Articles Posted in Benchmarks

When talking with a friend recently, it dawned on me that every time a general counsel gathers metrics and ponders what they mean, someone in the law department is at risk. Metrics are never neutral numbers, existing on their own independently of humans. Rather, all metrics speak to some absolute or relative performance of a person. If you assess workload metrics, for example, it is possible to conclude that one lawyer is more productive than another. The second lawyer to some extent is thereby harmed. If you look at outside counsel fees managed per responsible lawyer, someone will come out at the bottom of the list.

Even with department-wide metrics, as when a general counsel determines total legal spending as a percentage of revenue, there is a risk that someone will interpret the resulting figure as inadequate performance or hold a person responsible. Metrics have meaning, and where there is meaning, someone can draw a mean conclusion regarding effectiveness. Adverse conclusions can harm someone.

LawProspector, founded in early 2008 by a group of attorneys working in the litigation support field, has gathered data on the largest active pieces of litigation in the US federal courts. This data “is loosely defined by the intersection of the world’s top 200 law firms, top 100,000 law firm contacts, top 3,000 corporations and 35,000 active federal cases in the most important civil practice areas.”

LawProspector’s founder, Kenneth J. Lopez, J.D, sent an example report. It shows in a bar graph 53 law firms and how many cases they are handling for in total for Microsoft, Pfizer or Bayer. The detailed table below has almost 20 fields of information for each case.

The data available would appear to help general counsel. For example, they could run conflicts checks on the law firms they retain or are thinking of retaining. They can find firms who would be solid invitees for an RFP process. They might use the LawProspector data to figure out benchmarks, such as cases per lawyer. I hope to prospect for some of these applications in later posts.

If you standardize the values of variables that vary on their measurements, you can compare their relative magnitude. For example, say you want to match how your department stands on cases per lawyer against paralegal base pay. The two metrics exist on incommensurable scales. But you can express both metrics in standard deviations and thereby compare your positions. On cases per lawyer your department might be 1.2 standard deviations to the right (more cases than a benchmark group), while on paralegal base comp you are only 0.8 standard deviations to the right (not as much higher). You can now say the degree to which one metric compares to the other using the shared terminology of standard deviations.

This technique is shown to great effect in an excellent chapter in Laura Empson, ed., Managing The Modern Law Firm: New Challenges New Perspectives (Oxford Univ. Press 2007) at 113-114. The authors translate several variables of what they call embeddedness into a single chart on which are shown lines of different slopes. There are lines for Board membership, cost of goods sold, repeated ties, and relational status — all related to partner billing rates. Since each of the variables has different units it is not possible to directly compare the sizes of their effects. However, by standardizing the variables and expressing them in terms of standard deviations it is straightforward to see the different effects they have on the dependent variable, partner billing rates.

A report from BNA, HR Department Benchmarks and Analysis 2008, found the median per capita budgeted expenditure for HR departments was $1,082 per worker in 2006. The counterpart for legal would be total legal spending per corporate worker. I have never seen that figure calculated and analyzed, probably because it neither gives guidance nor allows equivalent comparisons (See my post of April 18, 2009: lawyers per 1,000 employees with 6 references.)

The study, conducted from in mid-2007, gathered usable data from 607 respondents, some of which were in companies with multiple HR departments. The full report is available for purchase from BNA PLUS at (800) 372-1033 and it may suggest other improvements in the arena of legal department benchmarking.

A recent article reports that IBM’s patent attorneys “filed more than 70 percent of the company’s patents in 2008 for software and services.” The article does not say what percentage of Big Blue’s hardware and other patent applications are generated in-house. Corp. Counsel, Vol. 16, June 2009 at 75, published this figure, which led me to wonder if there is any benchmark for how much patent prep and prosecution is typically done by a company’s lawyers.

My supposition is that the percentage is low, below ten percent, because many companies cannot support a full-time patent counsel, the costs of patent applications have been driven down to a commodity level, and technology development changes relatively rapidly.

Mavens of metrics might want to see the full cupboard of metaposts that are available on this blog. Here they are!

