Articles Posted in Benchmarks

The French bar group, Juristes Associes, recently surveyed the top 40 French public companies. Four of them were reorganizing their legal departments or were otherwise unable to give precise figures, while three companies (Lafarge, LVMH and Oreal) declined to respond. Of the 33 legal departments that gave data, 10 had between 9 and 39 lawyers, 7 between 40 and 100 lawyers, and the largest 16 each had more than 100 in-house lawyers.

According to the item posted by ECLA, the confederation of national associations of company lawyers in Europe, representing almost 31, 000 company lawyers in 17 countries, “The companies with the largest legal departments are BNP-Paribas (510), France Telecom (424), Société Générale (330) and Total (300).” (See my post of July 5, 2006 about the scale advantages of large law departments; and June 15, 2006 about whether they are more managerially innovative.)

Plaintiff’s counsel often drags their feet or courts go into deep freeze. A company’s litigation counsel incurs minimal costs during those hibernation periods; cycle time has no applicability when no wheels are turning. An unorthodox indicator of successful performance by a litigation firm perhaps, but quiescence serves a defendant at times.

The fact that some cases lie fallow for months at a time is true, and it seems counter-productive for a law department to want to measure cycle time for cases where the company spends nothing while the plaintiff or the judge dithers.

Massachusetts had no idea how much it was likely to spend on outside counsel during its fiscal year that ended June 30, 2004. The governor’s chief legal counsel, Daniel Winslow, had seen estimates that ranged from $6 million to $20 million.

Meanwhile, according to the Boston Bus. J., May 23, 2003 (Sheri Qualters), Winslow said that the state “spends about $45 million per year on its staff of 647 full-time and 20 contract lawyers scattered throughout the state’s operations.” Really? $70,000 per full-time lawyer? And that figure covers paralegals and secretaries? I doubt it.

Note also the enormous size of the state’s legal department (See my post of Nov. 5, 2005 on legally well-endowed government agencies.).

I have been gestating a post, which has finally reached term. What aspects of law department management do we know almost nothing about, what dark continents remain to be explored?

That is a sprawling topic, so for a more modest start, look a little ways into the fog: unknowns in management that have to do with the people who work in a law department.

We do not know how to measure or describe succinctly who asks how much for help in a law department, or who gives it (See my posts of June 12, 2005 on social networks; and Jan. 4, 2006 about knowledge networks when veterans retire.). We have no facility to describe the degree of teamwork exhibited in a law department (See my posts of 2005: Oct. 1 on the Johari window, April 9 Hartman-Kinsel, April 18 MBTI, and Oct. 19 MLE4.); or differences in roles between paralegals and secretaries. It remains far more mystery than science how work is effectively delegated, and no one has figured out how to quantify a balanced workload. Other lacunae will come to mind.

Often it is difficult to say whether, and to what extent, a company has truly won or lost litigation. If the plaintiff withdraws the complaint, that clearly counts as a success although it might happen only after considerable effort and expense. Has the corporation won if the suit was baseless? If the verdict is for the defense but at a cost of millions, how – unless the potential liability could be known with some certainty – can a triumph be declared?

Much litigation closes with a result that is not easily characterized as binary: win/lose. If resolved by settlement, no one can say for sure whether the amount paid, let alone the propriety of settling at all or at that time, constituted success or stumble. If the settlement of a matter involves anything other than cash payment, how can the company even put a monetary value on the resolution?

Benchmark studies often make use of litigation outcomes, but their problematic quality needs to be kept close in mind.

Randy Cadenhead, a lawyer at Cox Communications, suggested in a comment to my post of June 28, 2006 that “One metric to apply for comparison purposes would be to use average pay rates for the same level employee.” His thoughtful idea set me to digging and calculating.

According to the latest Hildebrandt International Survey of Law Departments, the ratios of median cash compensation would mean that one lawyer equals .43 paralegals, .32 non-attorney professionals, and .25 secretaries. Those ratios do not mean that four secretaries equal a lawyer other than from the standpoint of cost. This data comes from 130 companies that provided staff and compensation data in the 2005 Hildebrandt International Law Department Survey. It is based on median total cash compensation for 5,778 lawyers at $187,100; 838 non-attorney professionals (administrators, office managers, and other managers, for example, but excluding compliance staff) at $97,341; 1,722 legal assistants at $59,645; and 1,953 secretaries at $45,972.

