Articles Posted in Benchmarks

Everywhere one hears about “globalization” and the need for law departments of large companies to bestride our planet (See my post of Feb. 12, 2006 on the different terms global, international and multi-national.). It turns out that “foreign sales of America’s S&P 500 companies amount to a modest 25% of the total.” Even “at the 50 biggest firms the figure [foreign sales as percentage of total sales] is higher, at around 40%.” Economist, Feb. 25, 2006 at 75.

Much so-called international legal work can be done by US trained lawyers in the US. The ratio of foreign to domestic revenue is not likely to be very useful as a practice area benchmark. Even if it were, one might extrapolate from these figures that less than a quarter of in-house legal staff should be doing “international work.” Benchmark metrics suggest that the actual percentage of lawyers in-house who label their practice “international” stands at less than 10 percent (See my post of July 20, 2005 on practice area benchmarks.)

Avert your eyes if math makes you break out.

An article summarizing data from 102 Canadian law departments, published in Canadian Lawyer, May 2005 at 35, states that the departments “estimate that they will farm out an average of 32 percent of their work to outside counsel this year.” Let’s assume that means a third of the total lawyer hours of work for their companies is done by external lawyers.

A blended outside-lawyer hour typically exceeds the fully-loaded inside lawyers’ cost by about 40 percent (See my post of Oct. 18, 2005 explaining this calculation.). Assuming that metric holds north of the border, the Canadian law departments paid 140 percent times their in-house cost for the 33 percent of external hours.

Many law departments rely solely on corporate information systems (IS) support. Some departments, however, have their own IS staff.

Of the 130 law departments that provided compensation data for the 2005 Hildebrandt Law Department Survey, 27 of them reported having at least one IS Manager. In fact, those 27 companies reported a total of 48 people in that position. As to IS Support Staff, 20 of the departments reported 64 total positions. Of the 27 departments with Managers, 15 also had one or more support staff; conversely, five law departments had no IS Manager, but reported one or more IS staff.

In the law departments with their own IS staff, each one (managers and support staff) supports 40 other people in the law department.

I was struck by the statement in an article, Corp. Legal Times, Vol. 14, May 2004 at 24, that “NCR’s metrics system allows for comparative measurement of the performance of both in-house and outside counsel working on an issue.” The piece refers to the evaluation factors on which they score outside counsel – timeliness, accessibility, knowledge and expense – but says nothing more about the comparative internal evaluations.

One can imagine that if the inside lawyers track their time by matters, someone could compare inside to outside hours. Perhaps some rule of thumb applies: for every five inside hours, outside counsel typically bill twenty (or some number) of hours. Timeliness for inside counsel seems like it should parallel the timeliness of outside counsel, and accessibility should rarely be a concern – we know where the inside lawyer’s office is located! Perhaps budget management is the inside equivalent of outside counsel’s fees. In brief, how does the comparison work?

For law department managers, the levels of numbers they can make use of are countless. By that pun, I mean that we can aggregate or breakdown metrics as much as we have data, time and energy. Consider an illustration from a recent consulting project.

Our quarry was quasi-legal work, the kinds of tasks that lawyers can do but should not do (see my article in July 2005’s Legal Times on these leaches). We hunted for them with interviews and surveys.

An aggregate level would have been to report, “Lawyers in this department sometimes spend their time on quasi-legal tasks.” A more precise level: “On average, lawyers spend eight percent of their time – about three hours a week – on quasi-legal tasks.” With more investigation, we could find that “Ten percent of the lawyers spend less than one hour a week; 40 percent spend 1-3 hours a week; 30 percent spend 3-5 hours a week; and 20 percent spend more than 5 hours a week on quasi-legal work.” Sorting the data even more finely we could say, “The Counsel level lawyers averaged 7 hours a week; the Assistant Counsel level 5 hours, and the Associate Counsel 3.” Depending how granularly you collect your data, you can keep the Cuisinart of analysis going.

