It is no longer enough to act with technical excellence, it is necessary to demonstrate, through numbers, projections and reports, as this performance preserves value, avoids losses and, in many cases, makes businesses viable
At the executive councils and committees, it is increasingly common to hear questions about legal costs. What is rarely asked, however, is how much the company is worth. The answer, in many cases, remains inaccurate. And not for lack of relevance of the sector, but for the absence of objective criteria that measure this value with the same naturalness with which financial or commercial performance is evaluated. The challenge is not new. But the urgency to face it, yes.
How the legal can measure and demonstrate their valuation
In a corporate environment oriented by indicators and performance, it is necessary to adopt metrics that can translate the strategic impact of the legal into tangible data. It is not enough to act with technical excellence. It is necessary to demonstrate, through numbers, projections and reports, how this performance preserves value, avoids losses and, in many cases, enables business that could bump into insurmountable risks.
In addition to the theoretical discussion, it is possible and necessary to structure practical ways to measure the added value by the legal area to the organization. This involves the definition of its own indicators, built on the department’s effective deliveries. Below are some examples that can be used to substantiate this valuation:
1. Mapping of contingencies avoided
Register, through advisory opinions and guidance, the cases in which the legal action prevented the generation of disputes, fines or assessments. This shows how legal prevention reduces liabilities even before they materialize.
2. Economy generated in negotiations
Measure, for example, the amounts reduced in judicial or extrajudicial agreements, contractual renegotiations, arbitral disputes ended with advantage to the company and decisions that have removed significant penalties.
3. Average response time and impact on the business cycle
Indicators of legal agility, such as the average time of contract analysis, opinions or approvals, help to demonstrate how much the legal contributes to the fluidity of commercial operations.
4. Participation in innovation initiatives or structuring of new products
Documenting legal action in supporting innovation, including complex regulatory fronts, may highlight the department’s strategic role as a growth viable and not just as a risk reducer.
5. Judicialization Index avoided by prior orientation
Monitor how many potential demands or conflicts have been resolved without judicialization thanks to the preventive acting of the legal, especially in the topics of high recurrence or with relevant reputational risk. These metrics, if well structured, allow the legal to not only report, but reveal to high leadership the real impact of their performance. And when this value is visible, it is recognized, protected and prioritized.
The error of centralizing the cost and decentralizing the problem
Another frequent distortion is the concentration of legal costs exclusively at the department’s own cost center, even when the origin of liability is in operational, commercial or behavioral failures from other areas of the company.
A common example: An advertising campaign is launched with omission of relevant information. The problem generates a wave of complaints in consumer protection agencies, as well as lawsuits. Although the failure has occurred in marketing, all the costs related to disputes is recorded as a legal expense. The result is a budget distortion that masks the real origin of the problem and penalizes the legal because it only manages, but did not cause.
This bad allocation directly interferes with the perception of efficiency, both the legal department and other areas. While those responsible for the origin of the liability follow without effective adjustments in their goals and processes, the legal appears as a growing center, compromising their image and their ability to argue in internal decision -making forums.
Separating correctly is part of the solution
The solution goes through the structured separation of cost centers. When properly attributed the origin of legal demands, it is possible to accurately identify:
- Which areas generate the most passive;
- How much these areas represent in the legal budget;
- How preventive action can reduce these impacts;
- Which units require the most advisory attention or process review.
This accounting and managerial redesign allows the legal to act with more strategy, support other areas in risk mitigation and actively participate in decision making. The result is a legal action more aligned with the company’s reality, capable of generating more accurate diagnoses, reducing disputes and strengthening corporate governance.
Of expense to strategic value
The turn begins with the change of narrative. It is necessary for the legal to fail to present themselves only as a technical defender and assume the protagonism in the construction of indicators, diagnoses and arguments of value.
More than responding for lawsuits, the legal entries ensure the integrity of the operation, guarantees regulatory compliance, structure contracts, avoids assessments, manages reputational risks and enables safe innovation. And all this costs much less than you think, especially when it is considered that most expenses stems from external failures to the department.
The risks of not measuring legal value
Without legal valuation, the department can be undersized. Without separate cost centers, you risk being held responsible for problems you have not caused. And without data that translate your delivery, it can be treated as a purely operational area, even though it is a key piece for sustainability and business growth.
The legal that is positioned as a guardian of value needs, first of all, to know how to demonstrate this value with method, accuracy and future vision. Because what is not measured, is not valued. And what is not valued, does not preserve itself. Does your legal already measure value or still carry costs that are not yours?
*This text does not necessarily reflect the opinion of the young Pan.
