Articles Posted in Benchmarks

Dashboards are reporting tools that present visually in one place several key metrics and at a glance give a sense of the department’s performance against a goal. Legal department managers ought to think in terms of dashboards as that thinking disciplines them to consider, gather and analyze metrics that are insightful (See my post of Aug. 24, 2006: dashboard compared to balanced scorecard; April 13, 2007: KPIs and performance metrics compared to dashboards; Dec. 12, 2007: Pfizer and Business Objects for its dashboard; April 27, 2008: Kraft and a litigation hold dashboard; Dec. 9, 2005: data visualization software for dashboards; and March 29, 2009: Celirity’s Access dashboard.).

Dashboard software translates metrics into dials, pie charts or other and immediately informative – graphics. Closely allied to the topic of dashboards are my posts on balanced scorecards and data visualization (See my post of Feb. 26, 2008: balanced scorecards with 8 references; and May 7, 2008: methods to portray data with 9 references; 22 cited in one.).

PatentBuddy.com maintains a database of employment statistics for registrants to the U.S. Patent Bar. For the six-month period ending March 30, 2008, the company identified about 1,000 new patent agent/attorney registrations. Among those, 69 (6.8%) were “affiliated with corporations.” For the following quarter, the 525 new registrants included 8.8 percent affiliated with corporations. The next two months, 5.8 percent of the Patent Bar registrants indicated they were affiliated with corporations.

My take-away from this data, provided by The Lawyers Competitive Edge, Vol. 11, March 2009 at 11, is that corporations house something on the order of 6-9 percent of patent lawyers, since the Patent Bar new registrants match that range (See my post of Aug. 14, 2006: assumes about 90,000 inside lawyers in the US.).

A general counsel might agree to provide to a primary law firm the department’s historical data on some class of matters. The only data redacted would be the name of the law firm that handled the matter (and any identifying information about timekeepers and rates). Thus the firm would be able to analyze cycle times, monthly billing, milestones, staffing and other factors that drive costs.

As a first step, the firm entrusted with this ore might figure out the cost parameters of those kinds of matters. As a consequence, the firm might be much more willing and able to offer to handle upcoming matters for a fixed fee, since its partners would know much about them possibly more than the law department. As a third benefit, the insights would help the firm attract other clients or prospects. They could speak knowledgably about drivers of costs.

Oh, and the law firm should not charge for this privileged access to information and insights and the excavations they conduct.

If law departments disclosed the average LSAT score of their lawyers (the standardized test everyone takes who applies to a US law school), might that metric predict some key benchmarks? For example, might lawyers per billion of revenue decline as average LSAT scores rise (See my post of Aug. 28, 2008: hedge fund managers and their SAT scores.)? This idea came to me from the NY Rev. of Books, Vol. 56, April 30, 2009 at 39, which says “rating services like Moody’s use SATs in calculating the credit standing of college bonds.” Smarter students equal a sounder college; ergo, smarter lawyers equal a better law department.

LSAT scores might be a proxy for general intelligence (See my post of Sept. 21, 2008: IQ with 16 references.) and thus the overall quality of lawyers – or perhaps not. For example, would there be any correlation between the LSAT scores of a general counsel and the rank of his or her company in its industry? Does the IQ cream rise to the top, are standardized tests of mental agility predictors of in-house success?

According to a recent survey, total legal spending per lawyer varies little between the median US figure and the worldwide figure. The two, presented by Jon Bellis during a webinar, showed United States lawyers at $1,056,351 per lawyer and worldwide lawyers at $35,000 less, $1,021,442.

The three-percent difference surprises me because the received wisdom is that the United States generates much more expensive legal costs and salaries. The near equality of the two medians puzzles me even more because there are often more, but lower cost, lawyers in law department offices outside the US. With less spend and more lawyers, that would drive down the worldwide spend per attorney.

More perplexing is that US law departments have paralegals, doing some amounts of legal work, allowing the department to get by with fewer lawyers per unit of legal work than their non-US colleagues who lack paralegals, yet driving up spend per attorney. Then too, some might suggest somewhat more sophistication prevails in the use of technology among US corporate attorneys, capabilities to increase productivity, reduce the number of lawyers needed, and drive up the US median. Both paralegals and technology, however, as they lower lawyer numbers, may reduce the the US median portion inside which is dominated by lawyer compensation.

