KPIs for the Legal Department

Author: Richard Stock - ACLA Journal, Summer 2011

Over the past three months, I have had conversations with the leadership of a 10-lawyer legal department about management processes. What has become abundantly clear to me is that department performance is not measured appropriately. Lawyers work long and hard so they can respond quickly to shifting priorities. They plough through, despite unreasonable deadlines and workloads that are usually at the brink.

For most legal departments, this modus operandi is the rule, not the exception, and general counsel may believe that their teams should respond to everything that is thrown at them. It is not the best way to manage expectations, to deploy legal resources, and to ensure that corporate counsel are employed to greatest effect. Far from it.

KPI Architecture

Too few general counsel know how to use key performance indicators (KPIs) effectively. However, good methodologies exist for categorizing and implementing KPIs. One architecture that I have supported for the past 20 years is called the “balanced scorecard” (see www.bscol.com). This approach focuses on four KPI categories: clients, business-process improvement, people and financial.

I have always been in favour of emphasizing the first scorecard category, “clients,” but the term carries a different definition with the legal department community. Corporate lawyers tend to refer to internal primary users as their “clients,” distinguishing these from the “customers” of the company. A progressive scorecard for a legal department will have some KPIs that target internal clients and some that target external customers.

The second performance category is “business-process improvement.” KPIs for this category are intended to address the operations of the department, with initiatives dealing with accessibility and turnaround. Indicators related to new technologies, precedent systems, and protocols for working with external counsel can also be found here.

The third category is people. Its KPIs are often subdivided in two: people working within the department and people working elsewhere in the company. Education and training of business units will be found here as initiatives. So will the acquisition of new competencies for counsel. These can include leadership skills, financial and business competencies, project management and even a new legal specialization.

The fourth category is financial, and no legal department can have a balanced scorecard without it. The focus in recent years has been on containing the costs of external counsel - always a challenge given the variability of business activity and the unpredictability of litigation.

It makes sense to include at least two KPIs in the financial category. The first measures reductions in the overall number of hours worked by external counsel for “regular” matters — those matters that can be anticipated. The second KPI relates to unit cost, or the average hourly rate. This calls for teamwork within firms, promotes volume discounts and, where appropriate, alternative fee arrangements.

So here are a few examples of KPIs within each category. In the client category, a KPI for “strategic impact” leads off, with initiatives tied to a corporate strategic priority. In support of this, an annual client (user) survey can measure success against overall results achieved for the year. The business-process-improvement KPIs, meanwhile, can measure success against initiatives for improving things like accountability and turnaround.

For the people category, many companies measure the engagement of their employees through questionnaires. They understand that engaged employees are more productive, that they stay longer, and that they recommend others to join the company.

And finally, financial KPIs and initiatives to reduce total legal spend and unit costs by 10 per cent each year are common. Targets are much more difficult to achieve after three consecutive years, but the market is tough and resources are scarce for the foreseeable future.

What gets measured gets done. KPIs and the associated initiatives and targets help drive performance. They are a critical piece of the general counsel’s management arsenal.