Articles Posted in Benchmarks

For a given internal budget, law departments vary significantly in their calculated cost per lawyer hour depending on the number of lawyers they have. If 1,800 chargeable hours per attorney is assumed, then an internal budget of $4,500,000 means $312 per hour if there are only 8 lawyers, $250 per hour if 10 lawyers, and $208 if 12. Cost per lawyer hour, spend held constant, varies by the number of lawyers.

Now consider leverage for a given total legal staff. If the department with the least lawyers (8) has 12 paralegals, admins, and others, its ratio of lawyers to all legal staff (ALS) is 40 percent. The ten-lawyer department with 10 staff has 50 percent lawyers, while the 12-lawyer group, with 8 staff, has 60 percent lawyers of its total staff. The more staff per lawyer, total staff held constant, the higher the cost per lawyer hour.

These interacting components, structure and cost, present a difficult area in which to recommend best practices. You can vary the number of lawyers and the number of non-lawyers in a huge number of combinations. The optimal mix will be better understood when there is a benchmark database large enough to show how the various combinations correlate to total legal spending as a percentage of revenue within an industry.

The 93 companies processed to date have 2,096 lawyers, 569 paralegals, and 1,292 other legal support staff. Aggregated, their internal spend has reached almost $900 million and the external counsel spend close to $1 billion. With the median company at nine lawyers and $2.3 billion in revenue (right you are, close to four lawyers per billion), the earliest survey participants range from legal departments of one lawyer to more than 190 and revenue from less than $100 million to much more than $50 billion. More than a third of the companies have revenue that would put them on the US Fortune 500 list.

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Most legal departments are able to generate basic data on their staff and spend with reasonable accuracy. The solid standbys include number of lawyers, although there some thought needs to be given to full-time equivalents and contract lawyers (See my post of Dec. 15, 2009: full-time-equivalent lawyers and others with 6 references; and July 17, 2008: contract lawyers with 12 references.).

More difficult is how to handle practicing lawyers in decentralized departments that don’t report to the chief legal officer.

Paralegals present some definitional issues and often don’t exist as a recognized role in some countries (See my post of July 9, 2007: paralegals with 11 references; and June 22, 2008: paralegals with 18 references.).

Most legal departments are able to generate basic data on their staff and spend with reasonable accuracy. The solid standbys include number of lawyers, although there some thought needs to be given to full-time equivalents and contract lawyers (See my post of Dec. 15, 2009: full-time-equivalent lawyers and others with 6 references; and July 17, 2008: contract lawyers with 12 references.).

More difficult is how to handle practicing lawyers in decentralized departments that don’t report to the chief legal officer.

Paralegals present some definitional issues and often don’t exist as a recognized role in some countries (See my post of July 9, 2007: paralegals with 11 references; and June 22, 2008: paralegals with 18 references.).

High tens of thousands, that’s all I can really estimate. Let me explain this fragment based on a study by Ernst & Young on headquarters locations of the Global 500. In the ten countries with the most, the US leads with 140, followed by Japan (68), Germany (39) and on down through France, China, the UK, Netherlands, Italy and Korea. Closing out the ten is Switzerland with 15. The top ten countries account for 80 percent of the 500 largest corporations in the world.

But, Rees, what about legal departments? The total revenue last year of all the companies covered by the chart, reproduced in Practical Law, Feb. 2010 at 94, was $25.1 trillion. If we take four lawyers per billion dollars of revenue as a handy approximate, those Jovian companies had 100,000 in-house lawyers. More, they would average 200 lawyers per department. And even more, if total legal spending were 0.3 percent of revenue and of that spend, 60 percent went outside, they would gush something like $45 billion to external counsel.

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Most industries have markers of success, such as movies released by studios, Nielsen ratings for broadcast companies, square feet of warehouses for distribution companies, or ton-miles for truckers. The benchmarks by which general counsel in those industries might compare themselves ought to incorporate such industry-specific benchmarks.

Far from knowing what they are, I can imagine some: billions of barrels of reserve for oil companies, customers served for retailers, room-nights for hotels, or square feet leased for real estate brokerages.

When you show lawyers per billion passenger miles among airline law departments or total legal spending as a percentage of premium income for insurance companies or total legal staff per car produced, you express the performance of the law department in terms of metrics that are meaningful to executives in those industries (See my post of March 11, 2009: differences within industries on benchmarks.).

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Lawyers per billion of revenue. Sounds so simple. Underneath, however, definitional and operational complexity lurks. My article last year on this ubiquitous benchmark, lawyers per billion of revenue, covers many of the nuances [] but afterwards I had some further thoughts.

One is that a better measure would be lawyer-equivalent per billion, where there is an agreed-to conversion rate, so to speak, between paralegals and lawyers (perhaps 3 to 1) and administrative support staff and lawyers (perhaps 5 to 1). An administrator might be two to one. If everyone working in a legal department could be converted into a common denominator, the benchmark standard would then much more comfortably accommodate a broader range of staffing profiles (See my post of July 31, 2006: secretaries counted in terms of lawyer-equivalents; and June 28, 2006: a proposed standard.).

Second, if there were a convention to treat long-term temps (permanent temps?) and contract workers within the standard numerator, even more variations in legal department structure would be dealt with. For example, if anyone worked more than six months in a department, count them as a permanent equivalent for that period.

The National Law Journal just published my deliberations on the eight categories of metrics that confront general counsel. I wrote about them in the order of how commonly those metrics come to the fore and then continued with seven deeper thoughts on overall characteristics of legal department metrics.

For some poor souls, fascinating reading! To get your PDF of the article,click on the following link . And, do let me know your thoughts.

Everyone has heard Benjamin Disraeli’s acidic quip, “There are lies, damn lies, and statistics.” He was 30 percent wrong. A few might even have smiled at Mark Twain’s “Figures don’t lie, but liars figure.” Ponzi schemes, perhaps? Many have heard variations on Lord Kelvin’s dictum that “You can’t manage what you can’t measure.” Although an advocate of quantification, his exaggeration does not help the cause of quantification; perhaps he should have stuck to thermometers.

Slanders and snide remarks about measuring what in-house counsel do come easily to many. I find them misguided because I believe in and write about lawyers and management statistics about 74 percent of the time.

More seriously, if notable management abilities in legal departments were an inherent gift of just a few lawyers, one that others can only admire but not learn, then metrics could barely poke their head out of the foxhole. But if as I firmly hold quantitative analysis buttresses managerial decisions, if metrics weight the scales of action toward effectiveness, if figures not only don’t lie but help improve the lie (to use a golfer’s phrase), and if anyone can gain command over the tools and techniques of statistics, then these sound-byte quotes are wrongheaded and managers should use numbers.