Articles Posted in Benchmarks

Previous posts have mentioned some of the reasons “number of lawyers in a legal department” is inexact. “Number of lawyers” in the colloquial sense will do for many purposes, such as headcount and planning how many attendees at a retreat, even though more precise or different metrics could add insights. “Lawyer-years” could be for each lawyer in a department how many years it has been since they passed the bar. Or adjust the number of lawyers by full-time equivalent or by chargeable hours or by years with the law department. You could correct for years in the position as another indicator of effectiveness. Perhaps another measure would disaggregate lawyers by time they devote to different practice areas. A half-time litigator is not as effective as a full-timer.

Surely, all that said about the imprecision of “lawyers,” we can depend four-square on the annual internal budget? Even there, uncertainty or lack of precision rears up. Were all internal charges correct? Were cutoffs logical and enforced? Did some expenses leak elsewhere? What about capitalized costs? Regarding expenditures on outside counsel, what about discounts, accruals, present value, currencies?

My point is that all numbers, even those we treat as if they are engraved in stone, ought to have some gauge of uncertainty associated with them. John Brockman, Ed., This Will Make You Smarter (Harper Collins 2012) at 53, inspired this comment.

The first 100 or so participants in 2012 in the General Counsel Metrics industry benchmark survey were eager to take part, as demonstrated by how quickly they did so. Do their metrics look fundamentally different from last year’s final group of 840, which clearly had some late-in-the-season participants? No, most of the early trends match the final results from last year.

Here are some other findings from the early birds. About 60% of the respondents are general counsel, while another 10% are administrators. Those characteristics are also in line with past surveys.

Two questions asked about matter management software and contract management software. So far, 14 different matter management systems have been implemented among the 40 companies who have given the name of their package. Serengeti and Bridgeway have the most among that group. As to contract management software, the respondents have selected 17 different packages, only one of them by two departments. As more companies take part, it will become clearer whether (a) fewer departments have installed contract than matter-management software and (b) the market for contract software is even more fragmented.

We urge you to click on this survey link and take a few minutes to enter your 2011 staff numbers as well as your internal and external legal spend.

The first 105 participants in this year’s General Counsel Metrics industry benchmark survey let me start to gauge the eventual group. For one, the pace projects to more than 300 law departments in the first release, which will go out in early June.

Two-thirds of the initial group are U.S. law departments, slightly ahead of the 61% figure at the end of last year’s 829 participating companies. So far, three other countries each have 4 participants (Belgium, Canada, and the UK).

We often use the term “equals” very loosely. “Her matter load is equal to his.” “Our paralegals-per-billion-of revenue is equal to the median for our industry.” In my column Morrison on Metrics: “Lies told by the equals sign,” I point out that “equal” rarely means what we think when we collect law department metrics. It was published on March 9, 2012 and you can click here to see the full discussion.

A fascinating chapter in a recent book on natural experiments in history explains our country’s history of so-called free banking (anyone could set up a bank, rather than have to get government approval). According to Jared Diamond and James A. Robinson, Eds., Natural Experiments in History (Harvard Univ. 2010) at 98, in 1914 there were 27,349 banks in the United States, which sounds like fertile fishing for law departments. One-third of them were federal-chartered, and they controlled $11.5 billion in assets.

It’s unlikely, however, that in-house bank lawyers abounded, since almost none of the banks had branches. Stunted this way, most of them probably had no in-house lawyer. Still, even if only one out of a hundred was big enough to support an in-house lawyer, that leaves hundreds of possible departments. Was the first sizable U.S. law department (five or more lawyers) in a bank, a railroad, an insurance company?

A previous post has used this cornerstone of statistics, the Central Limit Theorem, but did not explain it fully (See my post of July 30, 2011: the Central Limit Theory.). In George G. Szpiro, Pricing the Future: finance, physics, and the 300-year journey to the Black-Scholes equation (Basic Books 2011) at 186, Szpiro writes: “The theorem says that when many independent random variables combine, the resulted is distributed according to the bell-shaped curve.”

