Morrison on Metrics: Risks Avoided but Metrics Never Found

From the viewpoint of many executives, the law department primarily strives to minimize the company's legal risks. In-house lawyers negotiate, draft and counsel to keep the ship off the law's shoals. That contribution obviously makes sense, but what a shame that no one has figured out how to put reliable numbers to the risks avoided. The metrics of law department managers don't extend to quantification of legal risks that never happened because of astute lawyering.

Why we can't put a defensible dollar figure on most of what lawyers do is not hard to understand. The potential events in the future are infinite in number, for starters. Coupled with that, the liabilities the company would incur for any one of those events fall on an unknown distribution curve from trivial to titanic. And even if we could pick some representative problem, guess the likelihood and stick a plausible dollar cost on it, who's to say a change in course or in the business situation would not alter the equation? A loss-creating event may never transpire or people may take action to avoid, reduce, or worsen it. Future events are not probabilities, with known distributions, but uncertainties, with almost no moorings. So metrics, let alone comparative benchmarks, stay chimera.

To illustrate: Robin, an in-house lawyer, points out that the licensor's agreement imposes unlimited liability for breach of specified intellectual property rights. Robin, a careful and shrewd lawyer, negotiates to cap the liability. Can Robin proclaim a savings because of the risk minimized? Yes, but the amount can never be determined. Whether Robin's company breaches and what follows cannot be specified. The risk avoided remains amorphous, even if someone has enough experience with uncapped license arrangements that result in breach to calculate a median loss and put that loss in present value dollars. Worse, no one can pronounce "Stop at five years out and figure the benefit" - the future stretches a long time. In the specific circumstance of Robin's company, the savings (the return on investment, so to speak, of Robin's effort) has no determinacy.

A fundamental limit, therefore, on the persuasiveness of law department metrics, follows from this blind spot. We cannot tally numbers for unknown occurrences so we can't prove one important part of the value generated by an inside legal team. A teacher can't prove that what the teacher taught had a specific payoff for a given student; a priest can't produce numbers to back up the value of the confessional guidance given a parishioner; a lawyer can't show the price never paid on account of good legal counsel given. Far too many contingencies mar the projection or the good or bad event never happens.

General counsel can count and assess themselves comparatively on many inputs and outputs of their teams, the realm of legitimate benchmarks like staff, spend and cases. They must leave to trust or intuition claims of how much they saved their clients as a direct result of legal problems their teams sidestepped.

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Rees Morrison

Rees Morrison, Esq. is the founder of General Counsel Metrics, LLC. Based in Princeton, NJ, Rees has for the past 25 years consulted solely to...

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