Measuring Value in the Legal Function

How can you assess whether your in-house legal team is delivering?

Jonathan: When you ask the business team how they assess the value of their legal colleagues, you often get an answer like this: “Our sales folks receive warm leads and work hard to close them, but the process then gets bogged down with ‘administrative’ tasks like KYC, contracting, and security checks, which frustrates everyone.”

So, how can a legal department stand out internally and contribute to the bottom line?

One benchmark is the time to conversion: how long it takes from “go” to contract completion.

It’s relatively easy to calculate, and reducing this time translates into more revenue. For instance, if your team reduces contracting time by optimizing contract negotiation and legal review from three months to two, this brings in revenue faster.

Many companies offload contracting tasks to the business team. Here, Legal needs to provide training and set guidelines to empower them to handle these tasks independently unless a complex issue arises.

But when Sales brings a legal issue, such as data protection, delays can pile up if the legal team doesn’t respond promptly. Imagine Sales coming to Legal and saying, “Hey, there's a data protection issue here. I don’t understand it. Can you help?” Legal responds, “I’ll get back to you next week,” but then next week becomes the following week…

Performance in these scenarios can be measured, providing an indicator of the legal team’s efficiency.

What about transactional business like M&A, where no “sales” are involved?

Jonathan: On the investment side, speed is not yet the primary benchmark, possibly because it’s harder to establish given the lower number of transactions and the uniqueness of each deal. Many private equity and sovereign funds now task business teams with transactional legal work. Legal usually only gets involved at a high level since investment teams in private equity are often well-versed in legal processes. It’s different for pension funds or sovereign wealth funds, where legal teams are more hands-on due to potentially less experienced business teams. Here, Legal focuses mainly on regulatory and fund formation. A track record for speedy transaction due diligence and documentation completion will undoubtedly be a competitive advantage in M&A (direct investment or investments with a sponsor). A well-oiled machine between in house functions (legal, business, finance, tax, etc.), and investors’ outside counsel counterparts (lawyers, IB, accountants, etc.) is of growing importance.  

When assessing value, are there also benchmarks focused on legal risk mitigation, such as winning litigation or avoiding penalties? Many in-house teams would consider this their primary purpose—protecting the institution from legal risks.

Jonathan: Risk benchmarks are rare. Most companies are reluctant to disclose or even formalize their internal risk appetite. When asked about their risk tolerance, responses are typically vague, or they claim that each case is unique, making benchmarking extremely difficult.

This doesn’t mean they lack internal KPIs, such as those tracking litigation, penalties, or compliance violations. Many organizations monitor KPIs in compliance and data protection, allowing them to measure returns on resources or tech investments and efficiency gains. A maturity model can also provide visibility into an organization’s progress.

However, this data doesn’t give specific insights into the legal function’s performance and is certainly not shared outside the organization.

Indeed, we have looked but could not find any data or frameworks for assessing a legal team’s performance. Why is that?

Jonathan: Cross-company comparisons are still very uncommon. Law firms try to help with benchmarking but face challenges, as clients are wary of these comparisons. I advise focusing less on historical metrics like speed or avoidance of legal risks. Instead, I’d look at the legal team’s ability to drive organizational change.

What do I mean by that? Legal’s role is increasingly about empowering business units to handle more “legal” tasks themselves. The ideal legal team is lean, acting as strategic advisors while outsourcing routine work to departments like sales, finance, or procurement. Generative AI plays a big role here. It enables legal teams to develop or co-develop solutions themselves (e.g., RPAs) and makes it easier for people outside legal to interact meaningfully with legal resources and process management software. Imagine a legal chatbot that can explain checklists or review policies, or due diligence tools that screen documents and answer natural language prompts.

For a legal team ready for the future, I believe an effective time allocation is as follows: one-third on legal training for other teams, their outside counsels and themselves,  one-third on building legal tech solutions to help other teams and their own department handle routine work more efficiently and accurately, and one-third on legal advisory for complex matters.

Teams should be involved across all three areas for optimal results; you want the know-how to spill over. What you learn on the advisory side should feed into the training and be reflected in the tools you’re building. Specialized roles risk operating in silos, lowering the quality of Legal’s output.

If so much work is outsourced or automated, what’s left for the legal team?

Jonathan: In-house teams should be laser-focused on bridging the company’s needs with the law. I often suggest working with just a phone for a couple of weeks, no laptop, no ability to perform routine tasks—instead, responding quickly to issues as they arise. Leverage your deep knowledge of the company’s risk tolerance to advise and make decisions. Legal teams should focus on what they do best: understanding the company, understanding the law, and managing risk. That’s the triangle of their core expertise.

What are the key stumbling blocks to implementing a strategy that empowers others?

