Traditional methods of assessing external legal advisers’ performance are giving way to a more formalised approach. Legal Business examines the rise of the key performance indicator.
‘It goes back to the old business truism that you can only manage what you measure,’ says Eversheds head of international, Stephen Hopkins, who is responsible for the firm’s single-supplier client relationships, a number of which use a series of well-established key performance indicators (KPIs) to measure adviser performance.
‘As soon as you start to measure things then you can manage them and you can get better value, greater efficiency, or whatever it is you’re looking to achieve.’
Formalised systems for assessing the performance of external advisers, which go beyond the more traditional approach that can often rely more heavily on personal relationships tempered with the costs focus of procurement, are still rare, however, within in-house legal teams.
The consensus view among in-house counsel at major bluechip companies interviewed for this piece is that only a small proportion of legal teams are trying to use quantitative data outside a few narrow financial metrics with banks and major financial institutions leading the pack.
However, a significant minority of global institutions, especially in the energy sector, have moved to extend their adviser ‘dashboards’ as in-house teams move to show they have a wider set of tools to demonstrate they are getting performance and efficiency as well as value from their law firms.
For Aviva group general counsel (GC) and company secretary Kirsty Cooper, undertaking an extensive panel review two years ago seemed like the appropriate moment to begin monitoring the group’s firms more carefully. Her team now assesses on a quarterly basis the KPIs they expect chosen advisers to comply with, records metrics in terms of value-added services, and exercises due diligence on the strength of the firm’s business.
‘We have a standard letter of the terms of engagement which outline the KPIs that we expect [advisers] to comply with, and then we also give them a precedent of the report that we expect them to comply with on a quarterly basis. We have management meetings on a formal basis once a quarter where we go through set agendas, like value-adds or any issues we have with them,’ says Cooper.
‘We also have comprehensive reporting on a quarterly basis in terms of individual billing, so we have quite a comprehensive set of metrics we expect them to adhere to.’
Overseeing the process is an operations manager who ‘looks at budgeting and the overall administration for the function’. She also collates the overall feedback from the lawyers on what their experience with the firm has been during the quarter, says Cooper, who manages the group’s 250-strong legal team with an annual spend of around £70m.
‘When you have that kind of spend you really do have to have proper fiscal control and run it like a business with very good management information in terms of activity analysis: where you’re outsourcing, what kind of work you’re outsourcing and how much it’s costing.’
Fellow insurance giant AIG has set up a comparable system, this time with a new, independent Legal Operations Centre, which was created, according to GC for Europe, the Middle East and Africa, Chris Newby, ‘to obtain better metrics and key performance indicators so we really understand where we’re getting a good service’. Along with providing the business with a quarterly update, it will also provide centralised management of panel firms.
National Grid is adopting a similar tack after a new eight-year price control came into effect in April 2013, set by Ofgem because National Grid is a monopoly, which introduced a performance-based payment model. The group’s UK GC Karen Clayton has recently reorganised her team and is currently in the process of hiring a new head of business services dedicated to both internal and external performance delivery.
‘For us we have a new eight-year price control, which is absolutely fixed on delivering outputs; we’ve reshaped the UK legal team to better serve the business and as part of that we are a more integral part of the business team, and consequently are subject to the same tight metrics that the business is subject to,’ says group GC and company secretary Alison Kay.
‘We are going out with a far more in-depth review of our external panel, which will hopefully click into place in April 2015. The new head of legal business services in our UK team will be keeping a check on whatever arrangements we put in place with our firms, really challenging and reviewing them to ensure that we are holding our external advisers’ feet to the flame.
‘Metrics around the externals would include ensuring that they can justify the amount they are charging us at any one time; are they doing the work in the most efficient way and with the most efficient people available? So, for instance, it’s not being done by a partner when it could be done by a newly-qualified lawyer,’ says Kay.
But for Kay, monitoring the performance of the group’s internal lawyers is also high on the agenda. ‘[The arrangement] will include…ensuring that the in-house lawyers – and this is a real beef of mine, it’s not just the external firms – are making sure that they act efficiently. There will need to be metrics around whether we have provided the right information, in a timely manner. For example, if we have to go away to find deeds, is it taking two weeks or two hours?’
At Eversheds, handling a number of single-supplier deals has led to the establishment of detailed indicators, which can be transitioned between clients.
‘We have one client which has a particularly sophisticated retainer arrangement where they have KPIs they measure us on but we also have KPIs we measure their in-house team on. That means we’ve got a two-way dialogue to see what are the areas we could collectively improve to deliver better service to that client’s business,’ says Ian Cohn, senior manager, energy and natural resources, diversified materials at the firm.
Single-supplier deals with formal systems include Eversheds and Swiss security systems company Tyco International, which established its own monitoring model having ‘heat mapped’ its global business under current EMEA GC David Symonds, and former head Trevor Faure, now GC at EY, whose methodology regarding metrics and performance improvement is presented in his book The smarter legal model: more from less.
Others billed to have a similar set up are Berwin Leighton Paisner with Thames Water, and Pinsent Masons in its agreements with Balfour Beatty and E.ON.
What metrics to use?
‘If I were a GC, I would want to be looking at the responsiveness of the law firm, how it keeps the client updated, how it sticks to budget, and, at the end, I would like some “lessons learned” criteria,’ says head of propositions at DLA Piper, Stephen Allen, who established and led PwC’s legal market and advisory practice, advising and delivering change programmes for law firms and corporate legal functions.
As many GCs note, there is not a single, clearly defined set of metrics by which to measure counsel, and those specific to in-house teams are likely to vary depending upon a business’s specific strategies as well as work types.
