How does the legal function of a business demonstrate that its activities and, sometimes not insignificant, expenditure deliver value?
Often, the response to that is a somewhat detailed and defensive quantitative report setting out what the legal function does, how much it costs and the results it produces. So, for example, we end up with reports detailing the composition of the legal function; internal and external spend; how many transactions the team has handled; the number and value of contracts drafted; reduction in external legal costs since the last such report etc.
To me, this is looking through the wrong end of the telescope. We need to ask "What does the business need?; What does "value" mean to the business and its stakeholders"; and, is that being delivered?
In our experience, "value" means different things to different people (for example, see the diagram below). What is important to the Chief Executive may be different what is important to the Chief Financial Officer. Similarly, key customers and other external stakeholders, including regulators, are likely to have different expectations to those inside the business. GCs who are focussed on delivering value will talk to these stakeholders to find out what is important to them and what they need from the legal function.
It's also important to look beyond the more quantifiable and financial measurements of value. Of course, share price, legal spend, value of transactions, damages avoided etc are important. However, there are other areas of qualitative value such as reputation and brand protection, risk management, improving customer service quality (eg by simplifying contracts), response times, improving relationships with regulators etc. Such factors can't always be measured or quantified but they are areas where the legal function can have an impact and provide value to the business.
Having focussed on what the business and its stakeholders need, the legal function can then consider what it is doing and the extent to which it delivers against these value drivers. Depending on the size and scale of the business and its legal function, this may involve a certain amount of data gathering and analysis. There is activity tracking and analytics software which can be used to provide a more detailed picture. Time recording can also be very helpful.
Of course, there is a risk in carrying out an analysis of this sort. It may produce some uncomfortable results. It will identify the activities which are delivering value. It may also show that the legal function is spending time and resources on activities which are not adding significant value to the business. I would suggest that this information, and the opportunities for improvement it presents, is invaluable and even essential for modern GCs in aligning the legal function with the business. It will help to set strategic priorities, inform resourcing and outsourcing strategies and help determine the most effective structure of the legal function. It also provides an ongoing framework within which GCs can report on value delivered to the business.
So the answer to the question "how does legal demonstrate that it's activities deliver value" involves turning the question around:
- What does value mean to the business and its stakeholders?
- What is the legal function actually doing?
- Are these activities delivering that value?
The Client Development Centre has been helping in-house lawyers and legal teams to deliver value to our clients' businesses. Our work is supported and informed by our "Value Dynamics" research and by our continual dialogue with leading GCs. We regularly advise our clients on a wide range of issues including the structure of their legal function, value reporting, outsourcing strategies and managed legal services and have a range of analytic and strategic tools designed to help in-house lawyers deliver maximum value.