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A well-known consultant in Austria to law departments, Dr. Franz Brandstetter, has published a book on law department management. He provided me with this short description of his book.

“The objective of Rechtsabteilung & Unternehmenserfolg – a management book – is to provide support for in house lawyers and legal departments work. It helps to identify value driven core competences, to develop a legal departments strategy and to optimise business processes and quality of work. The book is supplemented by about 20 examples written by experienced general counsels from Germany, Austria and Switzerland.”

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All of us who care about management in legal departments are grateful to learn what specific departments have done to address specific issues. From “YYY Company hired partners who are twins because it is easier to figure them out,” to “ZZZ Company put shredders next to each paralegal’s desk to gain 15% productivity,” all real-life examples help us learn, but not a whole lot.

Single instances of something, or even a “trend” of two or three instances touted by a journalist or consultant, can give little confidence in the underlying explanation. We can’t rely on the accuracy of descriptions, the objectivity of authors, the fullness of context, or cause-and-effect conclusions. Only if we can study the phenomenon broadly can we hope to generalize learning.

A theory about management needs to be testable: “the theory must make predictions which, if the theory were false, could be contradicted by the outcome of some possible observation.” This comes from David Deutsch, in The Beginning of Infinity: Explanations that Transform the World (Viking 2011) at 13.

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A branch of game theory known as social-choice theory studies institutions and methods of collective decision-making. Voting in elections, for example. Social-choice theory deepened enormously from the 1950’s on after Kenneth Arrow laid down five elementary axioms that any rule defining the preferences of a group should satisfy. To widespread dismay, Arrow proved that those axioms are logically inconsistent with each other. There is no rational way to assure fairness when members seek to determine a group’s collective preference (See my post of Aug. 13, 2009: the impossibility theorem of Kenneth Arrow.).

This dispiriting truth David Deutsch explains in The Beginning of Infinity: Explanations that Transform the World (Viking 2011), Chapter 13. Deutsch, however, proposes that this no-go theorem has an out: people can create new choices. To flesh out his point would go beyond the scope of this post. Meanwhile, managers of law departments should not give up on decision-making by votes, but they should recognize that the best plans and techniques do not promise fairness.

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Disadvantages when a company’s general counsel serves on some other company’s board have been covered here (See my post of May 11, 2011: conflicts, time, fees.). Those drawbacks notwithstanding, it is not uncommon to find general counsel who serve as a board member elsewhere.

The advantages that come to mind include these. (1) A general counsel rarely has a career path up or to the side in a company, so the opportunity to step into a somewhat different role with another company provides a form of mobility. (2) The most common driver is probably morale. If a general counsel has a passion for whales and wants to serve on the Save the Whale’s board, wonderful! (3) A broader understanding of business and making money comes about through exposure to board-level debates and decisions. For a general counsel, the view is farther and deeper from the board room. (4) Sometimes, like arranged marriages, it serves both businesses to have board-level linkages.

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The first experiment with competitive bids for fixed-fee arrangements having been conducted by many law departments, their general counsel contemplate the next round. What can they do differently to improve the process and outcome?

All manner of improvements to the RFP process might help. As discussed on this blog, these range from a better-crafted description of the work to conference calls to tighter selection of candidate firms to more objective methods of selecting winners.

The data obtained during the first tranche of set fee work can inform the second round (See my post of May 25, 2011: don’t ask for bills with hours on the first round.), such as to frame costs, scope the work, or set benchmarks.

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Law departments mostly know their own costs in disputes, and some even know how much time their members spend on different matters. Rarely, if ever, does a company, let alone a law department, know how much employees outside the law department invest in legal affairs. My most recent Morrison on Metrics column, for InsideCounsel, came out on Aug. 29, 2011, and recognizes this darkness. Here is the article’s URL.

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With nearly 7,000 posts under this blogger’s belt, about 6,999 of them have dealt with companies that have a law department – even if only one lawyer (See my post of July 5, 2011: reasons to hire a first lawyer.). Yet thousands of established, profitable and well-run companies have no employee lawyer. Unblessed, we would all agree, they still manage to navigate the legal rivers.

They use outside counsel Oversight of outside counsel when there is no internal legal team usually falls to the chief financial officer. That oversight is primarily on the cost and payment side. Individual executives retain external lawyers as needed and pay for their services out of the function’s budget. It works, and it will always work, so the companies sans lawyer deserve some respect on this blog.

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Ideas for how to manage a law department better come from many sources. For me, as I read I note in the margins what I think of as “blog ideas” and later I go back and write those that still appeal to me. During the nine months since December 2010 the following 21 books that I read stimulated blog ideas that saw bloglight, so to speak. Most of them get credit for multiple posts.

  1. John D. Barrow, 100 Essential Things You Didn’t Know You Didn’t Know: Math Explains Your World (Norton 2008) (See my post of April 15, 2011: a way to detect manufactured time records.).

  2. Scott Berkun, The Myths of Innovation (O’Reilly 2010) (See my post of Dec. 27, 2010: eight myths of innovation.).

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As part of my first-cut analyses of matter management system data from the General Counsel Metrics benchmark survey, I looked at the size of law departments. As measured by number of lawyers, the departments that use one of the eight most commonly identified systems, have a median of 27 lawyers; the rest of the group, including those that listed no matter management system, have a median of between four and five lawyers. They are much smaller.

No real surprise here; one would expect that larger groups of lawyers need more management tools, one of which is software for tracking matters and their expenses. As more data comes in from the GCM survey, it will be clearer where the so-called tipping point is: at what number of lawyers do more departments have matter management software than don’t. Of course, packages have different price points and capabilities, so even one-lawyer departments can find an appropriate match.

The other point to make here is that if size of department correlates with use of the major software offerings, then total legal spending as a percentage of revenue will look better for that group of software vendor’s clients. As revenue grows, the ratio of legal costs declines. The decline may have a bit to do with the legal software, but far more to do with other factors.

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To get Release 3.0 in late September and its benchmark metrics for your industry based on 500+ companies, all at no cost, click here to take the General Counsel Metrics global benchmark survey.

As of this morning, 383 law departments have submitted their six pieces of staffing and spending data. They reported 9,394 attorneys, along with 2,535 paralegals and 5,281 other legal staff (medians of 8, 2, and 3, respectively). At a combined inside and outside spend of $9.6 billion, they supported $2.3 trillion of corporate revenue.

In addition to the 21 basic industries reported on by General Counsel Metrics, Release 3.0 in late September will have at least five specialized industry-segments, such as restaurants, national laboratories, medical devices, universities and others. Once there are six or more participants in an industry segment, the Release creates benchmarks just for them. Also of note, exactly 100 of the respondents are Fortune 500 or larger (more than $4.7 billion in revenue). Of them, 29 weighed in at $20 billion or more; the median revenue of the entire group, however, is $1.4 billion. At the smaller size, 60 of the departments reported corporate revenue of $100 million or less.

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