Articles Posted in Benchmarks

The columns I write for InsideCounsel every two weeks give me the opportunity to go deeper than my blog posts. I can sit back and think a bit, too, and go deeper.

My posts that point to the columns to date now number 10. They began in May (See my post of June 16, 2010: correlations between inside and outside spending of law departments; June 11, 2010: reasons why benchmark participants may not want to have the name of their company disclosed; July 7, 2010: costs of legal services swing widely in different parts of the world; July 8, 2010 #2: national differences in pay and the effect on total legal spending as a percentage of revenue; July 19, 2010: ratios and correlations; Aug. 3, 2010: methodology to combine internal and external litigation hours into one comprehensive metric; Aug. 9, 2010: the ratio of lawyers per billion is higher in “country departments”; Sept. 9, 2010: many in-house counsel are oblivious to spending figures; and Sept. 30, 2010: normalized metrics;

One more column, about trimmed means and weighted averages, was published on Sept. 27, 2010.

My column for InsideCounsel explains absolute and normalized figures and why normalized figures so importantly contribute to benchmark studies. Click here to read the column.

The columns draws on and goes beyond the following posts (See my post of May 1, 2005: normalize structural analysis of departments; May 28, 2005: normalized various practice area metrics; May 31, 2005: normalizing city and state figures by dividing by the numbers of residents; Jan. 1, 2006: explanation of normalized data; Nov. 13, 2006: another explanation; May 16, 2006: problems when you normalize by number of lawyers; May 26, 2007: adjust number of management initiatives by size of law department; Nov. 22, 2007: two scales on which to normalize litigation benchmarks; Aug. 28, 2008: how to align TLS/Rev across industries; Dec. 23, 2008: lawsuits per billion dollars of revenue; May 22, 2009: total lawyer hours worked per billion of revenue; Sept. 1, 2009: cost-of-living indices normalize compensation figures; Oct. 20, 2009: normalize by logarithm of revenue; and May 24, 2010: take into account tort costs of countries.).

Thirty months ago there were enough posts on statistical correlation for me to assemble them (See my post of Feb.13, 2008: correlations with 16 references.).

Since then, many other posts have referred to possible correlations in the intricacies of legal department management (See my post of March 4, 2008: profit margins and lawyers per billion; May 11, 2008 #2: R squared and correlations in multiple regressions; June 26, 2008: lawyer experience correlated to metrics; Aug. 13, 2008: R&D and total legal spend; Aug. 28, 2008: LSAT scores and benchmark metrics; Feb. 6, 2009: inventor reward programs and patent productivity; Feb. 24, 2009: intellectual capital of a company and legal intensity; March 11, 2009: between attributes of initiatives; May 11, 2010: general counsel’s demographics and management initiatives; and June 16, 2010: column on correlations and multiple regression.).

You still have time to learn from the most comprehensive benchmark study ever done, and at no cost. If you would like to see a mini-version of the report, write me from your corporate address. Or click on this link, put in your staff and spending numbers from the end of 2009, and shortly you will get the 60-page report, replete with 25 charts, scatter-plots, and tables of medians by 18 industries and 20+ countries.

The 591 legal departments in the third release of the General Counsel Metrics global benchmark survey, which was distributed on September 27th, reported a total of US$17.1 billion in total legal spending in support of US$4.7 trillion of revenue – almost the GDP of China At the end of 2009 the participating law departments had amassed 17,700 lawyers and 14,152 other legal staff.

NYU’s Law School Mag., Fall 2010 at 89, has a piece about the research of a Tax Policy Fellow regarding structured settlements. With a structured settlement, “a defendant agrees to resolve a personal-injury tort claim with periodic payments over time rather than with a lump sum.” Defendants enjoy tax subsidies when they enter into a structured settlement (See my post of Oct. 14, 2005: impact of structured settlements; and Oct. 30, 2005 #1: structured settlements.). A similar arrangement is possible with qualified settlement funds.

My reason for including this esoterica of litigation and tax is to point out that total costs of resolution need to factor in structured settlements. I suppose the best way is to discount the payment stream after taxes and include it in the year of the agreement. Second, to the degree that these kinds of settlements occur, estimates by law departments of their resolution costs are more complicated.

A correlation exists, I am sure, between corporate R&D investments and legal investments. More patents mean more in-house patent lawyers or external patent counsel, larger annuity payments, more frequent licensing arrangements (See my post of Dec. 10, 2009: licensing fees cover cost of legal department), and heightened litigation. But what the formula is that links additional R&D millions to legal department millions I don’t know.

