HALFWAY MEASURE
Dynegy’s forced makeover included slashing its litigation spending.
DYNEGY INC. GENERAL COUNSEL KEVIN BLODGETT HAS BEEN
posting the kind of numbers CEOs love. A nearly 50
percent drop in the past two years in total outside legal
spending, for instance. And an even steeper decline in
litigation costs. Plus he’s succeeded in driving down his
department’s total expenses to such a degree that the legal
budget is now just 0.52 percent of company revenue, down
from 0.84 percent in 2006.
What’s his secret? No question, the recent disposal of
some major litigation has helped. But the other (and more
interesting) part of the answer lies in Blodgett’s recent
revamp of Dynegy’s 20-lawyer department, along with
smarter deployment of outside lawyers, and litigation chief
Jason Buchman’s ability to engineer an array of innovative
fixed-fee deals on Dynegy matters.
The story is all the more compelling given the dramatic
ups and downs at the Houston-based Dynegy in the past
decade—and the mammoth challenges the legal department has faced.
The roller-coaster ride was just getting going when
Blodgett joined the company’s legal department in 2000.
And Blodgett, like the rest of the company’s in-house legal
staff, couldn’t have possibly predicted all the excitement
in store.
Indeed, the ride was far wilder than anyone could have
imagined at the start of the decade, when Dynegy’s natural gas trading unit and broadband communications business were booming, revenues were soaring, and the company’s dizzying climb up the Fortune 500 charts seemed
unstoppable.
Just two years later, disaster struck: Charles Watson, the
company’s longtime CEO, resigned amid charges of securities fraud. Dynegy got hit with a major securities class action,
even as still more lawsuits began to mount over the company’s alleged role in price-fixing schemes in both California’s
electricity market and the natural gas trading index.
Dynegy’s credit rating was slashed. By late 2002, the
company was facing bankruptcy, and Dynegy’s in-house
attorneys were just trying to keep up with all the fallout.
“I walked into a perfect storm,” says Buchman, who
joined the litigation department in 2003 and immediately
had to contend with the securities class action and the
price-fixing cases—all bet-the-company matters.
“It was an incredibly busy time,” agrees Blodgett, who
had started out handling mergers and acquisitions at the
company and wound up overseeing the sale of Dynegy’s
Northern Natural Gas pipeline as part of a radical
restructuring plan initiated by new company CEO Bruce
Williamson.
The end result: Dynegy weathered its brush with bankruptcy, but became a much different company in the process, with a tight new focus on operating electric power
plants and supplying wholesale power to utilities, cooperatives, municipalities, and energy firms.
It’s also a much smaller enterprise, with total revenues
in 2008 of $3.5 billion, down from a peak of $42 billion in
2001.
Blodgett, 38, did not only survive these changes; in
late 2005 he was promoted to general counsel. The crisis period had passed. The company was on a steadier
course, the litigation against it was largely under control,
and Blodgett now had the chance to focus on big-picture
department management issues and on a smooth transition back to what he describes as “normal course legal
operations.”
ONE THING WAs ImmEDIATEly ClEAr: WHIlE
Dynegy as a whole had changed, the legal department
hadn’t—at least not much. “We still had the infrastructure to serve a much larger company, with more business
lines,” says Blodgett.
ILLUSTRATION BY
SARA TYSON
