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  The Value Enigma

Author: Richard Stock - CCCA Magazine (Vol 6, No 2, Summer 2012)

There are a number of "connections" that can and should be made among several elements of CCCA’s 2012 In-House Counsel Barometer. These include measuring and providing value in legal services delivery, the greatest challenges facing in-house counsel on the job, the length of the work week, and the place of performance indicators for legal departments. Each is an important subject in its own right.

The CCCA has indicated it is conducting a comprehensive review of the 8-year old survey in preparation for 2013. With this in mind, the following offers a number of observations and suggestions. The 2012 Barometer survey is helpful, but needs to probe more deeply in the future if it is to uncover the different way in which in-house counsel deliver value.

Risk Management

The survey states that “measuring and providing value can be elusive concepts that are difficult to quantify”. Agreed. One question asked of the 411 respondents was

Which of the following represent the main ways in which your department provides value within your organization?

Managing or reducing risks associated with business decisions 84%
Ensuring the organization is in compliance with sector regulations 48%
Controlling costs for use of external counsel 44%
Controlling costs for use of external counsel 28%
Controlling costs by advising on legal settlements 16%
Other 12%

Greater insight would have been provided if the first option had been unbundled : helping business get done; and managing or reducing risks. In addition, rating the importance of each option on a 5-point scale would lend some weight to each option.

It is noteworthy that the report refers to the findings on this question as metrics, when the question was about providing value, not about how the legal department is measured. The overall survey will be improved with differentiation and consistency in several of the terms used in the report: providing value, measuring value, metrics, hard metrics, key performance indicators, and performance metrics. A careful look at other questions in the report will suggest why there should be greater definition in preparation for the 2013 Barometer survey.

Ranking the Most Important Challenge

In-house counsel were asked to rank 8 challenges in terms of their importance. These included three challenges about privilege, and another four about matter management software, ethical screens, alternative fee arrangements, and encouraging equity. The eighth challenge concerned workloads.

The top challenge for in-house counsel is the workload. The relative importance is broken down by sector.

The day-to-day workload leaves little time for “big picture thinking” or the development of initiatives which would benefit the organization as a whole.

# of participants % ranking this 1st
Publicly-traded companies 137 69 %
Wholly-owned subsidiaries of publicly-traded companies 42 57 %
Private companies 95 66 %
Government 100 60 %
Not-for-profit, and other types of organizations 37 70 %
All participants 411 65 %

Perhaps the selection of challenges was not complete enough. For instance, other surveys suggest that providing interesting work to members of the legal department is a significant challenge. Nevertheless, on average, the workload challenge proved to be 5 times more important (65 % to 13 %) than the second-ranked challenge.

Some 85 % of survey respondents said earlier that managing or reducing risks associated with business decisions was the main way in which their legal department adds value to the organization. Yet, the greatest challenge is the day-to-day workload standing in the way of developmental initiatives that would benefit the organization. It seems inevitable that legal departments will be frustrated in their quest to support business units in a timely fashion, and in trying to become more strategic contributors. The 2012 Barometer survey is helpful in examining workloads.

The Work Week

The question asked was, "On average, how many hours do you work per week?" I was interested to see the proportion of respondents working over 50 hours per week or about 2 300 hours per year. The average across the 411 respondents was 42 %. It was clear the over 50-hours average was influenced by the responses from the government and not-for-profit sectors.

# of participants % over 50 hours
Publicly-traded companies 137 52 %
Wholly-owned subsidiaries of publicly-traded companies 42 55 %
Private companies 95 49 %
Government 100 25 %
Not-for-profit, and other types of organizations 37 27 %
All participants 411 42 %

These distributions square with our own studies. It appears that there is no correlation between the length of the work week and workloads that leave little time for developmental initiatives. For instance, only 27 % of the not-for-profit respondents work over 50 hours per week, but 70 % of them claim that workloads are the greatest challenge. It might prove useful in the future to study the effects on workloads of workflows and interruptions, backlogs of work, and support resources. Additional analysis of the responses by size of legal department, role of the respondent, and length of time as in-house counsel and in the company would provide insight.