As a small step, however, I spotted in the fine print of Wired, Oct. 2010 at 52, some data on 2009 R&D expenses as a percentage of revenue for some companies. It lists Microsoft (15%), IBM (6%), Intel (16%), GE (2.1%), Amgen (19.8%), Siemens (5.2%), Philips (6.9%), BASF (2.8%), and BAE Systems (4.9%). Each of these companies pours billions of dollars a year into research, some portion of which results in intellectual property that deserves legal nurturance and incurs legal costs.

Someday benchmarks will guide us on standard correlations between the two (See my post of Aug. 3, 2005: patents granted per million dollars of R&D spend by Microsoft; Dec. 21, 2005: IP lawyers per million dollars of R&D spend; July 13, 2008 #3: patents per R&D spend are increasing steadily; Jan. 12, 2009 #1: R&D spend is 7 times total legal spend; Aug. 13, 2008: R&D spend may correlate with total legal spend; Feb. 18, 2009: Bosch’s R&D is 7.7% of revenue; Dec. 3, 2009: about 6 times multiple, at average of 3.6% in 2008; and Aug. 10, 2007: legal components of R&D spend.).

Law departments are everywhere, in every country, yet only some of their lawyers speak English, at least well enough to take an online survey.

I looked back at the first 910 respondents to the General Counsel Benchmarks Survey to see what language they chose. Not surprisingly, in light of my own language and contacts, 92.9 percent took the survey in English. However, quite a few respondents chose from one of the other seven languages available: Spanish (3.1%), French (1.9%), Chinese (1.0%), Brazilian (0.7%), Russian (0.7%) and Italian (0.4%). As can be seen, nearly 10 percent chose another language – none yet have done so in Arabic. This means that many, many legal departments might be interested in global benchmarks but are deterred by language barriers.

A previous post collected my references here to linear increases, where one number rises in step with another number. As you add lawyers, your compensation paid rises linearly (See my post of July 25, 2010: 11 references to linear changes.).

Other phenomenon, however, increase exponentially: as one number increases, another increases or decreases by leaps and bounds (more technically, by a square or a cube). The cost and complexity of some class actions rise exponentially with the number of class members and plaintiff’s counsel. Double their number and fees might quadruple. Once product liability claims tip past various thresholds, the cost and complexity may rise exponentially or layoffs of larger numbers of employees may trigger a similar jump. Triple their number and suffer a nine-fold additional burden. Management challenges probably rise exponentially with the number of countries or continents in which lawyers are based.

Many other instances relevant to law department managers exhibit exponential rates of change (See my post of March 10, 2005: patent litigation costs may rise linearly, but not exponentially; Feb. 4, 2006: exponential drop off in interaction when lawyers are on different floors; Aug. 28, 2006: committee size and complexity; Jan. 3, 2007: linear compared to exponential; June 18, 2007: decision trees; Dec. 26, 2007: people demands as departments grow; May 29, 2009: performance problems as team size increases; June 15, 2009: time between arrival of a request and completion of the service; Sept. 27, 2009: my article on power-law distributions; and Feb. 22, 2010: managerial scope, and therefore outcomes, expand exponentially with increased law department size.).

The General Counsel Metrics study, exceeding 600 legal departments around the world, has elevated fundamental management metrics to a new level. Far more global than Hildebrandt’s, more balanced by company size than Empsight’s, with much broader coverage than ALM’s, and not only larger than all three, the rapidly improving offering – available at no cost whatsoever – has garnered much attention on this blog. Small wonder, since this blogger guides it (See my post of March 8, 2010: five innovations; and July 25, 2010: twelve benefits of participation.).

A flow of posts have announce the maturation of the metrics survey (See my post of Feb. 4, 2010: first invitation to readers to take part; Feb. 15, 2010: 93 participants; March 4, 2010: more than 300 respondents; April 2, 2010: more than 430 departments; April 13, 2010: geographic dispersion of 330 departments; May 26, 2010: first .gif notice on this blog; April 26, 2010: Martindale-Hubble Connected webinar on first release of data; May 7, 2010: podcast of webinar; May 20, 2010: first release covered 455 departments in 35 countries; and July 6, 2010: second release with 500+ and 15,000 lawyers.).

Another tributary describes the participants (See my post of May 26, 2010: almost two-thirds of respondents are general counsel; May 31, 2010: why some participants request anonymity; June 11, 2010: anonymity requested to avoid having to ask permission; June 13, 2010: seven regions but unbalanced representation; July 22, 2010: 44 Global 500 as well as 126 participants with less than $180 million in revenue; June 2, 2010: participants in multiple benchmark studies; and June 23, 2010: network externalities and value of additional participants.).