By Paul Lippe and Gregory Richter
Last month, I talked about whether doing a better job of measuring lawyer performance could unlock diversity.
This month, my co-author, Gregory Richter, partner and vice-president at Major Lindsey & Africa, joins me to explore how clients are starting to measure lawyer performance transparently, just as performance in other fields is measured.
Greg is an ideal collaborator because he and MLA are market leaders in three important and interrelated areas of (i) law firm partner lateral recruitment, (ii) board performance, and (iii) general counsel recruitment.
To set the table for this piece, I (Paul) recently spent time with a group of very senior medical school professors in New Haven, who shared some of the challenges facing medicine—similar to those faced by law. I’ll do a separate piece on the parallel changes in law and medicine, but for now we can summarize them as:
• Rising costs have meant reduced autonomy for doctors and lawyers.
• New intermediaries (HMOs in medicine, legal departments in law) have begun to assert their role in measuring quality as well as reducing costs.
• Meaningful quality (performance) metrics are increasingly based on outcomes, not inputs or professional self-assessment.
So today, lawyers (and doctors) are held to New Normal standards:
• Best fit vs. best pedigree—old notions of pedigree and achievement don’t necessarily determine if a lawyer is going to be most effective for a given role. Life experience, business acumen and emotional intelligence now play a role in hiring.
• Aligned expectations—internal lawyers are expected to give strong, objective legal advice while managing risk, costs and internal satisfaction in a way that aligns with how the rest of the c-suite is measured. This has led to internal lawyers becoming more embedded in the businesses where they work and taking a broader role in helping guide them.
These shifts have not come easily and are not universally embraced. Professionals in both fields love autonomy and take great pride in the idea that the work they do is complex and requires a unique set of skills that few others possess and fewer still can assess. As Steve Harmon from Cisco puts it, “lawyers want to say they are artistes, not shortstops.”
Rather than continue to fight a rearguard action against cost pressures and transparency, we believe lawyers should accept and embrace the new transparency. In other words, go Moneyball and figure out what really drives results.
To do useful performance metrics, we have to be very specific. So far, most of the emphasis on metrics in law has been on inputs, whether billable hours or cost reductions; but increasingly we’ll see the focus shift to outcomes. Let’s look in the corporate setting:
Fundamental corporate metrics are pretty straightforward:
Stock price = Revenues – Expenses x Multiple.
How do lawyers contribute to revenues?—Act as a business enabler, help sales, increase the velocity of commerce, help create or acquire assets (like intellectual property) that lead to sales, and help eliminate obstacles that are an impediment to sales.
How do lawyers contribute to expenses?—Direct legal spending, indirect ‘frictional” costs associated with legal work (delayed sales, extra steps for compliance), and litigation damages, penalties or business disruption.
How do lawyers contribute to the multiple?—The stock market (and all other ways of valuing companies) assign a multiple to corporate earnings, based on the growth rate and a variety of tangible and intangible factors like market share, reputation, expected market growth, etc. So a lot of the intangibles that lawyers believe they contribute around reputation, predictability, risk management, or corporate culture, should ultimately be reflected in the multiple.
So what will this mean in practice?
• The performance assessment (and therefore bonus calculation) for general counsels will be tightly coupled with the assessment for the board and the CEO, which makes perfect sense. This performance model will also become the lens for hiring. If, as suggested in last month’s piece, transparent performance fosters diversity, then that will be all to the good.
• Once they develop better metrics at the corporate level, lawyers will see that useful metrics must be even more specific, i.e., how you measure generating NDAs is different from how you measure compliance with privacy regulations.
• Many lawyers will resist these approaches and insist that part of their job is to create friction or constrain other company executives or customers. However, sophisticated clients can quickly unpack when constraints are truly useful in managing risk or reputation and when they are just a bad habit.
• The general counsel will naturally start to pass along or translate the things that drive his or her performance to the way he or she evaluates law firm performance, and so law firms will increasingly be measured on outcomes.
• Both general counsels and law firms will have to become much more explicit about how what they do contributes to the metrics, especially their broad claims about how what they’re doing improves the multiple, and start to discern those places where traditional lawyer priorities may not be as beneficial as they have imagined.
• Similarly specific metrics can be developed in other area of law, whether public defenders, prosecutors or main street lawyers.
For some lawyers, this will be profoundly liberating, as they will know how they’re measured and will no longer be judged on how they did on a multiple choice test when they were 21 years old. The ability of the general counsel to create a vision for him or herself that goes beyond the standard definition will soon be an expected attribute, much like most top-notch executives in peer functions. Exceptional lawyers (i.e. leaders) will be those who choose to take the risk to start the conversation or begin to move explicitly in this direction. They will see the benefit and will, ultimately, add true value to the growth and health of the business placing them on par alongside their c-suite counterparts.
For others it will be terrifying, as they will be judged on things they can’t control or have little perceived influence over, especially if the vision for their role and metrics is imposed by someone else.
But it will be. And it has already happened in medicine.
Paul Lippe, the former CEO of Legal OnRamp, is a member of Elevate Services’ Advisory Board. Gregory Richter is vice president and global head of Major, Lindsey & Africa’s In-House Practice Group and Solutions Practice Group.