Hard Metrics

The 2012 Barometer survey asked four questions in its chapter on Measuring the Value of In-House Counsel. Defining the value proposition is a very significant and never-ending task for legal departments and for those conducting surveys. The 2012 Barometer survey reveals that many questions about value must remain unanswered in the short term. The first question asked "Are there hard metrics by which the value your department contributes is evaluated by your organization?" It is both surprising and disappointing to see that almost 75 % of legal departments are not formally evaluated or that the survey respondents are not aware of a performance indicator applicable to them.

# of participants No Hard Metrics  Do not  Know    Yes
Publicly-traded companies 137 51 % 23 % 26 % (35)
Wholly-owned subsidiaries of publicly-traded companies 42 43 % 21 % 36 % (15)
Private companies 95 64 % 15 % 21 % (20)
Government 100 49 % 23 % 28 % (28)
Not-for-profit, and other types of organizations 37 35 % 5 % 30 % (11)
All participants 411 54 % 19 % 27 % (109)

A second question asks "What type of metrics are you aware of that are used by your organisation to measure the value provided by in-house counsel?" There are two problems with this question. The first is that it asks about the value provided by in-house counsel and not (as was the case in the first question) by the legal department. The second problem is that only 109 out of 411 respondents answered this question. The sample is too small in most sectors. There is not much that can be done about the response rate if organisations simply do not have metrics in place.

Another limitation is that the survey presents only 5 "hard metrics" from which to choose: department budget; external counsel spend; number of matters settled; the organization’s total budget; and the number of cases successfully litigated. There are no questions about contribution to business decisions, strategic initiatives, and client satisfaction. Each of these could easily be converted to a "hard metrics". The survey leans toward such hard metrics as resource consumption and dispute resolution, and not toward the contribution to business success or to client satisfaction. Still, even with the addition of a more balanced set of metrics, I believe that the percentage of legal departments actually measured for their contribution would not reach 30 %. Most organizations have yet to embrace KPIs and customize them to the legal function.

The third question asks individual lawyers whether they have specific key performance indicators (KPIs) by which their performance is judged. The term "KPIs" is not defined. It is clear from the way KPIs are used in the report that they are not the same as "hard metrics" for the legal department, because respondents with KPIs represent a somewhat higher percentage than legal departments with hard metrics.

Lawyers with KPIs Dept with hard metrics
Publicly-traded companies 42 % 26%
Wholly-owned subsidiaries of publicly-traded companies 31 % 36 %
Private companies 33 % 21 %
Government 44 % 28 %
Not-for-profit, and other types of organizations N/A 30 %
All participants 40 % 27 %

It is still disappointing to find an average of only 40 % of in-house counsel with KPIs in place to evaluate performance. Our experience suggests that a greater proportion than 40% of lawyers have annual performance objectives in place, but that these objectives may not take the form of either KPIs or hard metrics. Clearly, performance management is a developing area when it comes to legal departments and needs further study.

The fourth question provided a glimpse into why this is the case. Eight statements about KPIs were surveyed for agreement / disagreement. Out of the 411 survey participants, only 164 answered the question. The data below reflects the percentage of the 164 respondents who agreed with each statement.

Having performance metrics make it much easier to prove the value of in-house counsel. 62%
I think performance metrics are great in theory, but poor in practice. 58%
Having performance metrics have allowed me to focus on what is important. 48%
Performance metrics bring a focus and a clarity to my job that I really appreciate. 48%
The performance metrics by which I am evaluated are not relevant to my day-to-day work. 45%
I wish I had more say in setting my performance metrics. 40%
I think my performance metrics were set by someone who has very little understanding of what the company needs from my function. 32%
I think performance metrics are just another passing fad. 25%

What does this all mean? In my experience, legal departments that have performance metrics in place say that they can be useful. But they also say that many performance metrics are a poor fit and not relevant to the current legal function. Again, there are no definitions and differentiation of hard metrics for the legal department, KPIs for individual lawyers, and performance metrics for legal departments or for individual lawyers.

There is much work to be done in defining, measuring and communicating the value of legal departments and of individual lawyers working in-house. Special studies and the 2013 Barometer can make a valuable contribution to this important set of questions in the near term. In-house counsel should take a few hours over the next few months to offer their views about value in legal services delivery. I look forward to the next edition of the survey.

   
 
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