Performance Management

Author: Richard G. Stock - Lexpert, Vol 11, No 1 (October 2009)

This column is one of several summaries of findings from a survey of 11 large, public law departments commissioned by Sean McMaster, Executive Vice-President, Corporate and General Counsel for TransCanada Pipelines.

General Counsel were asked whether their legal departments had participated in 360° performance management processes in the last three years. Five said that the company did not use the process, three said some of the lawyers, but not the entire department, participate, and two said the entire department participates and is satisfied with the benefits. Several General Counsel added that opinion surveys and other reviews are used as well to manage performance.

None of the companies (except one) conducts regular and formal user satisfaction surveys or at least participates in one that is company-wide. In most cases, these are informal surveys or interviews of primary users. Sometimes, a review is conducted as a post-mortem exercise at the conclusion of a major project. General Counsel are usually in formal contact with primary users as part of the annual planning and budgeting cycle.

Only four of the companies said that their primary law firms conduct regular and formal satisfaction surveys of their services. The benefits range from addressing issues, to "clearing the air", to creating a platform on which to build for the next year. One CLO said the reviews are important in maintaining alignment for expectations of service levels, costs, individual lawyer assignments and succession planning. Others added that clarity of instructions to the firms and processes to manage conflicts are reviewed. Several other companies explained that discussions are held with firms on an ad-hoc basis.

Corporate law departments reported a wide range of key performance indicators (KPIs). Naturally, most reported an indicator for meeting financial expense objectives (chargebacks, cost per billed hour, litigation costs, total legal spend). However, effectiveness indicators were much in evidence as well (imaginative solutions, contribution to business unit success, results, timeliness of legal advice and performance on key objectives). There appear to be no commonly-shared KPIs for law departments participating in this survey.

As part of an effort to learn the extent to which law departments are positioned as captive law firms, companies were asked about chargebacks and cost allocation to business units. Only three of the 11 law departments reported that no chargebacks / allocation systems were in place. In most instances, no charge is made to corporate departments like Finance, HR, IT and for corporate governance and compliance. Those departments charging to business units typically maintain timekeeping or activity tracking systems for their lawyers. CLOs did not report different chargeback or expense allocation practices for litigation compared to transactional work.

Professional development of lawyers is an integral part of performance management since law departments are part of a company's intellectual capital. Ten of the 11 departments convene their lawyers at least once a year to discuss legal developments, as well as priorities and workloads within the department. In some instances, subject matter experts and law firm partners attend as speakers. Examples include legal compliance, reputation management, and cross-border issues. One department scheduled working sessions to set its annual priorities immediately after the corporate annual business plan is released. In another case, a senior vice-president from one of the business units attends. One department said that its focus every two years was on a combination of collaboration, teamwork, innovation and soft skills.

Six CLOs said no formal programs were in place to " fast track " the development of the best lawyers. Five others described individuals with advancement potential. A range of resources are used: peer review programs, short and long-term incentive awards, leadership training, and customized development programs. None reported formal rotation policies to business units.

The majority of law departments carry out benchmarking surveys to learn more of best practices and financial performance. Some studies focus on companies in the same industry sector while others survey companies across sectors. Several CLOs referred to the usefulness of the membership of the Association of Canadian General Counsel as sources of on-going information and best practices. Others mentioned the General Counsel Roundtable. Three areas were identified as the best way to improve the performance of the law departments in the short term. By far, cost control and expense reduction were named as the number one selection. Second was building strong relationships between the lawyers and internal users, and the third was in-sourcing legal work which would otherwise be referred to law firms.

Six CLOs reported that formal multi-year agreements were in place with their primary law firms. Four had no agreements and one uses only billing guidelines. All departments reported that most law firm billings were still hourly-based. Contingency and success fees are used but only rarely. Two reported non-hourly billings for routine, large volume activity - in one case, representing 35 % of total fees from firms, in the other case, 20 %.

Nine of the 11 CLOs reported that they were experiencing more pressure to reduce external legal fees than in the previous year. Internal lawyers are now more actively engaged in managing external work. Certain services have been unbundled and referred to less expensive firms. In other cases, complex legal work is converged with even fewer firms in exchange for very aggressive discounts. One company relies on matter budgeting and on block fees. Another is in-sourcing more work using existing resources.

Performance in legal department management takes many forms and is applicable at the corporate, department and individual levels. Survey participants continue to innovate in this part of the management portfolio.

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