Legal departments want more value from their law firms and are not seeing it happen. To address this, in-house legal teams tend to evaluate mostly financial and operational performance through their matter management tools. But this leaves a lot of key information for decision-making still on the table. As a stand-alone product, matter management tools cannot drive lasting, effective change because they do not truly measure quality or value.

According to the “2018 State of Corporate Law Departments” white paper found on Legal Executive Institute, 66 percent of legal departments consider it a priority to allocate more work to firms that proactively show their value. Since “value” is fundamental to the distribution of corporate legal expenditures to law firms, legal departments need a next-level approach to managing their law firms. Measuring the subjective areas of law firm value will provide the foundation for long-term, effective change in overall performance.

How Innovative GCs are Using Subjective Performance Data to Drive Effective Change

Innovative legal leaders are implementing comprehensive processes to continuously evaluate and manage the subjective areas of law firm performance. What gets measured gets improved, and leading in-house counsel are measuring the work of outside counsel beyond what's contained within the details of an invoice. Here's what the more progressive legal business leaders are doing.

1. Quantify the critical, subjective areas of performance.

Effective measurement requires a combination of thoughtfully constructed, unambiguous metrics and easy, consistent understanding of the scoring scales. This ensures that the data collected provides meaningful and actionable insights.

“The evaluation metrics provided us with specific actionable output that allowed us to provide clear feedback to our outside partners,” states Bryan Hudson, GC of Atria Senior Living. Metrics must address the fuzzier areas of value such as service, understanding of the client's business, appropriateness of the work effort, efficient resource management and the results achieved. Without this kind of information there is no context for the cost information provided by matter management and e-billing.

2. Provide transparency to align inside and outside counsel.

Innovative GCs share the subjective areas of performance that are going to be measured with their outside counsel. By doing so, they have defined how the corporation sees value. By sharing the metrics these GCs have already set the expectations and communicated where they expect their partners to focus.

It's one thing to measure your outside law firms; it's another to actually share the results with them. A recent poll of outside lawyers taken at the Corporate Legal Operations Consortium's 2018 institute revealed that “more than half responded that they either had a poor idea of the metrics in-house teams were collecting on them or no idea at all.”

Being completely transparent with the results of evaluations is where real transformation begins. Sylvia Chen, patent counsel and head of patent operations at Google, has developed a comprehensive homegrown approach to measurement and management of law firm performance for the firms that partner with her team. Sharing the results in advance of sitting down prepares Google's outside patent counsel to listen and learn. “We sent scores to the law firms one month in advance of our discussion to give them time to digest the information and prepare their thoughts and ideas before we got together,” Chen explains.

3. Use benchmarking to create competition.

Lawyers are competitive by nature. Industry leaders who want to incentivize their outside counsel to do better work compare the results of their evaluations across firms on the company's panel.

“The firms are given their identity codes so they can look at their various rankings in relation to other firms. While the firms only know of their respective performance, they can see their performance compared to other firms anonymously,” says Chen. “The most positive reactions were from firms that really wanted to know what we thought, were eager to improve and were appreciative of the insight. One firm was grateful to have their results to share internally, enabling them to make a stronger case to their colleagues and to the firm's leadership.”

With side-by-side comparisons, outside counsel can immediately see how they stack up against their peers and where they are falling behind.

4. Engage in structured dialogue.

The fourth factor is the true key to success. Structured dialogue brings in-house and outside counsel together to identify opportunities for improved performance based on past performance, and identifies specific areas and actions for improvement. The real purpose of evaluation is improvement. There can be no improvement if the results are not discussed and used as the basis for guiding targeted changes.

Mark Smolik, general counsel and chief compliance officer, DHL Supply Chains Americas, shared the results of his team's performance evaluations, which combine cost and operational metrics with a comprehensive assessment of the subjective elements of performance, with his outside counsel and found that quantifying performance set the stage for a productive conversation.

“We shared individual results with each firm, giving them ample time before our face-to-face sit-down with them to digest the information. Doing so set the stage for discussion on how the firm can assist our team in further enhancing the value delivered by the legal department,” says Smolik.

Having ongoing structured dialogue ensures that law firms know where they stand and gives them what they need to have internal conversations about improving the value they bring to clients and to their firm. “I know it made me feel more like I am in tune with their goals. The whole team feels that we know their expectations better,” says Michelle Knight who has been the interface for Google on implementing its outside counsel guidelines within her firm: Young Basile Hanlon & MacFarlane of Troy, Michigan. “There is nothing more important to us than making sure the client is happy and the client is getting the service that they want and the output they want. Knowing what the expectations are makes it easier for us to do that. The more a client is clear on what they want, the more likely you will give them what they want,” says Knight.

5. Track and share improvement to demonstrate value.

Many corporate legal teams find it difficult to demonstrate their value proposition to their internal business partners and the CFO and CEO. So much of what is provided by outside law firms, which often consumes the majority of legal expenses, is intangible and difficult to explain. By effectively measuring, managing and improving the value provided by outside counsel and by reporting simple visual summaries of the results, corporate legal teams can better communicate the value delivered and demonstrate effective stewardship of corporate resources.

Innovative legal leaders, like Hudson, Smolik, Chen and Knight, are measuring beyond the level of just matter management. They are measuring subjective performance data, and they are sharing those results with their law firms to drive continuous, effective change for their legal department.

James Beckett is the CEO of Qualmet (www.qualmetlegal.com), a cloud-based platform used by law departments to quickly and easily measure the value of external legal service providers. You can check out the company's Value Drivers Series Blog to hear more from the experts quoted in this article.