If a group of law departments have similar ratios of lawyers to non-lawyers, then a comparison of fully-loaded internal cost per lawyer hour gets at something comparable and meaningful. Otherwise, if the data comes from law departments that have significantly different staff ratios, the hourly cost match ups do not have much utility (See my post of Aug. 27, 2008: fully-loaded cost per lawyer hour with 31 references; and March 9, 2009: fully-loaded with seven more posts; and July 31, 2006: lawyer-equivalency ratios based on compensation).

We need a formula to take account of the different profiles of leverage. Alternatively, we should accept that fully loaded costs ought to be calculated per legal staff hour, which includes lawyers, paralegals and everyone else employed in the law department. We could still use 1,850 hours as the standard billable hours for lawyers and perhaps use 1,800 for everyone else. The reason for the reduction in hours is that few people in a law department other than lawyers work past normal closing hours or on weekend.

Most surveys report average figures, such as the average billing rate of outside counsel or the average number of lawyers per billion of revenue. Most reports calculate their averages by adding each participant’s figure and dividing by the number of participants. That crude average means that law department of two lawyers contributes to the average just as much as does a law department of two hundred lawyers.

A more sophisticated calculation produces a “weighted average.” Depending on how you calculate it, the figure for the two-hundred lawyer department should have something like 100 times as much influence on the weighted average as the figure for the two lawyer department. More specifically, one method multiplies the number of lawyers in a department times the metric you want to weight, sums all those products, and divides by the number of lawyers in the survey group.

Another example of a weighted average is a similar calculation weighted by the revenue of the survey participants. Bigger companies by revenue thereby affect the weighted average more than smaller revenue companies (See my post of Nov. 30, 2005: one way to compute a weighted average; Dec. 31, 2006: a second way to calculate a weighted average; Nov. 25, 2006: weight surveys that cover multiple business components by component revenue; and Feb. 20, 2006: a weighted average for litigation cycle time.). Aside from external benchmark surveys, individual law departments should weight their own data from regions, or law firms, or responsible lawyers.

An aggressive, creative company – one that probably has higher margins than a less pushy company does – is likely to face more lawsuits than a relatively stodgy company that sticks to its knitting. If the brash company challenges other companies, pushes into new areas, creates markets, and tries innovative marketing and financing, doesn’t it stand to reason it will accumulate more litigation, both as plaintiff and as defendant? But, the investment, as it were, in that litigation presumably inures to its growing revenue and wider margins.

More generally, margins as a denominator for certain benchmark metrics may give a different picture than revenue. More rewards (margins), more risks (cases in court).

An article in the ACC Docket, Vol. 27, March 2009 at 86, lays out a roadmap for how to get more from your matter management system (MMS). The author, Nanci Tucker, touts the performance metrics that an MMS can generate. “Common metrics in the area of staff productivity include the number and type of matters being handled, cycle time per matter, total legal spend per matter per attorney and performance of the practice group level.”

All commendable, those metrics, but to be available and reliable they depend on consistent, disciplined implementation of sound policy decisions. Several of those policies I list below:

What is a matter? (See my post of March 26, 2008: matters with 14 references.).

A senior executive at a legal services company wrote me. He sent data about differences between law departments in the same industry in terms of lawyers per billion of revenue:

“Here are some Lawyer/Revenue ($Bn) figures (that may not be accurate) that I came up with combining the Fortune 500 data with the Corporate Counsel survey. In Insurance, Liberty Mutual 33 vs Nationwide 20, in Technology, Qualcomm 11 vs Motorola 5, in Pharma, Pfizer 7.7 vs Johnson & Johnson 3.3, in Utilities, Edison 7.2 vs Constellation Energy 2.8. The question I’m really asking is why do some quite comparable companies have such variability in the relative size of their law departments?”

An excellent question and let me speculate on some of the many possible explanations. One worries me, an ardent benchmarker. Perhaps at the size of these companies, “industry” is too broad. J&J manufactures and sells billions of dollars of medical devices, for example, and probably much more than Pfizer, which is more of a pure-play pharmaceutical company. If their businesses don’t actually resemble each other, if it is misleading to place them in the same “industry,” neither will their legal benchmarks match.