Articles Posted in Benchmarks

Mergers and bankruptcies reduce the number of law departments; breakups of companies and spinoffs of major operations create law departments. The NY Times, Jan. 19, 2011 at B 5, discusses the tale of conglomerates, tracking stock and tax-free spinoffs. It mentions Fortune Brands, Motorola, Sara Lee, and ITT as corporate splits along with Cargill cutting Mosaic loose as a spinoff. Each of those corporate upheavals will spawn a law department.

Deeper, though, is my question whether the number of US corporate law departments over the past twenty years has increased in proportion to population or GDP. I assume that people and productivity correlate to business creation and growth. We hear all about mergers; the point where a CEO first decides to hire legal talent inside passes without fanfare. Even while the heralded huge companies swallow others and wipe out law departments, smaller companies that bring a lawyer inside may be swelling the ranks of law departments just as fast.

What the net result is of creation and destruction of law departments may be impossible to figure out (See my post of April 9, 2006: Tyco, Cendant and Wendy’s spin offs listed; Sept. 25, 2006: LANXESS spun off from Bayer Chemicals; Nov. 20, 2006: spun off companies and the size of their law departments (FMC Technologies); March 2, 2008: Spectra Energy spun off from Duke Power; and Feb. 15, 2009: tough early years for a law department of a spin-off and mentions Kraft from Philip Morris, Catalent from Cardinal Health.).

Last year 813 law departments benefited from the largest benchmark survey ever done. This year’s survey will add hundreds more as it offers the same easy submission, zero cost, bi-monthly releases, clear charts and tables, as well as comparative data and even broader industry and country coverage.

Departments that provide their information data before May 1 will receive the 2010 Analysis Report, discounts on custom reports, comparisons to 2009 data, and Release 4.0 in October.

With your staffing and spending numbers from fiscal 2010, click here to take the General Counsel Metrics global benchmark survey. Or enter this URL in your browser: https://www.novisystems.com/NoviSurvey/n/benchmark.aspx

Trend lines on scatter-grams let data analysts not only see patterns better but also know the formula that describes the best-fit line. With such a formula, An example would be a scatter-plot that shows the rise in bonuses as a percentage of total compensation the higher lawyers rise. With the formula you can plug in a known number and find out the variable number.

For more on trend lines, my most recent column of Morrison on Metrics came out on Jan. 17, 2010 and you can be trendy and read it here.

When I tied together three international observations — compensation differences around the world in law departments, differences in the number of paralegals and fundamental spending metrics — it seemed appropriate to reach an international audience. I published the piece in CPA Global’s New Legal Review Blog in November.

If you would like to read the piece, click here for the New Legal Review posting of Nov. 10, 2010.

Daniel Lucien Buehr of Schindler Management spoke about compliance in November at ACC Europe’s 17th Annual Conference. Someone who reported on his session wrote the following: “After conducting extensive benchmarking, Buehr maintained that any company must be spending at least 0.25 percent of revenue on compliance or face governance problems.” This quote comes from notes taken for the “European Briefings” supplement to ACC Docket, Dec. 2010 at 4.

Without knowing more about the source, accuracy and completeness of the cited quarter-percent benchmark, little more can be said. After all, the entire legal function of a company could be deemed a compliance effort and typical legal spending runs around 0.5 percent of revenue, twice the figure cited for compliance.

Still, with the many caveats noted and others not noted, it can be said that Buehr has offered a figure that should stimulate further discussion and research.

Ten years or so ago, 18 countries deemed to operate under a common law system boasted 35 companies listed on a stock exchange for every million people in the country. Thus, if the United States had about 250 million residents when the article was published in the Economist, April 19, 1997 at 78, and since its ratio was 30, it would have had about 7,500 quoted companies.