One group covers a range of benchmark topics (See my post of Feb. 25, 2008: practice area benchmarks with 24 references; Jan. 12, 2009: historical changes in benchmarks over time with 8 references; and July 15, 2009: descriptive metrics with 8 references.).

Seven other metaposts apply to specific benchmarks (See my post of Aug. 21, 2008: total legal spend as percent of revenue with 9 references; Feb. 25, 2009: lawyers per billion with 22 references; April 18, 2009: lawyers per 1,000 employees with 6 references; May 21, 2009: internal chargeable hours with 12 references; July 15, 2009: benchmarks for specific metrics not otherwise covered with 46 references; May 29, 2008: benchmarks other than individual metrics with 28 references; and March 29, 2009: 40/60 ratio of inside-to-outside spend with 18 references.).

I thought about an encore to my recent thoughts on key benchmarks for legal department managers, those that are known and some that are not (See my post of July 9, 2009: ten most fundamental benchmarks; and July 10, 2009: ten benchmarks general counsel may wish they could obtain.). I decided to herd together the many benchmarks that have not been collected previously. Thus I excluded posts on practice group benchmarks. The demarcation lines are not watertight, however, so I grouped the assemblage under my categories.

Cost: (See my post of March 5, 2009: percentage of legal spend paid governments for patent costs; May 24, 2005: legal spending as a percentage of profit margin; May 23, 2007: profit per lawyer; April 24, 2009: other denominators for benchmarks; Feb. 25, 2009: occupancy expenses per lawyer; March 28, 2006: inside spend per lawyer; July 21, 2008: inside spend per lawyer over time; Aug. 4, 2008: decline in ratio of internal spend as department size grows; Sept. 7, 2008: total legal costs expressed as cents per share; May 26, 2007: market capitalization as benchmark denominator; July 2, 2007: metrics that use market capitalization; Feb. 6 2009: payments made to inventors; Aug. 14, 2005: spending of $4,000 per lawyer on technology; May 31, 2005: legal spending per resident; Feb. 4, 2008: cost for corporate secretaries per entity maintained; Jan. 20, 2009: legal resolution costs – settlements and judgments; and Jan. 19, 2008: unknown metrics about non-publicly traded companies.).

Outside Counsel: (See my post of April 10, 2006: total law firms retained; Dec. 21, 2008: outside counsel spend as a percentage of revenue; May 21, 2008: percentage of in-house attorneys who manage outside counsel; May 4, 2009: outside counsel spend per lawyer, about $600,000; and July 16, 2005: law firms paid more than $100,000 per billion of revenue.).

At one point this Spring I set off on an ambitious series of posts about what I call “descriptive metrics.” I persuaded myself that I had hit upon a higher-level way to quantify and depict legal department performance and characteristics. Eight posts eventually saw the light of day, but I think the series will now go dark (See my post of Feb. 19, 2009: supervisory responsibility; Feb. 26, 2009: start of a series on descriptive metrics; March 8, 2009: in-house lawyers; March 9, 2009: fee concentration with firm size and effective rate; March 11, 2009: management initiatives; March 26, 2009: degree of client reliance on the legal department; May 19, 2009: workload; and May 28, 2009: h-index of law firm use.).

Any time a legal department counts something that metric becomes a benchmark candidate if enough departments shared their respective counts. Hence, “benchmarks” are “descriptive metrics.” To describe a law department through metrics, singly or in combinations such as indices, is no new kind of beast, so I will retire the concept and end the series.

Having presented the ten most fundamental benchmarks for legal department managers, all of them available from various sources, I mention here ten benchmarks that many general counsel may wish were more available (See my post of July 9, 2009: ten crucial metrics.).

1. Effective hourly rates of law firms that account for 75 percent or more of fees paid
2. Law firms paid more than $5,000 in a year per billion dollars of revenue

For US law departments that have more than five lawyers, here are the fundamental ten metrics:

1. They spend approximately 0.5% of their corporation’s revenue each year on their inside plus their external spend.

2. That benchmark for “total legal spending” does not include settlements, judgments and fines, which vary widely but are typically considerably less.