What value do in-house lawyers produce?

Nine propositions should provoke discussion about what value means in a corporate legal department.
BY REES W. MORRISON
Amid all the commotion about value generated by outside lawyers, what about value generated by inhouse lawyers? Demonstrating value created or enabled by the inside legal team is one of a general counsels hardest challenges. For a cost center, its an uphill fight to become recognized as a value center. Some of the perplexity of inside value swirls around definitions, scope, measurement and explanation. Recognizing that complexity, this column tries to make progress toward better understanding by means of nine propositions. These propositions seek to clarify and advance what should be an ongoing, vital discussion:How can we show that inside lawyers produce significant value above their cost? 1. Value is a function of three deliverables: fitness for purpose, timeliness and cost. If what the inside lawyer does achieves what the client wants, thats fitness for purpose. Some people believe quality to be an inherent part of value, but a level of elegance, which is the essence of quality, is actually only nice, not necessary. If the inside lawyer gets the job done, thats good enough. Timeliness reminds us that justice delayed is justice denied. Likewise, getting the contract, statutory interpretation or negotiation done late reduces value. Perfection delayed too long wont be perceived as adding appropriate value. Cost, the third element of the definition, has to do with the corporate resources consumed, such as inhouse lawyers at $200 an hour fully loaded, outside lawyers who are even more expensive and anyone else who helps make something legal happen. Advice given, contracts drafted, pleadingsfiled or documents reviewed that accomplish the clients purpose, when done on the clients schedule withresources that executives accept as appropriate, create value. Further, those three components of value contribute to it in that order of priority, with fitness dominating. Without fitness (achieving the clients goal), promptness and frugality dont matter. Fit but slow crimps value. And timely fitness for a fortune missesthe value mark. 2. Secondary contributions to value are not essential. Such contributions created by in-house lawyers are many: public speaking, logical thinking, clear writing, institutional knowledge, a sense of humor, cultural sensitivity, multiple languagesa long list. But such skills and attributes are secondary contributors to value because none of them are absolutely necessary. Value doesnt depend on any particular set of characteristics applied to a problem. While useful and appreciated, neither they nor the systems and processes of a law department, in themselves, constitute value. They are means, sometimes, to an end that is valued. 3. Value from an in-house lawyer has no absolute meaning; it emerges only relatively, at a given time, and within a specific context. Every matterdefined as a legal task handled by an in-house lawyerhas adifferent, indeed fluctuating, bundle of benefits to the client. Whatever the value is, it takes on reality only relative to some other provider of the service and their cost as well as to the outcome. No one can say in the abstract that a particular debenture is valuable. For a given company at a certain time, with the debt conditions as they are and the terms as negotiated, at the cost paid, it has a payoff. Every step a business executive takes creates advantages and disadvantages, and the netting out of the twochanges with conditions. Legal advice or documentation may play a part but rarely the leading role. Long after the debenture is signed, or any legal service is rendered, its value continues to be recalibrated aspriorities and conditions change. 4. Value presupposes outcomes, although they are often not known or assessable for years or at all. When the contract is signed or the stock issued, that tangible contribution of lawyers is easier to

appreciate. Much that is done by in-house lawyers, however, never surfaces. Many patents produce no revenue, and its hard to tell how they deter other companies. Who can state today whether an indemnification clause will pay off later, or with what dollars recovered or paid? Even if something never happens, there can still have been value created by the legal work that contributed. Clever sublease rights have potential value even if never actualized. 5. The potential ambit of value produced by a law department spreads broadly. Foremost, after enabling the business to make money, a departments value covers legal risks lessened. Risks mitigated make up a significant portion of value generated by inside lawyers. Unfortunately, future risks are uncountable and often unknowable; even what constitutes a legal risk remains blurry. Part of the advantage of in-house counsel is a better feel than outside counsel for which risks and what levels of risks a company can acceptably run. Aside from risk, advocates of law departments as profit centers push for revenue generated by a law department as part of its value. Shareholder benefit is an even broader measure of the value of in-house counsel. Corporate social responsibility and ethical behavior stretch the boundary even wider. The breadth, amorphousness and conflicts among these domains of corporate activityprofit, risk, earnings per share, corporate citizenship and moralitymake it difficult to determine how to judge the legal departments role. Asked differently:Against which of these yardsticks should we measure legal value delivered? 6. Clients greatly shape the value they receivefrom their legal teams. Indeed, for them toobtain the best return on their legal investment,clients need to do their part to helplaw departments maximize value. It is possibleand desirable to train clients to get themost value from their legal team. When tocall on a lawyer, what to ask the lawyer todo and how much information to provideare all part of this interplay. For example,quasi-legal tasks are those that a lawyercan do, perhaps very well even, but theyare not the highest and best use of thelawyers time and skills. Think of projectmanagement. Clients can spur or hobbletheir lawyer colleagues. 7. To measure and track value as perceivedby clients, collect client satisfaction scores sincethey tell a law department the most. If thequestions are sound, the sample representativeand the analysis thoughtful,numeric scores from clients hold the mostweight. You can argue all you want thatnonlawyers cant assess the quality of legalwork, but you lose: Client perception is thereality and arbitrator. As for broader manifestationsof value, such as share price orgood deeds done for society, no plausible measurements exist for law departments. 8. Three other ways exist today to quantifyvalue enabled by inside lawyers: comparativeexternal benchmark metrics, internal productivityfigures and continued existence andgrowth of a law department. Comparativeexternal benchmark metrics show valueproduced relative to ones peers. Assuminga companys competitors face legal risksand legal needs much like its own, if thelaw departments staffing and spendingmetrics are below the median for theindustry and the company is doing equallywell financially, the law departmentsvalue is in the green. Internal productivityfigures that rise year over year support aclaim that a greater percentage of matterswere handled inside, probably withfewer resources consumed. A balancedscorecard, sometimes known as a dashboard,helps to capture and convey this kind of internal data on value. Finally, thecontinued existence and growth of a lawdepartment suggests that the companysexecutives appreciate the contributionof the legal team. Value is acknowledged through continued headcount and budget. 9. Much of what lawyers practicing incompanies deliver has only modest value,depending on ones view of value. Gardenvarietythings that need to be done, suchas filing Uniform Commercial Code statements,answering dime-a-dozen questions,preparing unanimous consents orchecking ads have small consequencesand worth (usually), yet they too shouldbe done with competence, alacrity andefficiency. Time-tested advice, such as ona routine termination or a slightly customizednondisclosure agreement, createsrun-of-the-mill outcomes, certainlyas compared to major decisions on a billiondollar acquisition. The everyday partof work is assumed and overlooked untilsomething goes wrong. Value does notmean delivering what is expected. Goingabove and beyond expectations moves

into the realm of value. Most lawyers in-house do acceptablebut not stellar work and seek a flow ofinteresting work but not a steady dietof legal novelty and rocket science.Opportunities for significant valueenhancement come rarely. Much of thetalk about concentration on mission-criticalwork, therefore, is overstated. There is reason to believe that, withregard to the value delivered by lawyerswho work for companies, the trend issteady and up. As these nine propositionssuggest, some parts of that we cannot talkabout without resort to platitudes and theineffable; but large parts of value we cantease out and clarify. Withal, it is valuableto think hard about how law departmentsshould define, measure, improveand communicate their value. Rees W. Morrison, for more than twodecades a management adviser to generalcounsel, founded General Counsel Metrics,www.reesmorrison.com. GCM offers the largestbenchmark report of law departmentsever done, likely exceeding 1,000 legal departmentsin 2011.