For 21 French civil-law countries, however, including among them Indonesia, Mexico and Spain, they average only 10 listed companies per million residents. In six countries that legal scholars classify as German-type legal systems, which include also Japan, South Korea and Taiwan, the average was 16; for four Scandinavian countries, which form a third group of civil law countries, it was 27. If something similar to those ratios holds today, we have another tool to estimate the number of legal departments that flourish in the largest countries. For example, if we lop off half the population of the world as being less developed, the remaining 3 billion in population would suggest about 61,000 public companies and therefore law departments (using the overall average of 22 per million capita).

The article also shows stockmarket capitalization as a percentage of gross national product among the four groups. The common law countries in 1994 stood at about 60 percent of GNP. The German group showed 45 percent, the Scandinavians 30 percent, and the French lagged at 20 percent. We might well extrapolate legal intensity and corresponding workloads on law departments in line with those figures.

“Synthetic indices,” as explained by the Economist, Jan. 8, 2011 at 60, are “indices combining several related measures into a single number which are often used to back broad claims.” For example, an index of corporate IP prowess might be constructed from the number of patents applied for in a year plus R&D spending as a percentage of revenue plus references in the annual report to innovation and intellectual property. For a group of companies, if you collect those three numbers for each of them, put them on a comparable scale and sum them, you create a synthetic index.

I created such an index with my rankings of industries and countries by legal intensity (See my post of Nov. 30, 2010: USA in the middle of the pack; and Dec. 1, 2010: industry ranking.). Among the methodological difficulties synthetic indices face is that interpreters may ignore margins of error: they regard tiny differences between rankings as significant. Also, minor changes in components can have magnified effects on the outcomes. Another problem comes from the common situation that a narrow component is treated like a proxy for a broader measure.

Used skillfully, however, synthetic indices can help us understand and quantify a domain better than we did before.

Alcatel-Lucent Bell Labs employs 1,000 researchers and has produced a portfolio of 27,600 active patents; it added 2,100 as registered in 2009. These figures come from 2010 Intelligence Report & Directory Series of Leaders League at 82, which gave me the opportunity to speculate on a benchmark: in-house patent lawyers per researcher.

The profile says that around the world Alcatel-Lucent Bell Labs has “150 people working on industrial property.” It is unclear whether that means people in the legal department, lawyers only, total people in licensing, or what. Not having come across such an arcane ratio, I can proposes one: IP lawyers per 1,000 R&D staff or total members of the legal department who work in the IP area per 1,000 R&D staff (See my post of Oct. 10, 2008: IP lawyers should sometimes sit with inventors.). It stands to reason that this ratio tells something useful about legal support for the inventive side of a company.

Whew! It’s been a whirlwind of a year, and so deeply gratifying to consider that close to a thousand general counsel have benefited from the largest benchmark survey ever conducted – twice as large as all the others last year combined!

Law departments that still want to submit their data are warmly welcomed — click on the icon upper right. You will get the report, which covers 21,971 lawyers (median of 7 per department), total legal spend of $19.5 billion, and total corporate revenue of $5.3 trillion. With 20 industries, 47 countries and 8 regions, there is data for everyone who wants to learn and improve.

Thank you, all those who have helped out or taken part! Here’s to 2,000 departments in 2011!

A footnote in the 2010 Supplement to Robert Haig’s Successful Partnering Between Inside and Outside Counsel (West) in Chapter 17 at 17, refers to a listing of the 200 largest legal departments. That list, it says, “has provided general counsel with a unique benchmarking tool to measure their staffing levels against other companies within their industry.”

Not so. If all a general counsel did was say, “X Company has 65 lawyers, Y Company has 45, and I have 35,” that does not create a benchmark tool in the way I think of them even if they are all in the same industry. If, however, that same general counsel knows the revenue of all three companies and divides their lawyer numbers by the revenue expressed in billions, a benchmark starts to emerge. The data is normalized (See my post of Sept. 30, 2010: normalized figures with 14 references.). Even if normalized it is still hardly representative, and data from several more companies would need to be included for the results to offer much value.