Rethinking Performance Measurement for In-House Legal Teams

For General Counsels in growing businesses, monitoring in-house legal performance is not just a function to determine tasks and efficiency, but also leverage during annual budget discussions, a potent feedback funnel, and an opportunity to revisit operational strategies. And yet, a task as critical as this has largely remained a sandbox function for a set of reasons.

Components of the in-house legal operating model - Deloitte (2018)

First – there is no universal metric to cover the entire ambit of an in-house counsel’s operations. Second – a considerable volume of the legal tasks is immeasurable e.g. negotiating deals, risk management. Third – legal is mostly viewed as an assistive function, which means performance measurement is conflated 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.

Going from tracking to enabling

3-time General Counsel and in-house thought leader, Sterling Miller, believes in setting KPIs as not just a yardstick for performance, but as an opportunity to -

- Collect feedback on operations
- Integrate business goals within team-level objectives
- Quantify, exhibit value, and market the legal team

Metrics should be set on an individual and team level to substantively cover and express the values across both the measurable and immeasurable tasks undertaken by the legal department including liaising, risk management, and counseling.

At the same time, since success in the in-house industry is determined by helping the business meet its goals, each in-house legal KPI must inherently tie back to the business’ overall OKRs.

 

Since the focus is on delivering business value to the business, it is best to use metrics that speak in terms the business will easily understand while projecting the ROI on legal investments efficiently.

We compiled a list of possible in-house legal metrics that you can use to monitor performance on individual and team levels.

 

But before defining your KPIs, it is important to have a fair idea of how to deploy, track, and have your legal team imbibe them efficiently. This requires challenging old and normative ways of looking at tasks and objectives and finding better, more holistic ways of acquiring data around your operations.

For example – tracking the legal team’s negotiation success in terms of executed deals discounts their impact in protecting the business from an unfavorable deal. Likewise, treating risk management as a firefighting function can limit the scope of intervention the in-house legal team provides throughout the business cycle.

Here, we will discuss the common issues and pitfalls, and talk about the possible ways performance assessment in legal seem less like a chore while making it more relevant to the business –

Quantify the Intangible

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. They, nonetheless, are 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 –

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.

  1. Impact of the risk - this includes commercial, reputational, and process impacts.
  2. Probability of risk occurrence - this is 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
 

It is also a good idea to set risk assessment targets in your performance evaluation process.

This helps -
- Enrich risk-assessment data
- Provide realistic projections on risk management workload

 

 

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 minimizes the chances of surprises in the negotiation process.

 

To help you get started, we created this Free to Use NDA Playbook with –

  1. An exhaustive list of key clauses that need to be reviewed
  2. Classification between negotiation position as a recipient or discloser of confidential information
  3. Simple language explanation of key clauses so that business teams can understand the relevance and significance of the clause
  4. Standard and fall back positions for each clause
  5. Recommended approval workflows for deviations
  6. Sample standard clauses for easy copy and pasting

The playbook template can also be customized to work with any other contract type you need.

 

 

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 5 key structures of every new contract can be evaluated.

1. Scope of services
2. Estimated turnaround time
3. Pricing and payments
4. Geographical risks
5. 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-

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 counterparty 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, the contract categories that consume most time and bandwidth, opportunities to streamline operations in particular contract stages.

Measure interactions

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 –

a) Determines the degree of legal intervention and support
b) Gauges deal velocity across sales, HR, and other business teams
c) 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 from the platform itself. It can also break down each data point by - type of contract to highlight the areas for legal intervention.

Constant improvements 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 help prioritize contract types while beginning the next cycle of templatization.

Track 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.

Focus 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

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 –

- Responsiveness
- 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

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 –

Avoid paralysis through analysis

There are multiple metrics to evaluate your in-house legal team. And if you are in a scaleup 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 with asking yourself - “why does this matter?

If your answers aren’t any of the following, it is best to let the metric go -

- 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.

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.

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 will be as invested in the team’s improvement as their own.