LEGAL
In-house teams are putting greater focus on 'real-time' metrics
From spending to diversity, companies such as PayPal and GE are tracking and measuring various aspects of the work they do with external counsel as it moves through their busy legal department – and it’s putting law firms on their toes.
Not surprisingly, PayPal pays attention to spend first and foremost, according to Lauren Giammona, director of operations, business affairs, and legal at PayPal. “We are accountable to our CFO. In legal, that’s particularly challenging given how variable our spend can be and how much is uncontrollable,” she said, speaking in May at the second annual Corporate Legal Operations Consortium (CLOC) in Las Vegas.
PayPal tracks by firm, matter, and cost center/budget manager and compares those to both internal and firm budget and to forecast. Giammona said it’s all about accountability, internally and with the firm.
“One of the nuances I want to point out is we’re tracking to budget, certainly, but also tracking to prior forecasts and asking our firms to give us updated information,” she said. “We’re asking on a monthly basis, especially with our bigger matters. We are both tracking what did we communicate to finance on what we were going to spend, as well as what did we say to finance versus our original budget.”
If matters are shifting between months, that’s also relevant. “If our law firm says something is happening in April, but really it happens in July, that represents a quarter difference and is a significant difference,” said Giammona. “If we’re holding on to money we don’t need, we are making all kinds of back-end decisions based on that. We don’t want you to come in and totally beat the numbers, we want you to be accurate on the numbers and that’s really important to us.”
PayPal also tracks timekeeper rate management, which includes staffing mix, year-over-year rate trends, and rack rates versus PayPal rate versus billed rate versus paid rate, which all feeds into an overall law firm evaluation.
“We need to show our finance team that we get it. We’re paying close attention to all of this,” said Giammona.
Invoice review has been an important task for most departments for many years now, but it continues to be a tool in ongoing dialogue with firms, she said. “That’s where we’re communicating most in terms of what can and can’t be on an invoice.”
One thing PayPal is not willing to disclose to its firms is what percentage of its “wallet” the firm owns.
“That’s something we hold very tightly to our vest, and much is driven not by how much we spend with you, but how well you show up in partnering with us, and that’s part of the equation. We certainly will pay more for a firm that is adding more value and doing work efficiently but also spending time in investing in us to understand our business. Percentage of wallet is not the metric that we want to be sharing or incentivizing you on,” said Giammona. And while some wait until year-end to measure law firm performance, PayPal advocates collecting in real time on matters as they close.
Diversity is also something the company has begun to track and is a “core value” of the company.
“We’ve set metrics internally and we’re doing the same for outside counsel. We’re still in the process of determining how we want to have real-time information from law firms about the folks working on our matters and how firms are handling diversity in general. We’re looking at things not just at the matter level but in terms of law firm practices,” said Giammona.
Beyond just the general diversity of the lawyers who work on their files, PayPal is looking at the diversity of the executive committee and of partners that were just promoted — not only who comes into the firm but how much are they given the ability to grow.
“We wanted to look at diversity not just in the context of how folks are staffed on matters — if you only focus on that it can be a bit of a shell game, so we wanted to look at things like who is getting origination credit, and of the management committees, how diverse are they? We found the diversity committee was tremendously diverse, but the executive committee wasn’t. We also looked at the promotions pipeline and programs offered to diverse employees. Those are the ways we measure ourselves internally and want our vendors to reflect that as well,” said Giammona.
David Cunningham, chief information officer of international firm Winston & Strawn LLP, said he hopes CLOC will work on standardizing certain aspects of law firm measurement, such as client surveys that include questions on things such as diversity.
“You get firms doing dozens of these a year. I think CLOC will focus on this in terms of standardization. It’s such a key area being measured in different ways and it’s a sensitive area. It’s information we know already but don’t provide unless you ask for it,” he said.
“How do we measure things is an initiative CLOC has been working on in the past year. It’s a discussion around what do we mean by certain terms like time to resolve a matter and timeliness of a bill.”
Christopher Ende, law firm pricing, solutions, and panel management leader at GE, said GE tracks spending by country and by business. “If we do work with a firm across eight or nine businesses, someone may just want to hone in on what’s happening with aviation,” he said.
It’s data such as this that’s driving a business problem of making people think more about how to use data to make a selection of outside counsel.
The next big question GE is still grappling with is, What does it share with external counsel?
“We want to be completely transparent with our preferred firms. We don’t make all the data available to our firms. We’re struggling right now around diversity and setting targets, giving firms clear expectations and measuring them. One vision is to create a specific diversity page for every firm and show that page in real time through the firm collaboration portal,” he said.
While interviewing clients in preparation for a partner conference recently, Cunningham said the top issues were real-time information on things that affect the budget, accurate budgets, and diversity. “They said, ‘We want you to look like us. That was really interesting to hear.’”
Jennifer Brown is the editor of Canadian Lawyer InHouse.
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