(This article was contributed by Domenick C. DiCicco Jr.,JD, MBA, head of legal strategy at AIG.)

The legal audit team (LAT) is critical to the competence of anylitigation management and corporate legal function. The LATfunction breathes meaning into litigation management guidelines(LMG), service level agreements (SLAs), and best practices (BPs).Too many litigation management programs amount to nothing more thanthe creation of LM guidelines, SLA, or best practices that havelittle or no meaning in practice. The LAT serves to make sure thecompany's litigation management program has real world impact.

A quality LAT also serves as a quality assurance check againstthe company's legal management policies and can serve to identifynew areas of opportunities in the efficient delivery of legalservices. The LAT's charge should be a review of compliance againstthe company's best practices and a value audit—that is, if thecharges and time reasonable and equal to the value of theactivity.

Click on “Next” to learn how thisvital team will add ongoing value to any organization.

A properly run LAT will pay for itself year-after-year byassuring that:

• The company's legal policy is followed.
• The company's legal billing guidelines are followed.
• There is alignment between counsel and the company's legalgoals.
• The company is paying for legal services equal to the valuereceived.

It is critical to the effectiveness of the LAT and thecorresponding LMG, BP, and SLAs that the LAT have good metrics toassess their own performance. Here, the maxim of DuctusExemple¹ is a must in order to give the LATcredibility as well as being good management.

Anatomy of a Team The LAT team must have twotraits to be both credible and successful: 1) the team must bestaffed by attorneys who have practiced for at least five years and2) the team must be independent of the department whose portfoliois being audited.

To further elaborate on point one, neither the law firms nor theunits who retained the law firms being audited will believe theprocess is credible if the audit is done by either non-attorneys orsomeone with a law degree who never practiced. This is a fair pointand one common in other professions. You would not have a doctorpeer review the work of another doctor if the peer review doctorhad a medical degree but never practiced. Your audit team shouldbegin its contribution to the organization with credibility.

A Systematic Audit Process Is An Effective OneMany organizations conduct legal audits of their firms veryinfrequently. They then express astonishment that their firms arenot showing any improvement in the audit process. In order toachieve the ultimate goals of the audit process, that is to changebehavior so it is aligned with your organization's general, legal,and efficiency goals, firms must be audited in a consistent andsystemic manner.

Measuring the Team's Effectiveness Initially, agood LAT and accompanying process will yield findings heavy onnon-compliance and of questionable value of the files it audits.“It's not enough to do your best; you must know what to do, then doyour best.”² Stated another way, “Management byobjectives works if you know the objectives.”³ Once youfigured out the correct objectives, (i.e. you know what to do), youmust then create the appropriate metrics. As the oft stated truismprovides, “What get's measured, gets done.”⁴ This is tobe expected as it is human nature to conduct their business in amanner consistent with what is being measured. However, assuming ahomogeneous portfolio of legal cases, the scores should level offafter the third year.

When this happens, do not make the mistake of thinking the LAThas stopped providing value. Quite to the contrary, this is a clearsign that the team is adding the exact value it was designed toadd. Many LATs make the mistaken belief that they need todemonstrate value via a constant finding of non-compliance ornon-value. However, if the LAT is accomplishing its goals of policyenforcement, education, monitor, revision, then it is expected tosee the drop-off in the third or fourth year of the auditprocess.

The effectiveness of the LAT should be measured on thefollowing:

• Level of compliance with company's best practices, litigationmanagement guidelines and service level agreements. After three orfour years, compliance should be high, say between 85 and 95percent.
• Validation that the BPs, LMGs, and SLAs are serving as a toolto execute the company's Legal Management Strategy.
• Alignment between counsel and the company's legal goals.
• The company is paying for legal service equal to the valuereceived.

The Legal Audit Team is a critical component of any company'slegal strategy. It inserts an objective measure of the company'slegal management goals while offering a vital feedback loop tomanagement. The investment in a Legal Audit Team is money wellspent, and it will provide a solid return on investment and areal-time check on the effectiveness of the organization's legalstrategy.