As we continue to look at metrics that corporate law departments can use to improve their value and effectiveness, we examine how the legal team can act as a true partner to the business and help it reach its goals
Each year, as the Thomson Reuters Institute interviews thousands of general counsel about their priorities, we find those priorities generally remain constant: make sure the legal department provides quality legal advice, protects the business from risk, and enables enterprise goals — all within budget.
Of course, accomplishing these goals is just the start. Corporate law departments also need to be able to demonstrate their success to others in the organization — in particular the senior leadership team and the board. Here, metrics that measure legal department success are a key tool.
In recent posts in our series, we’ve examined the importance of a strategic metrics program for a corporate law department. We’ve looked at metrics in terms of optimizing legal spend, protecting the business, and demonstrating the effectiveness of the law department. However, there is one more critical function of metrics to consider: How a strategic metrics program can be used to support the law department’s role as an enabler of the business.
As we’ve mentioned, many metrics collected by legal departments are focused mainly on spending. That’s understandable — metrics around spending are relatively easy to aggregate and understand — however, if a department is only sharing metrics around spending, then the department is promoting itself primarily as a cost center. Promoting such a viewpoint understates the true worth of the legal department and undermines its function as a strategic partner to the rest of the business.
To support the law department’s importance as a strategic leader, GCs should consider metrics that go beyond the practice of law. Success in this arena requires looking at the relationship of the law department to other parts of the business and could include the extent to which the law department:
- demonstrates in-depth knowledge of business and industry;
- is embedded into business units and engages with leaders across the organization;
- fully understands the risk appetite and objective for each matter;
- proactively suggests new opportunities; and
- frames advice in the context of the company’s overall business goals.
To convert these assessments into metrics, a law department could rate or enumerate the instances in which they’ve gone beyond textbook answers in response to queries from colleagues. A department could show cases in which they’ve provided their business colleagues with a recommended course of action rather than simply presenting a list of options. And a department could look for evidence that they are demonstrating an understanding of the business context — not just the legal context — of their matters.
It may help to consider the business focus of a corporate law department along a spectrum. Departments at the beginning of the spectrum — those that operate with a business-as-usual mindset — are certainly aware of their impact on the business. The objectives of these legal departments are aligned with business strategy, and members of the department are well-versed in that strategy. Members of the legal team have regular discussions with their colleagues in the company’s other business units, and they share insights from their contacts and conversations across the wider industry.
If a law department is only sharing metrics around spending, then it is promoting itself primarily as a cost center, understating its true worth, and undermining its function as a strategic partner to the rest of the business.
These legal departments are also well aware of, and able to respond to, different legal environments in different markets or countries. None of this is problematic, of course, but neither does it evoke an image of the law department that is really moving the business forward.
Legal leaders with a more commercial mindset are proactive in ensuring that their colleagues in the business units can fully understand and act on their advice. The advice itself is enabling to the business because the legal department fully understands the company’s overall business objectives. However, delivery also matters: Advice is presented as a course of action, rather than as one option among many. It’s placed within the context of the wider business goals and delivered in business-ready language. The legal team also encourages feedback from their internal clients. Most importantly, the legal department is sufficiently embedded in the business so they can proactively suggest new legal opportunities and strategies to their business colleagues.
A legal department that is a true leader in business change and transformation within their company takes this approach even a step further. In these cases, the legal department itself has digitalized, increasing its service levels and efficiency. This modernization also makes it easier to establish metrics across the department’s operations. This advanced legal department has built and maintains strong relationships with the organization’s sales channels and understands the legal landscape across the existing business landscape — not only in the company’s current market but also in those markets and jurisdictions in which the business might choose to enter in the future. Finally, this department provides a regular cadence of feedback to other teams in the organization, such as in sales and product development.
The value of iteration
Implementing a metrics program that addresses the full range of a legal department’s priorities is a substantial undertaking. Legal departments are wise to tackle these areas one at a time, in order of importance. Even after a comprehensive metrics program has been established, however, metrics are never a one-and-done proposition.
Instead, those law departments with the most successful metrics programs will update them regularly because they understand the importance of evaluating practices and developing a culture based on continuous improvement. A regular review cycle also helps create the structure necessary to help measure success. Some organizations will want to do this monthly, while others may find that an annual review is enough. One solution is to begin with an annual review and move to a more frequent cadence as more metrics become available.
The first step of the review process is to benchmark the legal department against other legal departments within similar organizations. That provides some objective context in which to view the department’s metrics.
A comprehensive metrics program will yield many areas for improvement, and it’s up to the GC to choose those areas that best support the broader business goals.
The next step is to look for year-on-year improvement. In this part of the review, legal departments should analyze the impact of any investments. It may be relatively straightforward to assess the value of an efficiently delivered risk-management process, for example, because such an initiative should result in longer-term cost reduction and an ability to better control risk. The contribution of other initiatives may be much less clear.
It’s also important to look at spending or activities in the past year that are unlikely to be repeated. Those may be distorting a department’s year-on-year results. Understanding them fully can help teams identify trends and make realistic plans for spending and the use of other resources.
Next, GCs and their in-house legal departments should undertake a full analysis. While individual metrics can be telling, it can also help to look at related metrics in tandem. Total legal spending is an important metric, but it may be even more helpful if it’s expressed as legal spending per billion in revenue. In some areas GCs may need to get creative and gather data outside their own legal department to show how the department is connected to the wider business.
In our research, we found one legal department, for example, that tracks the number of new product pitches that incorporate legal costs. This demonstrates that the legal department is building relationships with the sales team, which is a crucial foundation for enabling the business. Tracking this metric also helps the legal department manage costs.
The last step, of course, is to set goals for the following year. A comprehensive metrics program will yield many areas for improvement, and it’s up to the GC to choose those areas that best support the broader business goals, and those that will add shape and cohesion to the choices department leaders make.
While no metrics program is fully formed — or fully informed — in its first incarnation, a steady process of iteration and continual improvement will produce a metrics program that promotes the true value of the corporate law department.