Corporate law departments that are considering utilizing metrics to gauge their performance, should choose those that can demonstrate the department's effectiveness
About 90% of corporate law departments are collecting metrics to measure their team’s performance — up from 75% eight years ago, according to annual research the Thomson Reuters Institute conducts with about 2,000 corporate general counsel. These metrics are crucial in showing the importance and contributions of the legal function to the overall business, but too often, these metrics don’t go beyond measuring the department’s legal spend.
And while that’s important, law department leaders have other important goals that can’t be measured by looking at legal spend alone, such as protecting the business from risk, enabling enterprise goals, and providing effective legal advice.
To measure how they’re advancing against these other goals, law departments need a metrics model that captures their progress in these areas. If the team can only share metrics related to spending, the team will be seen solely as a cost center. Metrics showing the broader effectiveness of the legal team can help convince company leadership and the board that the law department is a strategic partner.
We’ve already discussed approaches that can help law departments rethink their metrics programs as tools to better manage their departments and elevate its perception. We’ve also written about frameworks for optimizing legal spending data that enable law departments to make better decisions about their allocation of work, their choice of outside legal services providers, and opportunities to gain efficiencies with the use of technology.
Now we turn to an examination of metrics related to quality and effectiveness. While these metrics may seem a bit less intuitive and more difficult to collect than those around spending, there are, nevertheless, a wide variety of metrics that can capture key elements of the department’s performance.
This analysis can provide multiple benefits to law departments. It can help leaders see where the department is strong, where it could improve, and where external firms are best able to fill the gaps. Armed with this information, law departments are better able to make decisions related to training, up-skilling, and recruiting.
Metrics that track quality and effectiveness also have the potential to improve departments’ relationships with their outside law firms. By completing these analyses, department leaders will be better able to articulate, at the outset, what success looks like in terms of legal outcomes, service levels, speed, commercial value, and tolerance for risk.
To measure effectiveness, we first need to define it. For our purposes, we’ll define an effective law department as one that is an excellent service provider — being highly responsive and giving practical, commercial advice based on a solid understanding of the business and its priorities. Doing this well requires an ability to manage both the in-house team and external legal counsel. And because general counsels are also leaders of teams, a well-managed law department includes staff that are engaged, skilled, and developing.
This definition provides three lenses through which to measure effectiveness. One is the actual legal results that the team has achieved, which is usually tangible. The next relates to the experience of arriving at those results. That may include the perceptions of internal clients who partner with the legal team, as well as relationships with external law firms. Finally, there’s the legal team itself — its level of engagement and motivation.
Here are some metrics you might consider:
- Volume of work undertaken — The volume and scale of the legal matters that the department has handled is one of the most general ways to show effectiveness. Quantity doesn’t necessarily have a bearing on quality, but it’s still a necessary point of reference. If the team is doing more or less work this year than last, it is important to know what the difference is with some amount of precision.
- Successes — A success doesn’t necessarily mean a win at trial. Instead, success should be measured in terms that are relevant to the law department and to the overall business. Success may mean that a transfer of intellectual property was suspended until better terms could be agreed upon, or that damages were limited to a certain dollar amount.
- Cycle time — In general, the longer it takes to resolve a matter, the less satisfied colleagues can become. Ideally, over time, you want to be able to demonstrate a reduction in cycle time for comparable matters.
- Regulatory penalties and fines — These fines are usually a matter of public record, making it relatively straightforward to compare your company’s penalties and fines to those of peer companies. This is one way of showing how effectively a legal team is monitoring regulations and ensuring compliance. It could also be used to build the case for more investment in prevention, to reduce the risk of greater regulatory intervention.
You may also want to consider using metrics such as the number of settlements reached, monies recovered, and the ability to predict outcomes. This last metric, in particular, can highlight the law department’s role as a strategic partner and a stabilizing force.
Commercial value-added is perhaps the metric with the largest impact. It’s also among the most difficult to accurately measure. If a law department negotiated terms on behalf of a business unit, it may be possible to measure the economic impact of those improved terms. The negotiated terms may also have removed a potential liability from the business, which can also be estimated.
Commercial value is most often calculated in relation to a law department’s internal clients, but the concept — and its measurement — can be extended to customers, shareholders, and regulators. Some departments conduct internal surveys of these stakeholders, while others use the volume of complaints as a proxy. At most firms, organized feedback programs are conspicuously absent, leaving an important gap in the law department’s ability to collaborate with colleagues in other parts of the business and to deliver appropriate and actionable advice.
Feedback programs also are crucial in managing relationships with external law firms. Outside counsel typically consume a large part of law department budgets, so it’s important that these relationships are assessed, reviewed, and improved on a regular basis. Unlike time tracked or spending, assessing these relationships requires a more proactive effort on the part of outside law firms themselves. It’s essential for GCs to ask for and collect feedback from their outside firms, and working with a trusted research partner can make this a lighter lift.
Indeed, there are a number of ways to capture this feedback — from surveys to formal interviews and more casual conversations. Either way, this should be a two-way street. In-house legal teams should be asked to review law firms’ performance, and law firms should learn how they could improve on factors such as speed of response, completeness of information, understanding of business objectives, quality of outputs, and communications. External partners will be better able to deliver quickly and efficiently if they understand what they’re doing well and where they’re stumbling.
The payoff from implementing a metrics program with a focus on effectiveness can be dramatic. These metrics can provide a shared language with which to discuss the success of the department, becoming a critical step toward boosting the department’s perceived value and strategic importance. Many legal leaders believe, rightly, that their teams offer high-quality, effective legal advice, but collecting and sharing data in support of that belief is a critical tool in convincing others.