Monitoring in-house legal performance goes beyond determining the efficiency of your team. If done right, it can also be leveraged during annual budget discussions as a potent feedback funnel and as an opportunity to revisit operational strategies. And yet, something as critical as this has largely remained a sandbox function for a set of reasons:
- There is no universal metric to cover the entire scope of an in-house counsel’s operations
- A considerable volume of the legal tasks is immeasurable, e.g. negotiating deals, and risk management
- Legal is mostly viewed as an assistive function, which means performance measurement is confused with cost conservation than as a means to improve legal delivery
Most metrics tracked by in-house professionals today are iterations of law firm metrics, and hence don’t bear strict correlations to business Objectives and Key Result (OKR).
Take, for example, contract turnaround time (TAT). While it is a perfectly fair assessment of legal operations on standard/template contracts, it does not apply universally to high-risk or high-value situations that might require multiple back and forth negotiations. Hence, by tracking contract TAT, legal remains fixated on the velocity of service delivery while bypassing quality.
Aligning Legal’s OKRs With Business Objectives
Since success in the in-house legal teams is determined by helping the business meet its goals, each in-house legal KPI must inherently tie back to the business’ overall OKRs.
The focus should be on delivering value to the business, and, as such, it is best to use metrics that speak in terms the business will easily understand while projecting the ROI on legal investments efficiently.
We’ve compiled a list of possible, measurable in-house legal department goals, objectives, OKRs, and metrics that you can use to monitor performance on individual and team levels:
Top 10 Measurable Performance Metrics (KPIs) for the In-House Legal Department
#1 Number of contracts
Track the number of contracts requested, processed, and produced by the in-house legal department over a period. Defining the periodicity of this assessment is dependent on a few factors:
- The average length of a contract cycle
- Customer or vendor cycles and periodicity
- Internal resource or external help availability
Contract KPIs are the rare occasions where you can quantitatively assess your legal team’s output. They also provide a benchmark for you if you are evaluating or looking to onboard a contract automation tool at a later stage.
If you already have a contract automation tool, you might also need to track the number of contracts you have made self-serve within your determined period, to exhibit that you are accelerating the business.
#2 Types of contracts processed
Segregate the contracts by categories such as type, value, complexity, counter-party, and more. You also need to keep track of the deviation in contract terms from standard clauses.
This will help you identify the commonly requested contract types, allowing you to prepare templates and allocate resources better. It also allows you to analyze contract-specific trends that could potentially put your business at risk, such as unauthorized changes or incomplete execution of the documents.
#3 Contract value
The best way to determine the immediate monetary impact of your team on the business is to understand the incoming or outgoing value of the contracts you directly generated, reviewed, or helped automate.
A good idea is to separate recurring/renewed contracts from newly generated contracts to help your business discover more information about their top lines.
#4 Contract quality
Speak with dependent business teams on what the acceptable risks in specific contracts are. Figure out the templatization/execution process and analyze the turnaround time and degree of iteration required to complete the contracting process.
You can utilize this data to understand the quality of your overall contract templatization process or even identify the efficacy of a particular member in handling contract requests and delivering business-focused solutions.
#5 Contract success rate
This is calculated as the percentage of contracts executed successfully from the bulk of contracts sent to the legal team. This can help uncover usual roadblocks and promote discussions towards solutions. You can also explore the success rates for specific contract types.
Also, consider computing the contract renewal rate as part of this KPI.
The contract success and renewal rates can help you assess the quality of your contract output. Although, it depends a lot on the industry you work in and the type of contract you enter into.
#6 Administrative costs
Contracts aren’t the end of the responsibility for in-house legal teams. Hence, it is also important to assess the time, effort, and people engaged in non-contract-related tasks. This includes repository management, compliance management, IP management, outreach programs, and more.
Getting an understanding of these auxiliary assignments will help you prepare your quarterly and annual budgets better.
#7 Legal spends per business unit
Analyzing legal spends per business unit allows you to keep track of who your major dependents are and helps you establish a business case for your team in front of the C-Suite. It also helps decision-makers understand your inherent value to the organization, while allowing you to understand and plan better by identifying your most frequent tasks/functions.
#8 Litigation Expenditure
Tracking what works (or does not) for your litigation tasks is a direct subset of the industry you operate in. And, therefore, while there is no silver spoon solution, there are a few factors to consider while trying to account for them:
- Threshold value: There will invariably be some matters with a greater monetary consequence than others. Establish a threshold value (e.g. $100,000) and track the number of litigation issues above that value
- Average cost per litigation: This is calculated as the net spend on litigation matters divided by the total number of litigation matters and should include everything from external counsel spends to settlement costs
- Percentage of wins
- Percentage of matters settled before trial
- Ease of interactions
This is a purely qualitative metric to have in your KPI plan for your team, but since an in-house team is continuously interacting with other non-legal members of the business, it is best to understand how comfortable your peers are working with your team members.
