Articles Posted in Benchmarks

Wading through survey rankings by law department managers of why law firms are reluctant to embrace alternatives to hourly billing, I dutifully listed the results in declining average rank order. Having done so, I was struck by the uneven gaps between some of the rankings. In fact, as I calculated the percentage difference from the highest ranked explanation to the second highest, I realized that among the nine choices, three clusters presented themselves. Each cluster of two or three reasons had a large percentage gap between it and the adjoining cluster.

The gaps between some of the average rankings highlighted how dominant the respondents thought the highest ranking reason was. The gap to the next reason was 33% of the highest score. Reasons two and three were in a dead heat so they formed a cluster. Then there was a 20% gap to the fourth-ranked reason, which stood very close to the fifth, as a cluster. The final item, ranked lowest, was off the chart low. I think this method of gap analysis has much promise.

My supposition, before I began General Counsel Metrics and its global benchmark survey, was that most general counsel would want comparative metrics on staffing and spending in the months just before their budget was due. I thought of that as August and September, mostly. In fact, I have come to learn, participation was highest in the spring.

One reason for the lack of seasonality is that corporate fiscal years are not all calendar nor are budgeting cycles so synchronized. The impetus to find benchmark metrics might be a question from the Board of Directors. It might be the invasion of consultants group hired to slash G&A overhead or perhaps the trigger is an objective a general counsel agreed to with the CEO. Sometimes general counsel want benchmarks to support a management or structure change. A few like to set a context at an all-lawyer’s conference or a planning session. For all these reasons, benchmark metrics are in fashion all year long.

Wherever there are metrics for managers of law departments, there will be discontent. Someone looks bad if performances or results are compared to others’ and the natural reaction is to discredit the unfavorable numbers.

My column for InsideCounsel, Morrison on Metrics, earlier this month draws on my consulting experience where at times I have to explain and defend and justify unflattering metrics. Click here for my column on six questions to answer if the numbers leave you looking bad.

Many invitations to complete surveys appear in the e-mail boxes of general counsel. Probably scores of them every year for U.S. departments and they seek all kinds of information. It is an incessant badgering, but how else can interested parties learn about what is going on out there more precisely and reliably than from anecdotes, the press, and subjective impressions?

Since I am one of those people who surveys and since this blog battens on survey data about law department operations, I thought to summarize the styles of questions that present themselves to general counsel.

Some gather opinions: “Has ADR made a difference in how you resolve disputes?”

A benchmark that shows up from surveys of law departments is the external spending per in-house lawyer. According to this year’s General Counsel Metrics benchmark survey, for more than 400 departments in the United States, that figure runs around $500,000 per attorney. Stated differently, for the median department, if each lawyer were equally responsible for managing outside counsel, they would be approving about $10,000 of invoices each week. (Just stating that colossal amount belies claims of effective bill review.).

Several factors influence spending per lawyer for any specific legal department. The most significant is the number of in-house counsel. If the department is “lawyer heavy” it will have a lower figure, since it has relatively more lawyers than peers. Ironically, more lawyers on staff may lead to them generating more need for outside counsel.

The figure also depends on the industry of the department, since industries differ considerably in the intensity of litigation faced by their members. Litigation accounts for the largest share of external spend, but not all of it.

Total shareholder return (TSR) is a widely used measure of company market performance. Over a period of time, it suggests how analysts and investors value the achievements of a company. Perhaps total legal spending in relation to a rolling three-year TSR makes sense as a benchmark metric (See my post of Jan. 7, 2009: total shareholder return and market cap growth as possible benchmark metrics.). Effective deployment of legal resources should be a part, even if small, in overall returns to shareholders.

One disadvantage immediately apparent is that considerably less than 10,000 U.S. companies are publicly traded and therefore report their revenue and have share prices that permit TSR calculations. For the much, much larger number of privately held companies, this benchmark denominator is not available. Also, it would be important to correct for a given company’s TSR the industry-wide change in that figure (See my post of Dec. 14, 2011 #1: splines.).

My columns for InsideCounsel, Morrison on Metrics, let me dive into small topics, at least to the depth of 500 words. For my latest plunge, I wrote about two chart choices available in Excel. One lets you show trends better when you turn one axis upside down, the other lets you handle two sets of numbers that have very different scales, such as 1-20 on one and 1,000 to 10,000 on the other. Follow this link to my column published on Dec. 19, 2011.

A new report from Rand, “Innovations in the Provision of Legal Services in the United States,” puts the range of U.S. attorneys at 760,000 to 1,100,000. It cites Harvard Law School Program on the Legal Profession for estimates that in 2007, lawyers in the United States included 120,000 in government (16% of the total attorney population) and 65,000 in “business.” The split of government lawyers is roughly equal between federal, state, and local government. If my often-used rough estimate holds of three lawyers per law department, the total government headcount suggests they constitute a whopping 40,000 law departments!

Further, the Rand report says 3,300 lawyers were employed by interest groups and 2,400 by “public interest organizations.” The report led me to High Beam, which states in a 2011 study that “A survey of ABA membership indicated that 4 out of 5 (80 percent) attorneys worked in private practice with law firms and another 10 percent worked in corporate law departments.” The ABA has about 440,000 members, but if we take the mid-point of the ranged cited above from Rand, that would place in-side counsel at about 90,000. On the assumptions I have used previously, that converts to 30,000 law departments or so in corporate America.

Courtesy of a recent Rand report, we have the number of attorneys for five European Union countries, according to the Council of Bars and Law Societies of Europe in 2008: UK (155,323 for 62 million population), Germany (146,910 for 82 million), France (47,765 for 62 million, The Netherlands (14,882 for 17 million), and Sweden (4,503 for 9 million). The data comes from page 7 of Rand’s “Innovations in the Provision of Legal Services in the United States.

Previous posts have taken up estimates for the number of legal departments in the UK and France. Based on these number, if on average one out of ten lawyers practices in-house and there are three lawyers per department, then Germany supports nearly 5,000 legal departments (See my post of Dec. 31, 2010: estimates of total number of worldwide law departments with 9 references from 2010; and April 30, 2011: since concentration of companies is not increasing, the number of law departments is not decreasing.). We need better data than crude derivatives from total lawyer populations.

Release 4 goes out this week, bulging with key benchmark metrics from 740 law departments. That marks quite s a jump from 530 legal departments in October’s Release 3. Many more will take part in this epic benchmarking effort before it closes in January – and I hope you do too. There is no cost and only six pieces of data need to be entered on the secure online survey: your staffing numbers, internal and external legal spend, and revenue.

Companies that take part will also be eligible for two exciting products to be announced early next year. GC Metrics will send them Insights, an innovative report on matter management systems, as well as findings from the combination of two years of data – more than 1,200 law departments!

Click here to take General Counsel Metric’s seven-minute survey and receive your report of 65 pages in mid-January. It will cover at least 24 industries.