What’s the management speak - if it can’t be measured it can’t be managed. Is this the reason why we are desperately trying to measure value? It’s certainly one of the important benchmarks for management in judging the in-house legal function and its contribution to the corporation. How do you hope to compete for capital (including human capital) and other scarce corporate resources if you can’t demonstrate that the corporation will derive value from the allocation of these resources to the law department. The budget process is the annual opportunity to showcase value. Numbers clearly help but so do anecdotes and testimonials.
Before and after
I suppose you could perform a before and after scenario – how much would the company spend on law firm services without the in-house department and how much does it cost to retain in-house legal services. Of course such an exercise would not address true value because cost is only one element of the value equation. Nevertheless, it would be a fascinating exercise to do if you had the time. It would involve deconstructing the law department and permitting the individual managers and their departments to retain the legal services they needed, probably with the help of the procurement department.
Cost centre
In my experience procurement departments are focussed on cost and not necessarily value. So while they may do a great job on finding the cheapest, cheapest does not always equate with value. I had one experience with the procurement department being mandated to review all expenditure, including legal services. They reviewed our outside counsel expenses, which they thought would be the greatest item of expenditure, and concluded they couldn’t do any better than we were already doing. I suspect that they were surprised at how small our outside expenses were, relative to overall corporate expenses, and decided they could better spend their time in other areas. Nevertheless, in my experience where you are afforded the opportunity for such a comparison the results are meaningful.
Early in my career I joined an in-house function, much to the reluctance of the local President , partly because I was moving from a profit centre to a cost centre (yes I was legally qualified but was then working in the business), but principally because he was adding headcount to a cost centre rather than to marketing or sales. In the face of his reluctance (well it was outright rejection) the decision was taken for him by headquarters and I was transferred (he was not happy – which made my life difficult – no company car with this position) but I joined the cost centre and much to his surprise, after a relatively short time (around 6 months), we could show that this move actually saved him money (company car restored).
Regulatory compliance
Clearly I mustn’t have been contributing much to the bottom line in my previous role. Gone were the expensive outside counsel fees and I appeared cheap in comparison – still the atmosphere wasn’t right to ask for a raise and I did get the company car. This was an example where clearly value was added because it could be measured in monetary terms. Opportunities for such a ‘before and after’ comparison are rare, but where they arise or can be simulated they are invaluable in demonstrating the value which the law department can bring.
It’s not just monetary value that an in-house function brings though. Non-monetary value is much more difficult to measure. In addition to saving law firm fees in my new role in-house, I was also able to perform a compliance audit around the regulations which impacted upon the manufacturing operations. Now it’s true the law firm could have been called in to do this – much more expensively of course – but would they have understood the business as well as an insider and have the advantage of the collegial access which an insider enjoyed to ensure the audit was appropriately tailored and that compliance followed. If there hadn’t been an in-house lawyer focussing on regulatory compliance, would the law firm have raised the matter and if so with whom.
The value which the in-house lawyer brings is the attention to the potential legal issues which could surface – in the absence of the in-house lawyer whose responsibility is it – the manufacturing department, finance and administration, the President’s office. Clearly there’s value in having some-one responsible, but also value in allowing the operations to get on with the business of making money without distraction. In highly regulated industries regulatory compliance is business critical and for those which are complex and sophisticated it might even be beyond the scope of the legal function and fall within an expert compliance function.
Brand value
Nevertheless, there is value in having the scope of the regulatory regime removed as a distraction from the business (but not of course on-going compliance) and value in knowing that the business can avoid business disruption from failing to understand it’s regulatory obligations. You could probably attempt to put a value on business disruption, whether caused by failure to recognise regulatory obligations in addition to non-compliance.
For companies which have found themselves in breach of their regulatory obligations there is no question about value – they’ve already measured it – the hard way. If compliant companies are in any doubt about the value the legal department adds to the corporation in this area, find a case study which illustrates the unfortunate consequences for another corporation (if it’s a competitor all the better) to reinforce the value point.
For brand owners, and particularly those which have brand value carried on the books as an intangible asset, or those who simply have a prominent and reputable name in their field, whether it has carrying value or not, reputation is critical to preserving that asset. All of the General Counsel’s activity directed towards protecting and enhancing the brand and corporate reputation has a value. Only the churlish would demand a number be put on this.
General counsel alone cannot claim the value proposition
I have always found that the general counsel alone cannot claim the value proposition – as they say, self-praise is no praise. It is your colleagues who can be your greatest allies in highlighting your value contributions. You can call on the other so called cost centres, which never seemed to face the same cost and value justifications as the legal department; the finance department, human resources and public relations/government affairs. It is these colleagues whose support you need to garner, and in my experience it was always forthcoming (sometimes from the business as well, which was always a bonus). Not only are these colleagues ‘clients’ for your legal services but there are many other opportunities to provide support for their departments. In my experience they were always more ready to see the value of the legal function – we helped to make them look good. We always had a very close relationship with these departments because they were also at the core of compliance and reputation.
Sales and marketing push the boundaries of proprietary
It goes without saying that the sales and operating functions would do their best to push the boundaries of proprietary – after all this was required by the competitive market place – and so the legal department more than the others were at the forefront of ensuring the boundaries were within acceptable limits (sometimes your fellow cost departments could step outside the boundaries themselves). The key is being able to judge the risk appetite for the corporation and above all reputational value – including the activities impact upon the consumer, the regulators, the public or other stakeholders.
Demonstrate value
In my experience value is not always something which is self-evident; it is something which needs reinforcing and promoting at every opportunity. To achieve this it is critical that the GC sit on the management team and participate fully in the management routines – however silly they may seem – and many of them are exceedingly silly.
I have even participated in focus group interviews as part of a management team meeting. To my surprise, and the even greater surprise of my colleagues, I was ‘interrogating’ housewives in Greece about their purchasing habits. Did I add value – I like to think so but perhaps the greater value was indirect; I participated.
Value comes in many forms
I’m frankly not sure what marketing did with the results or even if sales improved in Greece, so the value question on a broader perspective is questionable but not from the perspective of the legal function. This exercise helped to retain a seat at the table. Earning a seat at the table is essential to providing the on-going opportunities to demonstrate value to the management team. This is a constant endeavour and an invaluable one.
Value comes in many forms, only a few examples of which have been mentioned above. If the legal department is to deliver value and be seen to deliver value, it’s important to identify those activities which provide the greatest value to your company and focus the lawyers’ efforts against these. Don’t waste time and resources on matters which deliver minimal value. The commodity, low risk/low value work either stops or is done elsewhere – this exercise is adding value in itself.
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