Articles Posted in Benchmarks

Based on three different estimates, and admittedly sketchy data, it is plausible that more than 20,000 US companies have legal departments. Test my reasoning and let me know how well it holds up.

First, In-house lawyers as percentage of practicing lawyers, and then average lawyers per law department. Lawyers in the Us held about 759,200 legal jobs in 2008, according to the US Bureau of Labor Statistics website. http://www.bls.gov/oco/ocos053.htm Of them, what percentage practice as an employee of a company? An unpublished article by Michele DeStafano Beardslee and three co-authors, discussed at the Georgetown Conference on the Future of Law Firms at 6, n. 22, tells us that in the United States, “in-house counsel, as a percentage of all lawyers, was declining from 11% in 1970 to 8% in 1995, where it remained through 2005” (citations omitted).

Assuming the percentage has held since then and something like 800,000 lawyers practice law in the United States right now, an eight percent figure yields 64,000 in-house US lawyers (See my post of Sept. 25, 2005: ACCA estimate of 71,000 non-governmental in-house lawyers.).

My hypothesis runs like this: as companies generate more revenue for each employee, they are likely to be in higher margin industries, less labor intensive, more intellectual property intensive. As such, per employee they probably have more lawyers in-house.

This speculation came to me as I read in the ACC Docket, March 2010 at 90, about Cox Communications. The $8.5 billion company has 23,000 employees and an internal legal department of 17 lawyers. Cox, therefore, generated $369,000 in revenue per employee and had two lawyers per billion of revenue. Stated in terms of other benchmarks, Cox generated $500 million per lawyer and had 1,352 employees per in-house attorney.

Ideas need legal protection and I predict that idea-rich companies have more lawyers per employee than other companies.

Theoretically we can describe every legal department with a single index figure. The figure captures for each department its four fundamentals of metrical benchmarks: number of legal staff, amount of legal spend, size of corporate revenue, and category of industry. Calculations can then show how every other legal department compares to every other department, and how closely.

A department with 30 total staff (lawyers, paralegals, and other staff) would be 30S. If its spend both inside and outside were $30 million it would be 60$ (in millions). The revenue of the company would be $6 billion, expressed as 6R (in billions) and its industry would be manufacturing 8I (it is eighth on an alphabetical list of industries).

Software could match every legal department to every other legal department on these four dimensions and calculate the degree of closeness. With an improvement, each fundamental metric would be weighted with a different degree of importance during the matching process. Thus, the I metric (industry) needs to match exactly; the R number (revenue) can calculate the difference from any other company’s R and by my lights would be weighted next. Both S (total staff) and $ (total spend) would have the same importance and the software would calculate the difference.

On May 6th, Martindale-Hubble’s Connected will host a webinar on law department management metrics. The first findings from the largest-ever benchmarking, prepared by General Counsel Metrics, LLC, will be released and discussed that day. All you need to do to take part is join Connected and sign up.

In-house counsel familiar with Europe and Latin America will be joining me in the panel as well as with activities during the two weeks thereafter. For example, there are Skype interviews of us and there will be a Twitter session.

Tesseracts are four-dimensional cubes with sixteen corners and thirty-two edges (compared to a cube’s eight and twelve). Topologists and geometric mathematicians work with and describe tesseracts by using four coordinates for each point. By comparison, the standard X-Y graph uses two coordinates for each point; a three-dimensional graph adds another coordinate for each point.

Why am I going on about tesseracts? A form that can only be imagined would convey the four fundamentals of metrical benchmarks: numbers of staff, amount of spend, size of revenue, and category of industry.

Picture each fundamental metric as a coordinate for a law department and dot all those coordinates inside a tesseract. The distribution, assuming an ample set of law departments, will tell us quite a bit about patterns of performance metrics.

An article about the costs of e-discovery raises an idea regarding mandatory collection of data from law departments and what they spend for litigation and on e-discovery. “It would do the [Federal Rules Advisory Committee] good to collect data on that subject and corporations should be willing to provide it.”

