March 2016 edition
A checklist to measure your legal department performance
Faced with increasing pressure from company management, corporate law departments are becoming more efficient by using a variety of cost-cutting methods. To measure the outcome of these efficiency efforts, many law departments use metrics to objectively quantify, analyze, and report on their improvements in performance over time. Measuring the right metrics can provide in-house counsel with compelling evidence that law departments add demonstrable value to their companies.
Because every law department is different, the metrics used to measure its performance may differ depending on:
- The company's industry.
- The law department's annual budget.
- Both the company's and the law department's size and business goals.
Whatever metrics a law department uses to measure its performance, they should be easy to understand, record, track, and display. While all metrics track numerical data, this information may be analyzed and displayed in a variety of ways, including:
- As a percentage of a larger whole. For example, one metric used by many law departments is measuring total legal spend as a percentage of company revenue.
- In graph or chart form showing performance improvements over time.
In addition, the law department and company management should agree on which metrics the law department will measure to ensure that they meet the company's overall business objectives.
Track legal department staff productivity
An important part of managing a law department is keeping track of attorney and legal assistant workload and productivity. Using metrics to measure law department employee productivity can assist a general counsel in:
- Identifying which employees are meeting or failing to meet law department performance goals.
- Recognizing and rewarding high-performing employees.
- Improving the performance of underperforming employees.
- Equitably allocating the law department's workload.
Measure attorney performance
Depending on an in-house attorney's job responsibilities, metrics to measure job performance may include:
- The number of litigation matters opened.
- The number of litigation matters closed.
- The total number of pending litigation matters managed.
- The number of transactions handled.
- The number of contracts reviewed.
- The number of all open matters over a defined time period.
- The average cycle time per matter. Cycle time is the time it takes to handle a legal matter from its beginning to its end. Longer cycle times translate into less efficiency and greater cost to the law department.
- The amount spent on outside legal services per matter.
- The number of matters handled without using outside counsel.
- The actual amount spent by the attorney for the year compared to that attorney's annual budget.
Measure legal assistant performance
Depending on an in-house legal assistant's job responsibilities, metrics to measure job performance may include:
- The number of:
- invoices entered into the law department's billing system;
- board meeting minutes and board resolutions drafted;
- stock certificates prepared;
- trademark and copyright applications filed;
- legal issues researched;
- subpoena responses prepared; or
- litigation e-discovery projects handled.
- The average cycle time required to draft or file routine law department documents.
Implementing staff productivity metrics
Before using metrics to measure law department employee productivity, a general counsel should:
- Clearly define the metrics to be measured.
- Ensure that law department employees understand the metrics used to measure their performance.
- Consult with the company's human resources department to ensure that the metrics used are consistent with the employee's job responsibilities and the company's employment policies.
- Decide whether, when, and how to share any data collected with law department employees.
Measure legal department spend as a percentage of company revenue
Many law departments measure, as a percentage of company revenue:
- Internal spend on legal matters.
- External spend on legal matters.
- Combined internal and external spend on legal matters.
These metrics may be used:
- To show how changes in the department's management can increase efficiency, directly affecting company revenue over time, including:
- increasing or decreasing the number of in-house counsel and other law department staff;
- changing outside counsel;
- limiting the number of outside counsel used
- insourcing legal work;
- outsourcing legal work;
- implementing an affirmative recovery program;
- using legal project management principles to streamline how the law department manages its litigation and transactional matters;
- investing in new technology; or
- creating a law department operations position to manage the business aspects of the law department, including vendor negotiations, strategic planning, and generating reports.
- In benchmarking a law department's performance against other companies' law departments that:
- are in the same industry;
- are of the same size by revenue; or
- have similar headcount and structure.
Exchanges of company information between competitors can implicate antitrust laws. Before providing or receiving information directly from other companies, the law department should obtain legal advice from antitrust counsel.
The results of benchmarking a law department's performance against the performance of other law departments that are the same size or in the same industry can be used by a general counsel to support a request for:
- Additional law department headcount.
- A larger law department budget.
- Other law department initiatives.
Track actual spend to budget
Tracking actual spend to the law department's overall budget, as well as actual spend to budget per matter, can assist the general counsel and in-house attorneys in:
- Determining why and where the law department met or exceeded budget.
- Forecasting future law department budgets as well as budgets for certain matter types.
- Holding outside law firms and other legal services providers accountable for their inefficiencies, if they routinely exceed budget.
When a law department tracks actual spend to budget for individual legal matters and for the overall law department budget, the information gathered may be:
- Highlighted in periodic reports to company management.
- Used to demonstrate how the law department added value to the company, especially if it ended the year under budget.
- Used as powerful evidence when requesting a larger law department budget due to an increase in the amount of legal services provided to the company.
Over time, in-house counsel can analyze the data gathered from tracking actual spend to budget to identify trends in the types of legal matters handled by the law department and their cost to the company.
Evaluate outside counsel performance
Because one of the largest line items in a law department's budget is outside law firm spend, in-house counsel should periodically evaluate the performance of all outside law firms used by the company. When evaluating outside law firms, metrics to measure their value may include:
- The timeliness in delivering work product. For every legal matter, in-house counsel should track actual work product delivery dates against those provided by outside counsel in a matter work plan to evaluate the reliability of the law firm's matter planning process.
