no,’” he says. “Hopefully, because we have worked to build mutual respect, we can talk about the issue, and maybe butt heads, but then move on.”
Most often, however, McGill and his team, like any successful in-house legal team, work to find a way to make the plans of operating managers go forward rather than listing reasons that could make initiatives too risky. Striking the right balance between enabler and rules enforcer is always a challenge for in-house counsel. It’s an even tougher task for those who serve such a diverse organization. McGill seems to have the right mix—a wide breadth of legal experience combined with political acumen and business savvy—to walk this tightrope.