Periodic assessment of how difficult others find interacting with your team can uncover a wealth of information about your approachability and sometimes dictate the ease with which you can establish your team’s value amongst peers.
#9 Documentation index
A lot of times critical data whether in your contracts or other communication/documentation channels can slip through the cracks and cause larger repercussions.
Striving towards continuous documentation is therefore not only a bureaucratic compulsion but also a corporate necessity. Use a Likert scale to rank team members on the basis of their ability to comprehensively document or arrest data.
This also helps future-proof your team and aid knowledge transfers while onboarding new members.
#10 Net Promoter Score
This is especially crucial for legal teams in scale-up businesses. Unlike in larger conglomerates, in-house legal departments in startups communicate with most other business teams, are fairly exploratory in their role, and have multiple business objectives to take care of.
Understanding ease of communication and business favorability for such a team and its members is a good indicator of work efficiency and fluidity.
The best way to do that is to undertake a quarterly survey of all business/client-facing lawyers in your organization. Question your business team members on their ease of working with the legal team on the following parameters:
- Understanding of business goals
- Timely counseling and proactivity
- Flexibility to accommodate business goals
This should give you a fair idea not only about the ability of the legal team to work with others but also their understanding of business principles and their ability to contribute to growth.
Quantifying the Intangible Legal Work - 7 Things to Keep in Mind
Much of what a legal team does (e.g. risk management, deal negotiation, business consulting, and enablement) is not immediately measurable and is seen as transitory operations. These are, nonetheless, a few of the legal team’s core tasks and form the backbone for organizational growth.
Hence, to give the board a clearer perspective of the legal team’s bearings and to quantify legal workload better, the problem needs to be fragmented into each of its moving parts.
#1 Set a risk tolerance threshold
Across the industry, unmitigated risks can lead companies like Robinhood to a $70 million fine and skyrocketing legal costs ($1.4 million in 2019 to $105 million last year).
And yet, the zero-risk policy can compel businesses to move slowly, open up potential opportunities for competitors and incur opportunity losses to the business. In an interview with SpotDraft, Adam Glick, Head of Legal at Intercom, stressed on finding the right balance and determining acceptable risks to move the business ahead without major repercussions. In his words,
At the beginning of my career, practicing law was about reducing risk and exposure for my clients - without taking into consideration some of the practical implications of whether my guidance was helping my clients achieve their strategic objectives. As I look back, I would have been more practical in my advice and realize that there are times where risk is acceptable, and the true “practice” of law is evaluating the risk v/s the desired business outcome.
How to determine acceptable risks for your business?
Acceptable risks are defined in terms of impact and probability. Identifying acceptable risks is a far more practical approach to risk management/mitigation than the zero-risk policy.
- Impact of the risk: includes commercial, reputational, and process impacts
- Probability of risk occurrence: calculated both quantitatively and qualitatively. Quantitative assessment depends on legacy data and prior occurrences, while qualitative assessment varies with the confidence in the approach of the legal team or risk owner
Integrate risk-prioritization at your Key Result Area (KRA) setting stage and utilize this data to monitor where individual and team resources are being expended.
The best course of action for legal leaders is to build a rulebook of default positions and mandatory provisions. This helps minimize oversight during the contract negotiation/drafting process and decreases the chances of surprises in the negotiation process.
Playbooks/rulebooks help you identify your aggregate positions on each agreement and give you a better idea of business priorities while negotiating.
Evaluating contract risks against your threshold
Once you have set playbooks or identified default positions on your contracts, your best course of action is to identify the degree of deviation that was accepted on high-value contracts.
Identifying the key deviations/variations from your standard clauses and determining their frequency gives a fair idea about what particular issue keeps reappearing during your contract executions. Coupling this with the frequency of instances where deviations were accepted will give you a clearer understanding of what the organization’s risk threshold is.
This data can set the foundation of your risk threshold against which the following five key structures of every new contract can be evaluated.
- Scope of services
- Estimated turnaround time
- Pricing and payments
- Geographical risks
- Client and customer friendliness
A greater deal value for customers with the potential for upselling indicates a higher probability of risk-taking while contracts with lower deal value can be deprioritized.
Assign weightage basis the risks associated with each of these structures and plot on a 2x2 matrix, like the one below.
#2 Making information-tracking granular
A critical roadblock in the legal team’s performance measurement process is the ambit of qualitative work. Tasks like negotiation are not entirely depending on time. More often than not, they are dependent on counter-party responsiveness or approval cycles with other decision-makers in the business.
Deal turnaround times are, therefore, no longer indicative of the quality of negotiations. Latency by any other stakeholder can in turn impact the legal team’s performance numbers. The best way to bypass this problem is by arresting information at every stage of the contract negotiation process with the help of existing technology.
For example, SpotInsights by SpotDraft arrests time-related data at every instance of a contract stage and represents it pictographically for both template and non-template contracts.
This does not only paint a clearer picture of the legal team’s involvement in the process but also actively points out the usual bottlenecks, contract categories that consume most time and bandwidth, and opportunities to streamline operations in particular contract stages.
