Beyond legal spend metrics: KPIs for the efficient legal department

Thomson Reuters

An interesting conversation has been circulating with general counsel and throughout legal department leadership circles for almost a decade, and it goes something like this: At an executive leadership meeting, if the Vice President of Sales reports out on the number of widgets sold, and the Vice President of Marketing reports out on the number of clicks and eyes on campaigns to sell such widgets, and the Vice President of Human Resources reports out on the cost of human capital to build, market, and sell such widgets, what metrics does the General Counsel share? The cynic will answer: Nothing – lawyers can’t do math; but many thoughtful, progressive legal departments are overcoming a perceived fear of numbers and attempting to respond with meaningful metrics and KPIs (Key Performance Indicators).

Immediately after the global financial crisis, when all eyes – across all organizational departments – were on expense management, general counsel often reported exclusively on outside counsel and external spend management; as a cost center within an organization that historically had not exercised budget management, this immediate reaction made sense. But now that nearly a decade has passed from this watershed moment for the legal industry, have legal departments changed course in the metrics and KPIs they collect to demonstrate the contributions of the department? What more can the general counsel celebrate other than her ability to better manage outside counsel? We will investigate why legal department leaders must evolve the metrics conversation from an exclusive focus on outside counsel and external spend management to a holistic overview that includes the efficiency and effectiveness of in-house staff resources. Also provided will be examples of data and performance metrics that a department of any size might consider collecting.

Why measure more than legal spend?

Every company, legal department, and leader will be different in the story they want, and need, to tell. But regardless of a department’s objectives, data and metrics can be a powerful tool to convey that story and serve as a catalyst for change. Here are some reasons why general counsel undertake a metrics initiative.

• Demonstrate the efficiency of the legal department. Everyone in the department is “doing more with less,” but can you quantify the “more” and the “less”? Often, corporate counsel have a qualitative, gut feeling about their performance and activity; data helps measure these items, and in turn, drive toward measurable improvements. During a recent book launch event for The Inside Counsel Revolution: Resolving the Partner-Guardian Tension, sponsored by Thomson Reuters Legal Executive Institute and Harvard Law Schools Center on the Legal Profession, author and former general counsel to General Electric, Ben Heineman, touched on the evolving role of the general counsel outside of the corporation. Namely, Heineman observed that the general counsel has replaced the senior outside counsel partner as the primary counsel to the CEO and board of directors. Are there metrics that validate this evolution in power from the law firms to the general counsel? What metrics support the efficiency of legal department over the value of outside counsel? Better managing outside counsel is a single factor of success for a legal department; however, a general counsel will also want to showcase the legal prowess and efficiency of her own team.
• Create business cases for additional staff or technology. According to the 2015 Thomson Reuters In-sourcing and Efficiency Report, more departments are intently focused on building their internal teams and empowering corporate counsel and in-house staff with technology to more efficiently respond to legal matters and issues. Perhaps your department is investigating this trend; accordingly, in addition to celebrating the valuable work of the legal department, data can be used to support a business case to add resources, either headcount or technology, in the near future.
• Speak the language of other executives. Another theme Heinemann discusses in The Inside Counsel Revolution is the requirement that the general counsel “be at the table” with the CEO, other executive leaders, and the board of directors. Not only is their presence a necessity at executive leadership meetings, but also general counsel are advised to speak the language of the other executives. For instance, each of the C-suite executives described in the introduction had key performance initiatives they shared widely to demonstrate the value of their respective legal departments; the general counsel must also speak a similar language – the language of data, metrics, and KPIs – to demonstrate legal’s contributions.

These are some “storylines” to consider when identifying what data to collect and what metrics to measure. But before undertaking any data collection, the objectives for putting a data initiative in place or measuring against KPIs should be well documented and considered. The first step here might be to seek out a conversation with the CEO or other organizational leaders who have an opinion on what performance might be collected; in addition to reaching out to stakeholders, consider feedback and inputs from the entire legal department team.

The universe of metrics beyond outside counsel spend

What story do you want to tell about your department, the legal work handled internally, and the value of the contributions of yourself and internal legal team? Here are a few questions you can ask of your department:

• Data on legal matters. What do we know about our legal portfolio? How many matters and contracts are handled on an annual basis by the legal department (versus handled by outside counsel and subsequently managed by the legal department)? Should we be driving more work to internal resources, and if so, which work and to whom? Is there a particular business unit or legal issue that consumes more legal service than others? Has the company benefited from minimized liability exposure and decreased outside counsel expense through training programs or policies that the legal department has put in place? Understanding the attributes of your legal matters portfolio will help drive more efficient ways to respond to such matters.
• Data on internal staffing efficiencies. Many departments have gained greater comfort and discipline in wrestling with data about outside counsel spend and law firm performance. Many departments have law firm/vendor scorecards to talk about a firm’s performance. But what metrics might a general counsel use to talk about internal corporate counsel performance? Is it more valuable to have an in-house attorney respond to a legal matter? How does one demonstrate maximization of current internal resources? Perhaps you need to put a business case together to request additional headcount for the department. Or, you want to demonstrate that your current internal staff can more effectively respond to legal work with technology.
• Data on internal clients’ perception of the legal department service. Often, a legal department may be perceived as the “Department of No” or the “Department of Slow.” What is that perception built on? Often legal departments conduct reviews of their outside counsel, standardizing evaluation processes and providing constructive feedback to these partner firms. But what are departments doing to seek feedback from their internal clients about their own service?

“But only the behemoth legal departments can do this.”

This is often the first response of a general counsel when the metrics conversation first arises. Just as the problems and needs outlined above are not unique to large legal departments, neither is the use of data to demonstrate the value of a legal department, regardless of size. This series will provide practical tools and guidance that will resonate with those departments just starting to initiate a metrics program as well as sophisticated departments who have legal department operations professionals focused entirely on metrics.

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