As a general counsel you probably think you contribute significant value to your business. But how do you know? How does your team know? How does your chief executive know? And how does it affect your role?
Over the past two years, London-based commercial law firm Nabarro has surveyed more than 200 general counsel and other senior in-house lawyers on the issue of value – as well as discussing the subject with many others. The firm’s partners wanted to understand how GCs measure and express the value of their work to their companies, and how far that value determines their role and status.
An earlier, 2010 survey entitled ‘From in-house lawyer to business counsel’, found that a minority of GCs believed they had already made the transition from being just an in-house lawyer to being business counsel. They had proved their commercial worth and become trusted strategic advisors. But the researchers found many more were struggling to do this.

Value pyramid

Using feedback from GCs, Nabarro developed the ‘value pyramid’, showing the ascending worth of work that a GC – and others in the in-house legal team – can undertake. The lowest level is simply day-to-day legal work. At the highest come areas of activity such as strategic planning, change management and board influence.
GCs that get to the top of the pyramid are in a position to expand their careers in other directions. Some may even move into ‘C-level positions’, namely top boardroom slots. One recent example is Tom Kilroy at Misys, who made headlines when he became the company's acting chief executive during its merger negotiations. But even those who simply want to carry on being GCs generally find the top of the pyramid a far more interesting and rewarding place.
The value pyramid resonates positively with GCs, with most suggesting they were capable of moving up it. But were the interviewees over-optimistic?

Behavioural characteristics

Many lawyers are perceived – not least by chief executives – to lack the behavioural characteristics needed for high level commercial performance. The survey researchers put this point to a range of chief executives, many of whom were sceptical about whether GCs could make it to the top of the pyramid. One commented: ‘The tasks in the two top levels are nothing to do with being a lawyer. Those are tasks for business people to perform. If you ask me whether lawyers make good business managers, I would say no.’
The research also found that while 38 per cent of GCs thought the in-house legal function had made a very strong contribution to the commercial value of their companies over the past year, only 14 per cent of chief executives agreed.

Battling scepticism

So how can lawyers facing such scepticism make any progress?
It was clear from the survey that there are still substantial structural and cultural barriers blocking GCs aspiring to move up the value pyramid. Only a limited number already has a position in the upper tier of the business’s strategic, managerial or planning functions. Most perform a quasi-risk management and legal management function. Crucially, there is little understanding in the business of how truly successful they are.
In-house lawyers who cannot show that they add value to their businesses are unlikely to become strategically influential -- no matter how good they are at their jobs. Unless they can demonstrate their value to management, they will be unable to climb the value pyramid. Achieving that ascent means finding ways to measure that value.

Measuring performance

For many in-house lawyers, this is the most challenging part of the proposition. Measuring performance is seen as a difficult or undesirable process by many in-house legal teams. Of the GCs surveyed in 2010, only 32 per cent used any performance measurement tools – and only half of them were involved in actually creating those tools.
Even where performance measurement metrics were being used, they were basic and were generally built around budgeting and costs reductions. The researchers found that only about one in five GCs uses key performance indicators for their legal teams.
This is understandable. There may be concerns about resourcing, the introduction of bureaucracy or inadequate returns. There may be other powerful cultural obstacles to measurement.

Practical approaches

Many GCs interested in the idea of performance measurement struggle to define the commercial value added by their teams and find it difficult to create a measurement system suitable for an in-house legal function. But conversations with GCs who have embraced performance measurement and experts in that field, suggest it need not be that way.
Simple and practical approaches and systems can be introduced to clarify objectives, improve performance and measure value. Such tools should make it easier to run an in-house legal department, and may also make it simpler to identify areas in which GCs and other senior in-house lawyers can attain leadership.

Aligning outputs

Working with a management consultant, Nabarro formulated an approach for GCs keen to align their outputs to business strategies, create winning strategies closely aligned to that business strategy, engage the legal team to drive behavioural change, and, crucially, to measure success in doing so.
The 2010 report produced six practical steps towards achieving this goal:

• defining a legal team's mission, vision and values;
• creating a high level strategy map;
• defining strategic objectives;
• identifying one or two metrics for each objective and setting targets;
• aligning existing projects to the strategy and defining new projects if necessary; and
• establishing a governance structure to realise the potential.

Some GCs are keen to implement these steps within their teams and have distributed the report among their teams to use it to drive forward change. Some have even used the report as the basis of debates with their boards of directors.

Changing perceptions

Nabarro returned to the subject of value in a second, 2011 report entitled ‘General counsel: vague about value?’.  It attempted to discover what factors contribute most to the perceived value of a legal function. The researchers wanted to understand more about how GCs are seen in their businesses, and what they can do to change perceptions.
The survey suggested that fewer than 50 per cent of GCs are properly valued in their organisations. Many suggested that the legal team was not thought to add substantial value, or that recognition was partial or superficial.
While GCs were comfortable in some areas, such as a general necessity to be commercial, elsewhere they were less aligned with the needs of the business. For example, while 80 per cent agreed it was important to improve cost-effectiveness, few had sophisticated metrics for doing so. And fewer than half saw their external lawyers as partners in delivering financial value.
A GC has a complex and challenging role and there is no catch-all solution. What works for one GC may not work for another. But Nabarro concluded the 2011 report by identifying a few general value indicators that aspirational GCs can use to benchmark their progress and the progress of their teams.

Entry price

Alignment with business strategy, commerciality and legal skills are popular value indicators but are now generally seen as ‘the entry price’ for GCs. Unless a GC does something that will be seen as exceptionally commercial, there is little scope to use these indicators as differentiators.
There is more scope for a GC to show economic value through cost-effectiveness and innovation, including the innovative use of technology. The research shows that a significant numbers of GCs are not exploiting such opportunities. In addition, most are not seeking to increase the efficiency of their teams.
Many GCs do not discuss financial value with their external lawyers or use value-based billing. Most do not quantify the value-added services they get from their law firms. These are missed opportunities. Imaginative GCs can go even further, working with external lawyers to reinvent their relationships.

Networking

Visibility and networking, both within the business and outside it, can change the way in which a GC's contribution is perceived. Not all value can be measured, and some important aspects of success cannot be quantified. But an appropriate system of performance measurement can greatly help to demonstrate value.
Since publishing the first report Nabarro has spoken about value and related issues to more than 300 GCs in Europe, the US and Asia. GCs across jurisdictions all face the same challenge of demonstrating their and their team's worth and value.
In addition to similarities there are several differences. One example is the use of metrics and performance measurement tools. In the US, on the whole, this is wholeheartedly embraced by GCs.

Jonathan Warne and Peter Williamson are partners at London law firm Nabarro