For a legal department its ratio of legal expense to revenue needs to be one of the top metrics, in the view of John Oviatt, chief legal officer of the Mayo Clinic. Here are his five reasons from an interview on Law.com, which I have numbered for reference. [1] “It’s something that CFOs and CEOs understand. [2] It’s a metric that is generally used across shared service organizations …. [3] It’s one that is easily understood. [4] It’s easily tracked over time. [5] The information is accurate. At least your CFO will know if it’s accurate, because the information is provided and can easily be confirmed internally.”
Oviatt is right on all counts although realists can quarrel with 4 and 5. Let me gild the lily. [6] This regnant metric is comprehensive, which means it covers nearly all legal expenses (usually not settlements and judgments) and therefore not only can’t be gamed as much as can other partial metrics but also it embraces all kinds of structures and management choices. [7] It is also a normalized ratio, which means law departments of all sizes can match themselves to others. And [8] it is easy to calculate.