Jonathan: Often, the biggest stumbling block is the legal team itself. Many in-house lawyers prefer stability over complexity. A significant number aren’t interested in climbing the “ladder of complexity”—they prefer routine tasks, which challenges efforts to upskill and take on strategic work. This also reduces the incentive to automate and outsource, making it harder to retain team members eager to tackle complex issues.

With such varied interests, how do you ensure alignment within the legal function?

Jonathan: You need people who are eager to grow and take on complexity. This requires a team focused on high-value tasks, acting as decision-makers. That way, you attract the right talent willing to take on that level of responsibility. Often, it’s about encouraging those willing to step up while gradually transitioning others out if they’re not aligned with the department’s evolving goals. But, truthfully, that is possibly the hardest part.

Once you have the right team, you need to develop them. Rotating people is a great way to achieve this. Otherwise, someone sits at the same desk for 20 years, seeing the same people. Rotation helps people understand all three areas better. Outsourcing, working with law firms, tech teams, and alternative service providers can also supplement capabilities. A six-month rotation to an ASPL or legal tech firm can be hugely illuminating.

The in-house-to-external ratio

You mentioned outsourcing. What’s a good balance between in-house and external legal spend?

Jonathan: The unsatisfying answer is: it depends—there’s no one-size-fits-all solution. Too many factors influence this ratio, including industry, jurisdictions the company operates in, its size, whether it’s publicly listed, internal risk tolerance, the company’s stage in its life cycle, specific business model, market share, technology leadership, and so forth.

Take, for example, a semiconductor company. One focused on licensing and patent enforcement has very different demands for specialized external legal counsel compared to a semiconductor company primarily manufacturing chips.

So, is there no general ratio for right sizing the legal function versus external spend?

Jonathan: In highly homogeneous industries like investment, where legal workflows are similar and somewhat commoditized, I have seen reasonable metrics. For instance, you might use legal FTEs relative to assets-under-management (AUM). That ratio is still a little rough, more precise than your BMI as a health indicator, but still rough.

Filing and defending trademarks is another area where you might be able to benchmark. Anything involving mass transactions with a similar amount of legal work may be standardized. But as soon as you zoom out and consider a large group of companies with a diverse set of risks, benchmarking becomes extremely difficult, if not impossible.

What do you recommend doing instead?

Jonathan: Rather than looking for a benchmark, I recommend a detailed task-by-task, line-by-line analysis of internal versus external performance and costs. Then, make a recommendation to the business based on that analysis.

The first step is to determine the true cost of the in-house legal team, not just salaries but also overheads like office space and benefits. Many companies overlook indirect costs like employer contributions to pensions, missing a part of the cost picture.

The second step is to calculate external spend. Most companies purchase external legal advice through procurement, so they have good visibility on their annual spend.

Once you understand the in-house costs and external fees, you can start assessing if outsourcing or insourcing specific workstreams makes sense. For example, if hiring two more in-house people costs less than what you’d pay outside counsel for the same work, it may be worth insourcing. Sometimes the business may accept a trade-off in response time if it saves money, or they may prefer to keep work with outside counsel if the internal team can’t match the same quality or speed.

For companies exploring tech or alternative service providers, the upfront investment in technology can be daunting. Any advice on overcoming that?

If each one in a legal team can free up a third of their time for tech-development projects, they can achieve a lot!

I would not underestimate that. How to free up a third of your time? Legal innovation doesn’t often require large investments; it’s usually about incremental process improvements.

For some companies, an interim approach is to leverage law firms for initial tech implementations. Law firms may bundle legal and tech services, giving you flexibility without long-term contracts or extensive in-house capability building.  

However, law firms are unlikely to help you fulfil your full automation potential, so in-house legal teams will need to build that capability themselves.

Final question: With AI on the rise and technology expectations rapidly shifting, is this really a good time to revamp your legal function?

Jonathan: My view is that there’s never been a better time to rethink how legal functions operate. We now have access to data to make better decisions, and AI can help us interpret that data and develop solutions faster and more affordably.

To stay relevant, it’s essential to start testing new approaches, even if some initiatives may fail. There are three gazillion reasons not to try, but this is a unique moment for in-house teams, and I’d encourage everyone to make the most of it.

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Jonathan has spent over 25 years in the legal industry, having worked on both the buying and selling sides of legal services. He is the founder of Zaven (zavenlegal.com), the legal services procurement marketplace tailored for large corporates and high-end law firms. Jonathan spent more than a decade with global investment firm Temasek (temasek.com.sg), where he ultimately served as General Counsel for EMEA in London. Earlier in his career, he was the managing partner of CMS Cameron McKenna’s Shanghai office. As a corporate lawyer, Jonathan has advised on hundreds of transactions across the capital structure, including early-stage, growth, public, private, credit, fund investments, and co-investments. He has also been a long-time advocate for legal tech and digitalization.