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If someone surveys law departments to collect data and publishes findings, they should provide readers with a minimum set of background facts about their methodology.  The findings only have credibility to the extent the methodology holds up to scrutiny.  Here are some questions they should answer.

How many law departments responded, out of how many invited, and based on what method of invitation?  Good surveys have a sizeable number of respondents: perhaps 100+ who represent 5-to-10 percent of all those invited by a broad-based invitation.

Were the respondents representative of law departments generally?  If the analysis purports to speak broadly about U.S. law departments, then the respondents to the survey need to roughly match the characteristics of that wide range of departments.

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A scatter plot of data, for instance total compensation of a group of lawyers against how many years they have been practicing law, may look like a Milky Way galaxy of points, but much can be learned from the correlation.  Even more can be learned if we also know such facts as the industry of each lawyer and the revenue of their company and their LSAT scores – any facts that might influence income.

We can use linear regression, a statistical calculation to understand and quantify the relationship between any and all of those “independent variables” and the “dependent variable” – total compensation.  Spreadsheet programs can place a straight line within that cloud of dots such that the total distance between each of the dots and that line is the minimum.

A fascinating outcome of that calculation is the formula for the line.  From it you can predict a lawyer’s total compensation if you are given any of those independent variables for the lawyer. This kind of linear regression for compensation data is what General Counsel Metrics produces as part of its benchmarking reports.

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In Exec.Counsel, June/July 2012 at 31, author Mark Klapow of Crowell & Moring discusses intellectual property. At one point he refers to how much companies spend on their internal IP groups. “The average annual budget for the intellectual property departments for large companies, which are typically the most dedicated to steering new ideas through the patent process, is over $6 million.”

 

Klapow does not reference that figure but if it applies to the costs of the in-house lawyers, patent agents, and others in the IP department, it seems quite high.  Perhaps “the budget” includes both inside and outside costs for IP, which would make it more plausible.  Also, if “large companies” were defined, we could assess the $6 million figure better, not to mention if he had given a median instead of an average.

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“Nothing strikes fear into the heart of a corporate general counsel like a call from celebrity attorney Gloria Allred.” That is the over-hyped opening of an article in Bloomberg BusinessWeek, July 23, 2012 at 55. Perhaps.  If one’s boss, the CEO, is embroiled in a messy breakup and the wife has hired a ferocious lawyer adept inside and outside court, it’s no fun to be the general counsel, but the CEO is not a personal client.

 

In contrast, a press release from an aggressive competitor announcing a hostile takeover, a call from the Enforcement Division of the SEC, a dawn raid by European government, or service of process regarding the company’s crown jewel patent might grey the hair and disturb the sleep.

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A group of 600 HR managers, academics, and advisers “are drafting guidelines for standardizing measures of workforce diversity, turnover, job training, and the like.” Not only is this massive initiative trying to bring about consistent definitions and data collection methods, it is also trying to outline how companies should report such HR metrics to shareholders.

 

As explained in Bloomberg BusinessWeek, July 23, 2012 at 44, this is a multi-year effort that has already encountered a fair degree of opposition. No matter: It is a commendable effort.

 

It caused me think about the possibility that there will someday be both clearer definitions of legal staffing and spending but also more of that information available through public disclosure. If that day were to arrive, benchmarking would vastly improve and could move to a different, more insightful, level.

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In the July issue of Claims Mgt, at 30, there is an advertisement by Bottomline Technologies. In bold print at the top the ad proclaims “Bottomline is chosen three times more than any other legal spend management vendor.” I know executives at the company and to the extent of my knowledge of them and their products I respect them. That said, however, this claim strikes me as curious, impossible to back up, or cleverly ambiguous.  Surely they don’t claim to have triple the number of users as any other vendor in that crowded space!  Perhaps they define “legal spend management” in a narrow way that favors their claim?

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The vital role played by notaries, particularly in Europe, raised questions for me about the overlap between what lawyers do and what notaries do, and law department management implications. Italy has 5,000 notaries while France has 9,000 of them, and the latter enjoy a monopoly over property conveyancing. Typically, governments fixed the fees of notaries and the profession can be highly lucrative.

 

An article in the Economist, Aug. 11, 2012, at 53 touches, on the changing roles of notaries, but doesn’t mention whether in-house legal departments must pay notaries for their services. If they do, I assume those fees are covered in outside counsel budgets. I would further assume that the requirement to use notaries for some activities reduces to a degree the number of in-house lawyers that are necessary.  Both of those points, if accurate, suggest that the ratio of internal to external spending tilts a bit more toward external.

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Another blog by a general counsel.  London-based general counsel Brett Farrell returned to an in-house position with an online financial services company in late 2011 after spending two years in private practice with U.K. firm Barlow Robbins.  Farrell has only been blogging for a few months, so let’s see how his site, Brett Tech Lawyer, fares (See my post of Feb. 17, 2011: eleven other examples.).

Discount from firm based on marketing costs avoided.  According to Law Practice, July/August 2012 at 40, “today, many firms’ marketing budgets range between 2.5 and 3.5% of their revenue.” At that level of expenditure, if your law department commits work to a firm that does not then have to incur marketing costs, the savings would seem to be the minimum reduction in fees that they could agree to.  In that light, a five percent fee discount seems miserly.

Document management in legal departments.  World Software Corporation announced several new clients, including Matrix Energy’s legal department.  According to the release, more than 5,000 organizations rely on the Worldox DMS, a document management package, including law firms, legal departments and financial services companies.

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In Brazil, half of all businesses are limited liability companies while 45 percent are individual proprietorships.  Less than one percent are corporations and of these only about 100 are large companies listed on the Brazilian Stock Exchange.  This information comes from Canadian Corporate Counsel Assoc. Mag. (Autumn 2010) at 37.  Even so, last year and this year, the total number of participants from Brazil in the General Counsel Metrics benchmark survey exceeded 40.

 

My point is that if most companies in a country are small, the law department population will also be small (See my post of Aug. 15, 2012: predominance of very small companies in Spain and Italy.).

 

Quite often, the participants in the General Counsel Metrics benchmark survey from countries other than the United States are in fact a subsidiary of a US company. To give an example, if Ford Motor Indonesia has a law department and it completes the survey, the releases treat it as an Indonesian company for purposes of categorizing the country of its client company.

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This blog has addressed custom software written for a legal department, as well as some of the relative advantages and disadvantages of these two approaches (See my post of June 3, 2009: customized software coded for legal departments with 12 references.).  Let’s review the arguments in favor of custom software.

Bespoke software should satisfy the requirements of the law department better than a packaged solution, because it is more precisely tailored. Likewise, at least in theory, it can be adapted more quickly and more specifically to changing needs.  Further, a special solution might be able to combine functions that licensed solutions do not.  It might even cost less depending on the terms of internal cost allocations.  Possibly the software itself can become a source of revenue. A vendor might go out of business or cease support of its software.

On the other hand, to spec out requirements and go through the months of coding and testing takes longer than to select and implement a pre-existing package.  A custom package may have support from only one or two programmers at the company who know it and if they are no longer available, neither is their experience. Home-grown software usually lacks the documentation and training materials that come with a package sold to the public. The custom programming language may go out of fashion, and not be able to keep up with newer languages or tools.  A program written just for one law department probably has no application programmer interfaces (API) that enable third parties to offer complementary capabilities.  Then too, vendors keep adding features and capabilities to respond to a competitive market and user requests; the one-off program may be relatively stagnant and requires ongoing internal support from IT.

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