One of my favorite topics during meetings and presentations with General Counsel is measuring the value of legal departments. In my experience, nearly everybody in a corporation recognizes that the legal department adds value, but very few have concrete ideas regarding the right metrics to quantify that value.
The default result has all the metrics focused on cost, thus perpetuating the overly-simplified view of the legal department as a cost center, rather than a value-adding business partner. This is understandable to a degree – how does one think about quantifying value for an entity with no revenue stream? It’s difficult for most P&L focused corporations to think about measurement creatively, but I would argue there are many ways to assess value besides revenue and expense. And it’s up to the leaders of the legal department to measure themselves and communicate that value to corporate stakeholders.
Lately I’ve been thinking of a parallel between legal departments and institutions of higher learning. Any parent facing tuition bills for their teenagers’ upcoming college years can see the analogy. College costs a lot of money. How do you decide when the payoff is worth the investment? Would the results be just as good from a less expensive school?
Now consider the perception of the legal department. Finance and procurement teams scrutinize the big dollar amounts spent by their legal teams in the same way. Is all that expense worth the investment? Would the results be just as good from a mid-sized, regional firm with lower prices?
There’s also a strong parallel idealistically. Both colleges and legal departments have professionals leading them who are intellectuals. These are academically-oriented individuals who don’t see the world quantitatively – they are in noble professions to teach and make the world a better place. Another interesting similarity is that there is a fair amount of tradition and history that plays into the cache of a white-glove law firm and of an ivy-league school.
Interestingly, there has been a concerted effort to measure the value of college institutions, yet virtually no effort to measure the value of the legal department. Just do a Google search on “best college value” and you’ll find links to detailed reports and assessments from Kiplinger, U.S. News & World Report, The Princeton Review, and a host of others. So what are they measuring? Kiplinger’s headlines state that these colleges deliver “the most bang for the buck.”
I don’t pretend to know all the metrics these organizations use to measure institutional value, or the algorithms that aggregate the data to one number – the ranking. But I know they are quantitatively rating colleges. Based on what is available publicly, these are some of the metrics:
- Student/faculty ratios
- SAT/ACT scores
- Freshman retention and graduation rates
- Average salary levels for graduates
- Percentage studying abroad
- Students receiving scholarships and need-based grants
- Average discount from stated tuition
Look at this list more carefully. Don’t the last three sound familiar? How many legal departments measure “How much does my legal work cost and how much of a discount do I get?” What’s different is that most legal departments don’t have quantifiable metrics to measure the ways they make clients happy, which is what the first five metrics on the list do relative to colleges.
Isn’t it time for legal departments to have a defined means to communicate their value to corporate stakeholders? In our Strategic Consulting group at CounselLink, we think there is a better way to measure value than tracking costs alone. Corporate legal departments should be building out these sorts of metrics, and we can help:
- Win rates
- Loss control
- Revenue acceleration
- Customer satisfaction
Keeping score is important, but it’s critical to have a balanced set of metrics that contribute to that score. The calculations may not be profit and loss, but the aggregation of them lets legal departments showcase their value to shareholders, and that’s a lot more satisfying than talking about cost.
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