Articles Posted in Benchmarks

It is an honor to be invited to speak on a panel at InsideCounsel’s SuperConference. The panel’s topic, at 2:00-3:15 PM on May 23rd, will be metrics for managing law departments. I will be focused on benchmark metrics and client satisfaction measures. My co-panelists will be the General Counsel of Medtronics, Cam Findlay, and Karen Dunning, who handles metrics and analysis for Motorola’s law department.

Any readers who attend, please come by and say hello! I might even be able to send my slides to those who care to see them.

I will be speaking at Interact, the conference organized each year by Mitratech for law departments. My panel will include Verona Dorch, AGC at Harsco Corporation, and Kim Rivera, GC of DaVita, Inc. Interact 2011: The Legal & Compliance Technology Forum, will take place Sun, May 15 to Wed, May 18 at Fairmont Turnberry Isle, in Miami.

It would be my pleasure to meet readers and others there. If you are interested in attending, I believe I have some complimentary tickets that I can offer. Drop me a line.

A study last year of French legal departments, co-conducted by Profit & Law and Equiteam, obtained responses last year from 100 French general counsel. Some of the data reported resembles counterpart metrics in the United States. The cited data in this post comes from page 14 of the report.

The median total legal spending as a percentage of corporate revenue was 0.19 percent, with the average being 0.32 percent. These figures, from 58 departments, are lower than US figures, which would be closer to 0.4 percent and 0.6 percent, if there were comparable sets of law departments.

The ratio of internal spend to total legal spend was 54 percent at both the median and average, which is somewhat higher than in the US. The difference in this benchmark metric as well as in total legal spending comes mostly from higher external counsel spending in the US. That bulge, relative to French legal departments, both drops the internal ratio and increases the total ratio.

My overall point from a blog posts during the past few weeks about benchmark data from Germany has been the striking similarities between most of them and their US counterparts. Another example is inside and outside spending per lawyer and the ratio between them.

The General Counsel Benchmarking Report for 2009 of Otto Henning & Co. at 107, states that the internal legal spend per lawyer of its German respondents averaged €304,192 for internal costs and €339,832 for external spend. Those 2008 spend figures convert at 1.5 US dollars per Euro to $456,288 and $504,748, respectively. The total, if we add the averages, of nearly $1 million in legal spending per lawyer comes very close to figures derived from large US companies.

Of similar closeness, the ratio Henning found in German law departments of 47 percent inside spend to 53 percent external comes very close to the typical 40/60 figure for US law departments.

Data will play an increasingly important role for general counsel as they navigate the turbulent years, so I should add three more sources of such data (See my post of June 16, 2010: six pools of management data for general counsel.).

Acritas produces its Smart Legal Brands report with a wide variety of quantitative findings (See my post of Aug. 2, 2010: average hourly rates; Aug. 2, 2010: definitions of value; Aug. 3, 2010: legal intensity by industry; Aug. 3, 2010: cost is low on ratings list; Aug. 6, 2010: negativity toward offshoring; and Aug. 9, 2010: US-based law departments compared to others.).

Organizational network analysis (ONA). At least one law firm has moved to use this tool and there is an article, I am told, about law firms and ONA (See my post of May 11, 2010: social network analysis with 6 references.).

Seven weeks from its start, 142 law departments have submitted data for the 2011 General Counsel Metrics global benchmark survey. Of them, 76 completed the question regarding their matter management system.

Astoundingly, they mentioned 30 different systems! Part of that multiplicity comes from the global participation: 87 US companies, 19 Brazilian, 7 from both the UK and Canada, along with 11 other countries are represented and systems local to some of those countries. Still, six law departments use the best represented package, while five use another. Many systems have but a single user from this set. I also noted one “Spreadsheets” and one “Outlook database” in the “matter management” references.

As the GCM survey exceeds one-thousand participants, the picture will become clearer about which software systems have more users, which tend to appeal to larger or smaller departments, and where they concentrate by industry or by country.

Poring over a compliance function survey now underway by PricewaterhouseCoopers and Compliance Week, I noted that they ask for the number of employees in the function and gave nine ranges to choose: 1, 2, 3-5, 6-10, up to “more than 400.”

While ranges may make it easier for respondents to give approximate answers, range data cripples calculations of ratios. At best, if you use a mid-point of a range, you can pretend to create a percentage, such as employees per billion of company revenue. At best, I say, because that makes for very sloppy results.

Other benchmark surveys collect data in ranges and report results in those terms: “One third of the respondents had 3-5 employees.” What can a general counsel do with such a factoid except say, “Well, I am in a common or not-so-common demographic group.”

Many surveys of law departments ask questions to be answered on a scale, such as “How satisfied are you with the technology used by your primary law firms?” The scale goes from 1 (“not very satisfied”) to 2 (“reasonably satisfied” to 3 (“very satisfied”). Most of us don’t think twice about the methodological validity of the resultant headline, “Law departments scorn law firm tech: average score of 2.2.”

Unfortunately, this methodology treats a non-interval scale like an interval scale, as though the unit between each number – 1 to 2 or 2 to 3 – were an objective, agreed-to difference between “reasonably” and “very.” Such scalar questions find favor because they are familiar and easy, but they can mangle the actual complexity of answers respondents would like to give. At the least, offer seven intervals. As is, however, commonly done, a three-point scale leaves nuance shaved off, insights squashed into crude averages or medians. This admonishment comes from Deirdre N. McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Univ. Chic. 2010) at 63.

Data from 2009 for 56 of the largest German companies indicate that the average cost per hour of their in-house lawyers was €148. At 1.5 US dollars per Euro as the approximate exchange rate, the cost was in the range of $222 an hour, almost precisely what the equivalent would have been for Fortune 150 US companies.

The German data comes from the General Counsel Benchmarking Report for 2009 of Otto Henning & Co. at 103. The report points out that the fully-loaded cost per hour had risen 5.2 percent from 2005 to 2007 and 5.1 percent during the next two years. Those increases also probably match quite closely to the US figures.

My column last week was the most interesting one I have written, from my standpoint. It links two important sources and uses of metrics by general counsel: matter management databases and survey metrics for benchmarks. I tried to estimate the US population doing either one or both and then offer several implications.

For the full discussion, click here for my column on matter management and metrics.