What if a law department added up all the months its lawsuits have been underway, and divided by the number of lawsuits? That metric would be a weighted average of duration, and if cycle time matters, the department should strive to reduce the metric over time. With this calculation, if done month after month, the law department should strive to show that its inventory of cycle time is diminishing. The shorter the average cycle time, the closer a law department moves to a claims-management approach.

What if the department divides those total months by the total amount spent since inception on all those lawsuits? That would be the weighted average, monthly burn rate of litigation. With this second calculation – a blended run rate for litigation – law departments will be more accurate when they forecast their spending. They will also have a baseline against which they can show improvement.

Third, but beyond the scope of this post, the length and cost of the case portfolio needs to be assessed in terms of total cost of resolution (See my post of Dec. 10, 2005 on BellSouth and TCR).

The Federation of European Employers (FedEE) released a study in September 2004 of employment litigation in European countries. The incidence of legal action by employees varied hugely. “A typical large company in Belgium can expect to defend 28 court cases brought by present or former employees every year, but a similar firm [1,000 employees] in Sweden faces an average of only one case every ten years.”

Country-specific differences in how employees and employers deal with each other legally account for these wide disparities. It is not as if Belgium is 280 times more litigious on employment disputes than is Sweden. The US, with its over-arching federal statutes and courts, and substantial similarity among state employment laws and litigation practices, experiences no such drastic differences between states.

Pitirim Sorokin, the first chair of Harvard’s sociology department, coined “quantophrenia” for the psychological compulsion to grasp for numbers. “Victims of quantophrenia … obsess over numbers as descriptors, no matter how dubious their basis or questionable their provenance.” (Wilson Quarterly, Vol. 30, Winter 2006 at 28).

I like law-department metrics and wish our industry had a larger supply of better metrics. Even more, I wish we made use of the analytic tools and careful debate that allow us to test and learn from what data there may be. Call me quantophrenic but show me the metrics! (See my category on Metrics and Benchmarks.)

In sum, there are three kinds of general counsel. Those who can count and those who can’t.

A fascinating book on statistics in the social sciences, by Judith M. Tanur and six other editors, Statistics: A Guide to the Unknown (Holden-Day, 2nd ed. 1978), discusses troubles when people estimate demand by collecting survey data. Think of all the surveys that ask general counsel about the likelihood of their purchasing software or services, such as document management or consulting, in the coming 12 months. (See my post of Oct., 17, 2005 on the plethora of law-department surveys.)

The statistics book states: “Research literature abounds with examples of gross discrepancies between stated purchase intentions and subsequent purchasing behavior.” Some of the inaccuracy springs from the desire of survey respondents to feel in charge and therefore to say, “Yes, we plan to act.” Sometimes the “Yes” strokes the person’s ego. And often people just do not think through how difficult it will be to actually carry out the purchase they say they will make.

This all means that predictions about law departments and how they will manage their purchase in the future remain quite suspect.

I have doubted some statistics given out as savings that various techniques have achieved (See my post of Sept. 14, 2005 on 20% for e-billing and Aug. 5, 2005 for returns on other techniques.) A statistical notion, regression to the mean, may explain some of the alleged savings.

Isn’t it probable that law departments which have been assailed by large spending increases are more likely to put in place some cost-saving measure? And isn’t it likewise probable that extreme surges in spending are commonly followed by a drop off in spending – if only because the average expense rate returns to be the norm? To give a prosaic example: after several days of unseasonably hot weather, it would be wise to predict that the temperature will drop.

“Regression to mean” explains the likelihood that a high extreme will be followed by a drop, so that typical behavior returns and the average holds. Hence cost-afflicted law departments, even had they not implemented budgets or bill review or e-billing or competitive bidding or whatever, are more likely than not to report lower spending in the year or two after a spike. Their metrics regressed (went back) to the mean (the typical average). It doesn’t necessarily mean that the technique can take all the credit.