Perhaps it would be better to limit ourselves to paralegals and non-attorney professionals, and even then downgrade the equivalencies. By that I mean, perhaps three paralegals equal a lawyer, and four non-attorney professionals equal a lawyer – only for purposes of trying to convert legal staff into an equivalent single figure. This is the reasoning of chess, where a general heuristic is that a horse equals three pawns, a rook five pawns, and a queen nine pawns.

An excellent publication by Michael Kaminski, a partner at Foley & Lardner, describes 27 possible metrics and measurements that a company can choose from to describe its patent activities.

Kaminski breaks the metrics into eight groups, which he describes as “generally in order from most common or simple to increasingly esoteric” (at 10). These are the groups, with the number of metrics in it stated in the parenthesis: a charter (1), a “standard” set (4), a “product-centric” set (9), a “money saved” set (2), a “licensing” set (3), a metric to quantify risk avoidance (1), a “patent citation” set (3), and an “accounting information” set (4).

A survey in February 2006 by the Australian companies Mahlab Recruitment and Harris Cost Lawyers gave law department respondents 14 choices to answer the question: “During 2004, what were the five most common ways that you located new law firms?”

The five methods that respondents most frequently selected were closely clustered: (1) “referral from in-house counsel at my company,” (2) “panel firm [which had the most number 1 responses],” (3) “referral from law firms,” (4) “referral from other employees at my company,” and (5) “referral from in-house counsel at other companies.” Word of mouth dominates.

What interests me is that the sixth most frequently selected was “search of law firm websites,” even though it dropped to half the frequency of the top five. That drop-off gives a clue regarding the usefulness of this source of information, but we still can’t evaluate except quite loosely the popularity of this method of finding new firms.

It distorts our quantitative analyses to rely so much on metrics per lawyer (See my posts of Nov. 16, 2005 on cost per lawyer hour inside and Sept. 27, 2005 on oddities from ACC metrics and the distortions this causes.). What law department managers and consultants need is an accepted translation of everyone in a law department into one equivalent figure (See my post of May 31, 2005 on the reason to normalize data.).

For example, the standard might be decided that 2.5 paralegals make up the equivalent in work output of a lawyer. If we were to convert four or five administrative assistants (See my post of May 17, 2006 on the title and definition of this position.), we would cover even more members of the department. We can already convert part-time lawyers, as we translate them into full-time equivalents (See my post of Oct. 18, 2005 on FTE and internal cost rates.). To convert all the other positions that law departments have (See my post of Sept. 10, 2005 on the multiplicity of law department positions.), it becomes harder, but relatively few law departments have them and perhaps the translation would be midway between paralegals and administrative assistants.

Somewhat like chess pieces all have a value in terms of pawns; the calculation of full-time lawyer equivalents would allow our benchmarking studies to be more accurate than we are now with the the current usage of legal staff, where each position counts for one.

To give credit where credit is due, if it were not for self-interest much of the research reported in these posts would not exist. Advocacy groups and vendors abound, and some of them survey law departments in support of their positions or offerings. My flashing yellow light has to do with objectivity: we must all be cautious regarding data that might be skewed by the views of the group that gathers and analyses it.

Without impugning the quality of any of the facts found by these gatherers, here are some of the purposive survey results I have encountered. See my posts regarding proponents of alternative dispute resolution (ADR) (Dec. 9, 2005), executive search firms (March 12, 2006 and diversity among general counsel), technology vendors (May 1, 2005 and electronic billing), legal research (Jan. 16, 2006 about savings), consultants (Oct. 29, 2005), trade groups (June 6, 2006 and the Federal Judicial Center), expert witnesses (May 17, 2006), electronic billing vendors (Jan. 4, 2006), and law firms (April 7, 2006).

In other words, every cottage in the legal village produces what may be self-serving data, which does not mean the data is inaccurate, but which does mean that those who act on the data ought to bear in mind the source.