A process of ‘demand mapping’ can help in-house counsel register ‘what demands are arriving out of your particular business that drive legal outcomes’, according to Allen.
However, from the responses of those interviewed, popular metrics may be split broadly into three different areas: key spend measurements, performance and value-added services. Some examples to consider are listed below:
Key spend measurements |
Performance |
Value adds |
| Average billing rate | Average response time | Number of secondees |
| Average number of billable hours | How often updated | Training offered |
| Average number of lawyers (organised by level, eg NQ, associate, partner etc) | Accuracy of contract | Level of client relationship management |
| Number of cases outsourced per month | Feasibility of advice | Level of project support |
| Budget met? | Satisfaction of clients within business | Level of knowledge management |
The benefits
The general consensus among those interviewed is that establishing a formalised system of KPIs has largely positive results from the point of view of both client and law firm.
‘One of the things we’ve seen from our perspective is that it’s made the relationship stronger on both sides, because we’ve got a clearer idea of problems when they arrive and a clear view as to a few areas where they particularly value us and score us,’ says Cohn.
Cooper agrees: ‘At first it felt a bit artificial but we’ve had the system for two years and I think the firms are used to reporting on this basis now. It’s bedding in well.
‘Now that the data’s building up, it’s really helpful… it gives us a consistent playing field to compare and contrast, and evaluate where we’re getting the best value, which means we can say to firms: “X or Y is giving us this and we would really like that from you too.”’
Once the metrics are collected, with a minimum of six to 12 months of data required, they can then be used to incentivise external counsel, says Hopkins. ‘Having the data is one thing but unless you do something with the data then you’re wasting your time collecting it.
‘With the International Air Transport Association, for which we provide legal services across 158 countries, we have a system whereby 10% of our fees are withheld against us achieving six criteria. Those vary between accuracy of legal costs, budget, responsiveness, outcome and so on and they score us every six months on that.
‘If we hit a level of expectation they have, which is subjective on their part, we get 10% back, if we’ve performed under par we get zero, and if we’ve exceeded expectations then we get up to a 10% bonus,’ adds Hopkins.
Financial assurance
For some, performance goes beyond service delivery to an examination of the business’ finances. ‘We look at overall financial strength and the strength of their professional indemnity insurance to give us comfort around the firms,’ says Aviva’s Cooper.
‘Dewey & LeBoeuf [the major US practice that collapsed in 2012] was a firm that we used and at the time, luckily for us, we didn’t have an awful lot of work with them, and the partners that did our work left before it finally hit the buffers, but it does make you very aware that things do happen and you don’t want to be exposed.’
For the insurance giant, examining advisers’ financials goes as far as looking at the terms of specific lawyers. ‘We also want to understand the levels and grades they pay, what are the hourly rates, what they’re expecting from their employees in terms of the number of billable hours, basically to make sure they’re not working their employees to death and to make sure we’re getting the right level for the right piece of work and they’re not over-egging it in terms of experience,’ explains Cooper.
It is an approach used by some other clients with one GC at a major property company going so far as to conduct a monthly audit of the finances of its advising law firms.
Stephen Allen, who in March took the newly-established role of head of propositions at DLA Piper in order to evaluate and redesign how the firm delivers its services to clients, agrees. ‘If you speak to RBS unofficially they will tell you that a large number of firms are in business recovery. The problem is that if you enter into a deal with a firm and then that firm falls over, you’re left with a whole bunch of stuff unfinished.’
But for other GCs, examining finances is not necessary. ‘It wouldn’t be the first thing I would look at,’ says Kay. ‘I’m more interested in the increase in diversity statistics of our external firms than in their accounts. That might be because we’ve traditionally used some of the larger London and regional firms.’
Robert Ivens, head of legal at Marks & Spencer, agrees: ‘If you had concerns over the viability of a law firm, you’re going to pick up hints and ripples way before anything goes badly wrong. I wouldn’t say it was a good use of time.’
Not enough hours
Time – or rather a lack of it – is one of the biggest hold-ups for GCs thinking of establishing a more formal assessment system, along with lack of relevant skills and resources.
‘It’s not easy to do: it requires time, money and thought,’ says Allen. ‘Most legal teams are a support function not business development and most businesses invest most of their money in their frontline services, so there’s a lack of investment. Most in-house teams are just constantly fire-fighting, so to find time to lift their head above the parapet and be able to look at this stuff is very difficult. And there is a lack of the skills required to be able to do these things. They are lawyers, they’re not trained to look at services and metrics.’
And while e-billing systems and company portals go part of the way to provide a platform upon which metrics may be recorded, finding a method for reporting on quality is still difficult, says Richard Lucas, chief executive of intellectual property (IP) business and technology at WhiteKnight Consulting, who recently completed a few projects on KPIs with regard to IP advisers.
‘In IP it’s very difficult… sadly often it comes down to grossly over-simplified metrics that really have very little meaning because the one area where it is really important is when it comes down to quality. Quality is the most difficult thing to measure and as big corporations move to fixed-fee selling, quality is usually the thing that is compromised,’ says Lucas.
However, for some, the kind of work and the level of work outsourced simply doesn’t warrant a formal system. Says James Birch, GC at Travelex: ‘We do an awful lot in-house and we don’t outsource much unless it falls into certain categories. So when we do outsource, we are quite on top of it and quite involved in it.
‘It is worth creating a KPI system and having equivalent sorts of tools when there is a lot of work being outsourced to outside counsel and they are looking at 20, 50, 100, 500 contracts a week or a month, and/or you’re not very close to it.’
The question for many in-house teams is where they fit in the spectrum. LB