To illustrate: invoices arrive to be paid by law departments for all kinds of unpredictable (random) reasons (independent of each other). If you graph the distribution of those invoice amounts the shape will look much like the well-known bell. A few very small, a few very large, a bulging cluster around the average amount. Slightly more than two-thirds of all the invoices will fall within one so-called standard deviation on both sides of the bell’s center, which is about where the bell starts to curve outward.

Or consider lawsuits. Their number, timing, and differences each quarter over the past five years are to a fair degree determined by random and unrelated forces. The Central Limit Theory predicts that the quarterly totals will look like a bell-curve distribution if sorted high to low, and more so if the company has lots of litigation.

We often use the term “equals” very loosely. “Her matter load is equal to his.” “Our paralegals-per-billion-of revenue is equal to the median for our industry.” In my column Morrison on Metrics: “Lies told by the equals sign,” I point out that “equal” rarely means what we think when we collect law department metrics. It was published on March 9, 2012 and you can click here to see the full discussion.

Much of what happens in and regarding law departments doesn’t permit measurement. That intractable limitation on our understanding and analysis was underscored by an obituary in the Economist, March 10, 2012 at 106, of James Q. Wilson. The Harvard professor spent decades studying politics and society, subjects where challenges of methodology and data precision abound. “None was more thorny, for him, than quantifying the evidence. Many of the social problems he pondered seemed to boil down to culture and ways of thinking, for which the data were ungathered and ungatherable. As a scientist … he needed to count and collate things to find the answers to his questions. But nothing that was really important about human beings, he once said, could be measured in that fashion.”

Law departments being nano-societies, their mores, characteristic styles and operating conditions, their contributions to the client’s success, likewise elude measurement. The personality of the general counsel and the collegiality of the leadership group, the passion of the paralegals, and the engagement of the staff absolutely affect how well the legal team functions, but we can’t tally and analyze those important elements. Data is ungathered and ungatherable, notwithstanding a plethora of psychometric instruments. Even if a single law department collects some numbers, no comparable data would be available from a sufficient number of other law departments.

Metrics can only go so far, at this time. That bleak forecast, I hasten to add, doesn’t vitiate benchmarks. Don’t toss the bathwater of the immeasurable without grabbing the baby. Metrics go hand in hand with management, even if other aspects of a department hold the other hand.

The 2011 In-House Counsel Barometer, by Davies Ward Phillips & Vineberg in association with the Canadian Corporate Counsel Association, includes responses from 864 lawyers in Canada. Of them, 295 were with publicly traded companies and 206 private. Public companies likely having larger law departments, this survey, which looked at individual responses not at responses by law department, may have had more multiple respondents from public than from private companies. Perhaps the ratio is about one to one.

If so and if something like that ratio might hold true in the United States, I believe there are a bit more than 4,000 U.S. companies listed on its various stock exchanges (although as I write this I can’t explain the Wilshire 5000). Perhaps, then, with one privately held company with a law department for each publicly traded company, we could estimate 8,000 corporate legal departments? The logic and fact basis are both tenuous, but somewhere there may be data on the ratio and we can narrow the range of uncertainty.

The 2011 In-House Counsel Barometer, produced by the Canadian law firm Davies Ward Phillips & Vineberg In association with the Canadian Corporate Counsel Association (CCCA) at 11, reports that the average number of hours worked per week up north was 47. What the median hours was is not mentioned. If we take 47 as the barometer, what portion of them are just “being at work” and what portion are the equivalent of what an outside counsel would charge for, i.e., not recruiting, CLE, filling out forms? If we took 10 percent off for administrative tasks, and then subtract five weeks for vacations and holidays, that leaves 42 hours of average chargeable time multiplied by 47 work weeks  1,839 hours a year.

On those assumptions, the figure used by the General Counsel Metrics benchmark report of 1,800 chargeable hours a year per lawyer, for purposes of calculating a fully loaded cost, finds good corroboration. More so because lawyers probably do not underestimate the hours they work; in fact they may consciously toss in an extra hour or three.