- An analysis of actual spend to budget. When reviewing this metric, in-house counsel should be mindful that outside counsel may intentionally or unintentionally inflate matter budgets to ensure that the law firm consistently comes in under budget on company matters.
- Measuring actual matter outcomes against estimated recoveries for litigation matters.
- Tracking the number of client training sessions conducted.
- Tracking matter cycle time. Companies pay more in outside counsel legal fees when cycle time exceeds industry norms for routine legal matters, such as contract review.
- Tracking counsel fee arrangements. For example, the law department may track the number of matters for which outside counsel bills:
- on an hourly basis;
- on a contingency fee basis;
- on a reduced rate basis; and
- using other alternative fee arrangements.
Other metrics to measure how the law department uses outside counsel include:
- Number of law firms used.
- Type and number of legal matters handled by each law firm.
- Annual fees paid to each law firm.
- Number of law firms offering alternative fee arrangements.
- Number of law firm evaluations conducted.
Conduct a survey to evaluate law firm performance
For additional quantifiable data to evaluate law firm performance, the law department should consider polling the following individuals with meaningful interaction with outside counsel after each legal matter concludes, including:
- In-house counsel.
- Legal assistants.
- Internal business clients, under some circumstances. For instance, a company executive may have substantial interaction with outside counsel when:
- negotiating a large transaction;
- drafting a key affidavit in a litigation matter;
- preparing for and attending a deposition; or
- preparing for and testifying at trial.
These employees should be asked to numerically rate outside counsel on factors, including:
- Business alignment.
- Quality of advice and work product.
- Frequency and content of matter status updates.
- Matter staffing. This factor should poll whether a matter was staffed appropriately, including:
- the number of time-keepers on the legal team; and
- their experience level.
- Matter management skills.
- Collaborative efforts with the law department.
- Matter outcome.
- Billing, which should be evaluated on its:
- timeliness; and
- adherence to the company's outside counsel guidelines or other law department parameters.
Periodically measuring outside counsel performance can assist law departments in deciding whether to retain a law firm's services or seek new outside counsel for future matters.
View more on creating a client satisfaction survey.
Measure source of legal spend by business unit
In companies with several business units, measuring the source of legal spend by business unit can assist the law department in:
- Identifying which business units require the most legal resources and why.
- Deciding whether it should hire additional staff to address the increased legal needs of a particular business unit. For example, a manufacturing company with significant products liability litigation may need to hire litigation attorneys or legal assistants to facilitate bringing more legal work in-house.
- Identifying areas in which employees may require training, especially if business units experience an increase in certain types of legal matters, such as sexual harassment allegations.
Track the effects of employee training programs
In addition to measuring which business units may benefit from increased training, law departments also should track the effects of employee training programs in reducing the number of:
- Ethics and other violations.
- Government and other internal investigations.
- Complaints filed with:
- the company's human resources department;
- government agencies; and
- local, state, and federal courts.
Analyze the data and report legal department performance results
Law departments using metrics to measure their performance should periodically analyze the data collected and prepare customized reports for their constituents to show how the law department adds value to the company. Depending on the recipient's needs, these reports may be run weekly, monthly, quarterly, or annually and sent to the:
- General counsel.
- Chief executive officer.
- Chief financial officer.
- Board of directors.
- Business unit heads.
- Risk management department.
Although law department metrics may be tracked manually, an electronic matter management system can simplify the process for busy in-house counsel by:
- Compiling data.
- Analyzing trends.
- Preparing reports.
However, metrics, by themselves, cannot improve a law department's performance if they are not acted upon.
Analyze metrics using the right framework
Although measuring law department metrics provides a general counsel and other in-house attorneys with objective information to evaluate a law department's performance, raw data does not always tell the entire story. This is because the data does not take into account intangible elements of a law department's success, including:
- A general counsel's management style.
- The skill set, work ethic, and attitude of all law department employees.
- A strong partnership between the law department and outside counsel.
- Company culture and values.
- Company management's support of the law department.
Law departments also should consider whether their metrics analysis should be qualified to account for:
- The unpredictable nature and high cost of litigation, which can unfairly skew a law department's performance results.
- Business decisions made by company management that may cause revenue to dramatically rise or fall during any given year while the law department budget remains static.
- Inaccurate or incomplete data because of:
- human error in data entry; or
- data manipulation. For example, if an in-house attorney's annual bonus is tied to the number of legal matters handled, regardless of type, that attorney may be less inclined to delegate work to more junior attorneys or outsource routine legal matters.
Because raw metrics data can be misleading when analyzed in a vacuum, law departments and management should consider these qualifying factors when analyzing metrics to measure the law department's overall performance.
For the full article complete with links to helpful ready-made resources for in-house counsel, visit the Practical Law Checklist, “Using Metrics to Measure legal department Performance”, today!
About the author
Michelle Graham joined Practical Law from private practice and as an in-house consultant advising legal and business teams on a wide range of intellectual property and litigation matters. She was previously counsel in the Intellectual Property practice group at Kilpatrick Stockton LLP and special counsel in the Intellectual Property and Technology practice group at Kelley Drye & Warren LLP.
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