Articles Posted in Benchmarks

The Harvard Business Review (April 2005 at page 18) reported a study that compared the financial performance of companies in relation to the size of its headquarters staff.  Headquarters staff size correlates with size of company, but it did not correlate at all with the financial performance of the company.  A leaner headquarters does not necessarily mean a higher performing company.

What might this suggest about a centralized HQ legal department?  I have never seen a study that correlated the percentage of lawyers at the main location of the law department to the company’s total legal spending as a percentage of revenue.  Reasoning by analogy from the HBR study, I would predict no correlation evident.  One can envision a clustered headquarters staff spending bags of money just as easily as a completely dispersed legal function spending bags of money.

Can a single metric describe different level structures, for instance of three legal groups of 10 lawyers each, where (a) has a GC, four AGCs, and five junior-level lawyers, (b) has a GC, three AGCs, and six juniors, and (c) has a GC and nine direct reports at the same level?  Yes, if you assign a 1 to the GC, a 2 to each lawyer at the next level down – the GC’s direct reports, and a 3 to each of the lawyers at the junior level.  Calculate the average by multiplying the number of lawyers at each level by 1, 2, or 3 and dividing by 10.

Department (a) averages 2.4; (b) averages 2.5, because it has one more junior lawyer and one less AGC and is therefore less flat; while (c) averages 1.9 – the most flat. 

It seems defensible to me to normalize all law departments in a comparison group to a base of ten, and make this calculation.  There will always be one GC, for these purposes, so a 30 lawyer department would divide each level below the GC by three, and then calculate the average the same way.  Larger departments will be less flat, generally, as the AGCs have more lawyers reporting to them than in smaller departments.

Law departments overseeing substantial intellectual property portfolios, such as hundreds of patents or thousands of trademarks or both, often license specialized IP management systems like those from Master Data Center, Dennemeyer and CPI.  Companies with that level of need for tracking patent and trademark data also tend to be large enough to decide to install an MMS to track information about its non-IP matters.

The rub comes when the department realizes it needs an integrated set of metrics from the two databases of matters, spending, and law firms used.  The two kinds of systems do not play well together in the sandbox of shared data.  Neither family of software, MMS or IP database, adequately meets the full set of requirements of a law department.

Some law departments manually combine the data output from the two systems; some departments code a batch process to pass data periodically from one to the other; a handful might have a portal that pulls the data together. 

No paralegals.  That’s the fact in large swathes of Latin American, Asian and European law departments outside the UK .  They have lawyers aplenty and secretaries galore, but not legal assistants of the kind common in US legal functions.  US law departments report a median of about one paralegal for every four lawyers. 

Without paralegals, the international law departments have higher numbers of lawyers, many of whom are lower paid than their stateside counterparts – even adjusting for purchasing power parity — and all of whom do tasks that could more effectively be delegated to a trained paralegal assistant.

During the next few years, the intermediate professional level that we think of as paralegals will become more common around the world.  We will see paralegal certification programs crop up overseas and eventually a certification for “international paralegal.”

According to an article in Patent World (Sept. 2004), a 2003 survey of the American Intellectual Property Lawyers Association found that “the average cost of bringing a patent litigation is almost US$2 million.” [Article available on www.ipworldonline.com].  As a connoisseur of metrics, this claims raises several, shall we say, patent questions.

Wouldn’t it have been useful to suggest the ratio between litigation costs and the damages reasonably at stake?  If the average ante for a suit were $2 million, but the average recovery facing the litigants were $50 million, that doesn’t sound like an exorbitant transaction cost or a paltry return on investment. Does “bringing” a lawsuit mean carrying it through trial or through an appeal; could it mean only the preparation for and filing of a lawsuit?   We need deeper understanding about the typical duration and resolution of the cases that made up the average. For that matter, it is important to know how many cases made up the survey population.  If ten, I worry about the legitimacy of a number that could be thrown off by one lawsuit.  Then too, are the members of the AIPLA representative of most patent litigants in the United States – and are these figures only for litigation in US courts?  Even more fundamentally, how do we know whether one or two gargantuan cases skewed the average too high?  If there had been a median figure to go along with the average, the findings would be more meaningful.

I could go on.  My point is not that $2 million is nothing to sneeze at, nor that full bore patent litigation is a game for parties with deep pockets.  I also realize that the survey might address all my challenges.  But going beyond both truths – patent litigation is costly and the survey could have tied down its methodology – I still believe that the quote as presented leaves many, many questions unanswered.

BTI Consulting published some figures and conclusions in Law Practice (Oct. 2004, pg. 13) that stuck in my craw.  “In 2004, overall client spending on legal affairs dipped almost 7 percent [from 2003].  Despite these cuts, spending on outside counsel continues to rise, climbing 4.4 percent in 2004.  Shrinking legal departments are a key driver both in the decline in overall spending and the push of more dollars to outside counsel. ‘Corporate legal departments have declined by 40 percent since 2001’ explains [a BTI analyst].” (emphasis added)

Setting aside my methodological questions about the solidity and representativeness of the survey respondents, I am deeply perplexed to read that overall legal spending declined (by 7%) and that law departments had shrunk almost in half. 

Nothing I have encountered lends support to either finding.  To the contrary, from my consulting experience, legal spending has steadily risen and law departments have remained stable or grown a bit.

I like metrics, I always use them in consulting projects, I gather them in benchmark studies, and I published two editions of a book on them – BUT whenever I see a set of law department metrics, I can’t help critiquing them.

K&L in 2004 conducted a survey, some of the results of which Maryann Jones Thomson reproduced in the October issue of California Lawyer.  The chart title, “Area of Law Anticipated to Be Most Challenging” headed five double bars, showing 2002 and 2003 results for each of “Employment issues,” “Compliance legislation/regulatory compliance,” Litigation,” “IP/patent litigation,” and “Corporate governance legislation.”  In 2003, Employment issues led with 26%; the other four areas of law each had 10 or 12%.  I take it that 26% of the respondents, therefore, chose Employment issues as their likely greatest challenge.

The article didn’t answer my first question: how many law departments participated, how they were selected, and what level of lawyer responded.  I suspect the original report answered at least the first two threshold determinants of the metrics’ usefulness.  I also would like to confirm that the respondents were given a list of choices (not open text response), and that the five in the chart – accounting for 70% in total – were the most commonly chosen.  Any multiple-choice question depends heavily on the completeness, mutual exclusivity, and clarity of the choice. As to completeness, one would suppose that privacy concerns, international trade, technology transfer, and environmental issues could have been on the choice list.  Mutual exclusivity makes me wonder about both “patent litigation” and “Litigation” in the same list; how did respondents treat that?  As to clarity, the term “challenging” could mean sheer volume of work, or complexity of work, or political and business pressures applied, or otherwise.