Government collected metrics on legal department spending! An exciting thought from Met. Corp. Counsel, April 2010 at 9. Whether it will come about I have no way of knowing, but I am not holding my breath.

Michael Blastland and Andrew Dilnot, The Numbers Game (Gotham Books 2009) at 18, gave me the idea to translate legal department spend into dollars per lawyer per day. We can all grasp more easily such human-scale metrics.

I started with the departments that have participated in the global benchmarking survey of General Counsel Metrics. In total, nearly 400 companies have so far submitted complete data on what they spent in 2009. The total exceeds $10.377 billion for their internal law department plus their external counsel expenses.

Having also compiled from those companies 11,295 lawyers, we can figure out what the massive group spent each day in 2009, per lawyer on their legal expenditures. For each individual in-house lawyer, the weighted average per day reached $2,517 per lawyer.

The 2002 PricewaterhouseCoopers Law Department Spending Survey, covering data from nine years ago, yields a couple of observations.

The report states at page 4 under “Company Ownership” that 24 of the participants are a subsidiary of a publicly traded company. Confusingly, then, under “Corporate Governance” its shows 20 participants are “Subsidiary of U.S. Parent Company, 16 are “Subsidiary of Foreign Parent Company,” and one is an “Unincorporated Division.” I can’t reconcile the 24 subs and the total of 37 subs and divisions. Whatever the number, since the survey covered about 200 law department participants, at least twelve percent of them were not reporting data for their company’s entire legal department.

Second, consider the stability over time of several basic benchmarks. The group of non-bank participants reported 0.34 percent as the median total legal spending as a percent of worldwide revenue. The number of attorneys per billion dollars of worldwide revenue, at the median, was 3.6. Total inside spending per attorney (median) was $335,213 while the fully loaded inside hourly cost per attorney was $178. Data from my global benchmark survey eight years later points to almost identical results after adjustments for inflation (See my post of March 4, 2010: comparable preliminary results for total legal spend and lawyers per billion.).

Take your total legal spending (your budget for internal compensation and operations plus your expenditures on law firms and other external vendors). Divide that number by your lawyer count at the end of the year. If you are a large US corporation, that result likely falls into a range around $1 million.

An article written by Prof. Michele DeStefano Beardslee in the Georgetown J. of Legal Ethics, Fall 2009 at 1259, 1323 buttresses this benchmark. She obtained survey responses from 139 general counsel of S&P 500 companies that covered their 2006 spending and staffing data. Their median “approximate legal budget in 2006 (excluding compliance)” was $37 million while their median “number of attorneys overseen” was 35. Calculations with medians can be suspect, but those two figures suggest about $1 million per lawyer, and both the 25th percentile and 75th percentile ratios were quite similar.

A couple of earlier posts offer more support (See my post of March 1, 2008: DuPont metrics at about $1MM per lawyer; and Feb. 13, 2009: total legal spend of about $1 million per inside lawyer.). In the ongoing benchmark survey of General Counsel Metrics, the 11,351 lawyers in the survey to date accounted for total spending of $10.4 billion, which works out to be $918,000 per lawyer.

A chart in a consulting report did an excellent job of conveying efficiently quite a bit of information. It had thirteen columns, with no spaces between them, each column being for a different type of spending by the client law department on its law firms, e.g., litigation, patent prosecution, offensive patent litigation, etc.

The width of each column portrayed the relative amount (and thus percentage) of the company’s total legal spend for that type of spending. Each column to the right was less thick than the one to the left as the total amounts declined. On top of each column rests the absolute dollar figure.

Within each column there was a rectangle whose vertical size corresponds to the amount paid the law firm named within it. The rectangles shrank from the largest one at the bottom of the column – the law firm paid the most in the previous year for that type of legal service – to the firm paid the least at the top.