LAS VEGAS — From spending to diversity, companies such as PayPal are tracking and measuring a variety of aspects of work they do with their external counsel as it moves through their busy legal department. It’s a practice that’s putting law firms on their toes.
First and foremost (and not surprisingly), PayPal pays strict attention to its legal spend, said Lauren Giammona, director of operations, business affairs & legal at PayPal. “We are accountable to our CFO,” she explained. “In legal, that’s particularly challenging given how variable our spend can be and how much is uncontrollable.” Giammona’s comments came during a panel entitled What Gets Measured: Legal Ops and Law Firms Aligning and Sharing Metrics at the second CLOC Institute, the annual meeting of the Corporate Legal Operations Consortium (CLOC), held last week in Las Vegas.
PayPal tracks by firm, matter and cost center/budget manager and then compares the data to both their internal budget, to the law firm’s budget and to the forecast, Giammona said, adding it’s all about accountability internally and with the law 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 as well as rack rates vs. PayPal rate vs. billed rate vs. paid rate — all of which 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,” she said.
Engaging Firms in Invoice Review
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. That’s part of the equation,” she explained.
“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. But percentage of wallet is not the metric that we want to be sharing or incentivizing you on.”
And while some legal departments wait until year-end to measure their law firms’ performances, PayPal advocates collecting in real-time on matters as they close.
Diversity as “Core Value”
Diversity is also something the company has begun to track and is a “core value” of the company, Giammona said.
“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,” she said.
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?” Giammona asked, adding that the company has found cases where a firm’s “diversity committee was tremendously diverse, but the executive committee wasn’t.”
“We also looked at the promotions pipeline and programs offered to diverse employees,” she said. “Those are the ways we measure ourselves internally and want our vendors to reflect that as well.”