#3 Measuring interactions with legal
While a lot of time and effort is expended on reviewing contracts and assisting peer teams within the business, this is also data that remains largely underrepresented during performance assessments.
While interactions cannot typically be measured, the frequency of information exchange is a far more tenable metric to look at. It does two things:
- Determines the degree of legal intervention and support
- Gauges deal velocity across sales, HR, and other business teams
- Helps establish the legal team’s impact on business ops
A simple way to do this is to track the number of review requests received per month on a spreadsheet and set filters based on the contract types or status of the review.
However, if you want to bypass the manual effort and chances of errors or oversight, SpotInsights lets you track inbound review requests per period automatically and seamlessly . It can also break down each data point by the type of contract to highlight the areas for legal intervention.
#4 Constantly improving with data granularity
Tracking the exchange of information does not only improve visibility into the in-house legal team’s workload but also signals towards areas of growth.
For example, a high frequency of sales contract revisions can indicate that your standard templates should be revisited, as is usually the case for a growing business.
By shifting towards a data-first approach, you are constantly made aware of similar signals about potential improvements. When you have your data dashboard ready, it is also easy to negotiate for a better legal budget by pointing out charts and figures that highlight your growing needs.
For example, a microscopic insight across contract stages can help you identify average negotiation rounds across contract categories and prioritize contract types when you begin the next cycle of templatization.
#5 Tracking periodic improvements
It is not enough to measure performance data. Legal leaders are also constantly emphasizing periodic improvements.
This becomes increasingly difficult if you don’t have comparative figures historically. A common practice while setting up the in-house legal team is to document everything into a singular dashboard that can be referenced later to identify variance from the previous quarter’s performance.
#6 Focusing on business satisfaction
Perhaps the largest complaint from leaders is that the in-house legal team is viewed as a cost center and, therefore, does not have the necessary enablement. While we covered how to work towards building a value-based reputation in a previous blog, the system is only feasible as long as there is a continual process to gather and leverage feedback from teams that are reliant on in-house lawyers.
During annual presentations, the General Counsel would be tasked with presenting performance data, weigh them against yearly targets, and then build the case for their team and budget. The board would then respond to these stimuli with their approval (or otherwise).
However, as a team that supports virtually all business cycles within the company, data on business satisfaction should instead be processed within the team.
Legal needs to track customer satisfaction suo motu and leverage these insights to:
- Build better rapport with other teams
- Iron out communication inefficiencies, and, more importantly,
- Use these insights to exhibit value during board meetings
#7 Tracking Net Promoter Score (NPS) for the in-house legal team
Set NPS benchmarks/targets both at the team level and individual levels to understand the strengths and challenges across communication channels.
Ask clients (internal stakeholders and external partners) to rank individuals and the team based on:
- Ability to understand business challenges
- Simplicity of solution
- Turnaround time
- Ease of communication
Using NPS benchmarks can also help you build a robust culture and take the in-house legal team culturally closer to the business by imploring your team members to communicate in terms that your stakeholders find convenient.
Holistic guidelines for better performance assessment
A general business practice is to break the most complex of assignments down to their smallest solvable parts. Performance assessment is no different. While the cluster of operations together may look confusing and daunting, its individual parts are fairly simple if you manage to nail down the basics:
#1 Avoid paralysis through analysis
There are multiple metrics to evaluate your in-house legal team. And if you are in a scale-up organization, chances are your roles are more exploratory than in larger organizations.
It is not unnatural to fall through the rabbit hole of micromanagement in an attempt to be data-driven. Before you decide on what metrics to monitor, start by asking yourself, “why does this matter?”
It is best to let the metric go, if your answers aren’t any of the following:
- It is directly related to our annual business objectives
- It helps me identify what slows down our P1 or P2 projects
- It helps me build my case for a higher legal budget next quarter/year
- It helps me build a case for additional support
- It helps me predict and resolve high-impact business challenges
Excessive assessment can lead to administrative myopia. And while quantifying everything the team does is lucrative, performance measurement is still a chore that takes time and effort and is only as valuable to the business as it is relevant to them.
Focus on what matters most.
#2 Ensure your OKRs are business-relevant
The true value of a legal team, especially to your organization’s board, is in how it aids business growth. Directors appoint General Counsel because they trust your authority to establish the modus operandi for organizational success.
Hence, every OKR needs to have a foundational setting in the overall business objectives. Deviations confuse, and while you might be trying to balance your efforts and outcomes, business stakeholders might not understand the value you bring to them.
#3 Make feedback a two-way street
Post analysis, make it a point to communicate your achievements and also your pitfalls succinctly to your team. The basis of performance evaluation is to bolster accountability, and while conveying your assessment is important, it is equally important to hear from them on what is working and what isn’t from a workplace standpoint.
By engaging in two-way feedback, you breed confidence and trust as a team, and encourage innovation. Your team members will appreciate the honesty, and once they know they are heard, they will be as invested in the team’s improvement as their own.