The In-House Experience: Performance and Reward
The first in a series of titles focussing on the in-house legal team by Halebury’s Richard Dalby.
A modern in-house legal team has to be able to demonstrate the value of its contribution to the business. To do this the head of department must collect, collate and share appropriate information. The resulting intelligence will be a valuable management tool and, if used properly, will assist the integration of the legal function into the business as a whole. It can also be a key driver for recognising and rewarding the performance of individuals within the team.
Most people in business are aware that there is a need for a legal function. Litigation has to be managed, corporate and regulatory housekeeping carried out and the transactional work, which in one way or another generally produces the income stream of the business, has to be negotiated and documented.
Some think this legal work is a necessary but unfortunate consequence of doing business. Others recognise the importance and complexity of the work but few, if any, outside the legal team itself celebrate the valuable and positive contribution made to business success by a good in-house legal team.
Managers of legal teams can change this by measuring performance empirically and sharing the results across the business.
A successful department will also seek to retain and motivate the most able and hard-working team members. In order to do this, management require a proper awareness of what individuals are actually doing, what this contributes to the business as a whole and whether this is consistently making the most effective and efficient use of the talents of those individuals.
The first and most fundamental step in this process is to instigate the measurement and monitoring of the team’s performance. Each individual legal team will establish its own specific methods and criterion but there are a few common themes.
Measuring the Performance of the Team
A set of metrics need to be adopted and used to monitor and improve the performance of the team on an ongoing basis and to communicate that to the rest of the business. The appropriate measures for each legal team will vary depending on the size and nature of the business that employs them and on the individual attitudes to risk adopted by their senior management. In most cases performance needs to be linked to the specific business sector and to the turnover of that business.
In the first instance, and assuming a standing start, a thorough legal audit of the team and its function should be carried out. First and foremost this will need to identify the needs of the business and then how and what precisely the legal team is contributing to it. This should cover in some detail the legal and regulatory framework in which the business operates, current litigation (offensive and defensive) and the number and value of ongoing transactions or deals. These findings need to be incorporated into a report which aligns them with the strategic and financial aims of the business as a whole.
The findings of such an audit will reveal clear and appropriate metrics which can be used going forward as a management and a reporting tool. Some or all of the following will be appropriate for most businesses:
- Cost – It is important to establish the real cost of an in-house legal team. This will include all the direct and obvious costs such as the salaries of the in-house team, an allocation of central overhead where relevant and the fees of external advisers. I would also add to this the amounts won by the business in any successful litigation and take away the amounts of any claims awarded against it during the relevant period. This will give a total cost which then can be compared on a periodic basis both to budgeted spend and to the business turnover as a whole. This latter figure can be used as a year on year comparison but also to review what is the norm in the particular business sector and for similar sized businesses. Over time savings in external costs can, in theory at least, be used to bolster the in-house team or reward deserving individuals. Adjustments may need to be made from time to time for exceptional litigation matters but this can be accommodated on a case by case basis, (in this instance, literally).
- Efficiency – it is important to record the number of deals and other matters that are being carried out by the team as well as their value. A contract to sell something for £10,000 can take as much time to conclude as one for £1m. but should it? Is it in the best interests of the business and does it represent the best use of the time of the individual team member or members? It is also important that a team is retaining and learning from previous experience. Systems need to be in place to centralise knowledge, templates and learnings generally. These again will vary from business to business but are essential to demonstrate in a business appropriate way that the information is being captured and used so, for example a demonstration that 80% of a certain type of deal are being finalised on the legal team’s standard terms of business with minimal substantive variations would show both an efficient use of time and a safeguarding of the company’s position.
- Quality – it is difficult to gauge and to demonstrate the quality of legal input to transactional or litigious matters but over time it should be possible to agree a matrix comparing and cross referring monetary value/complexity/strength of opposition/strategic value to business and time spent of legal team member. It may not be practical to do this for every deal or matter but could be used on a sample basis or, simply, for the more substantial of them. Setting up a process like this is not difficult but is relatively time-consuming and needs to be established sensibly to be both practical and useful. This will require detailed and specific planning but is important if a manager wants to monitor effectiveness and to continue to improve performance as well as being able to demonstrate to colleagues how the business gains financially, yet remains protected, by a high quality legal team; and
- Client Satisfaction – it is important to ascertain the criterion for success in any particular business and then to ask the clients to give feedback accordingly. In monitoring the performance of a legal team it is not enough to simply record the successful and timely completion of deals or litigation. While these are important in themselves it is also of value to know that those matters were completed with the long term interests of the business in mind so that, for example, the appropriate rights were obtained for the full length of term and that protective boilerplate wording in contracts were not compromised unnecessarily. It is therefore prudent to identify those individuals with a longer term view of the company’s success, usually the senior management team, to provide optimum feedback rather than every deal maker across the business whose interests may be more short term ( and who might be happy with the performance of the legal team as long as their deal’s financial contribution was recognised promptly). Once implemented the feedback process needs to be repeated on a regular basis. It is also important to continue to ask the same questions so that like performance can be compared with like.
Measuring and Rewarding the Performance of the Individual
Lawyers are not necessarily, or even perhaps naturally, good managers and in a busy environment it’s all too easy to overlook the value of time spent in reviewing the work of members of the team. All too often personal assessments are carried out infrequently and valuations of individuals put together based on little more than perceived hours in the office, proportion of that time spent with head down and general reputation and hearsay. In order to improve this, and to help with the collection of the information for the above team performance measurement, some or all of the following could be useful:
- Review – Managers should commit to regular one on one catch-ups as well as team meetings. This should be seen as an opportunity to let members of the team discuss the positive aspects of what they have done as opposed to what they have not. It’s important to encourage open discussions about successes as much as honest appraisal of any failings. This would also be an opportunity to review performance against targets.
- Measure – Know the volume and value of the deals each member of the team is working on. Left to their own devices individuals will develop their own ways of working, avoiding things they are uncomfortable with and seeking out their more comfortable routes to completion of tasks. If these are good practices, in general they should be shared and, if not, they need to be identified and monitored. A manager can only keep on top of this if he/she has adequate information about the matters being dealt with and is across at least some of the detail of it.
- Reward – Establish and agree a target matrix comparing and cross referring some or all of the following; monetary value/complexity/difficulty of opposition/strategic value to business and time spent by the legal team member. If done well this can form the basis of, or at least be part of, a bonus plan. It is something that can be targeted and progress towards achievement reviewed on a regular basis.
Historically it has not been part of the legal team’s remit to publish the details of their inner workings. In some ways lawyers have been content to retain their mystery and, perhaps, the rest of the business happy to leave them to it. It is my view that by measuring and demonstrating their input and increasing their involvement in the business generally in-house lawyers can make business life more interesting and rewarding for themselves and the business.
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