What drives up the absolute number of law firms a department retains?

Despite the over-exposure of convergence, most law departments continue to retain a significant number of law firms. Data from Hildebrandt’s recent law department survey, for law departments with more than $20 billion in revenue, found the first quartile department reported 200 law firms, the median was 301 firms, and the third quartile was 457.

In several circumstances, a law department must necessarily hire many law firms. If the company maintains trademarks in 100+ jurisdictions, it has foreign trademark agents in most of those jurisdictions. Query, do you count each of them as outside counsel? A company that has dozens of superfund sites may well have local counsel for each of those sights, and properly. A company that is sued in every state probably has scores of local counsel. If a law department counts all the collection lawyers that its company uses, the absolute number of law firms retained swells.

What the industry needs is a standard definition of significant outside counsel, those who are retained not for a completely specialized, legally required, or local need but for a wider swath of higher-level legal services. The absolute number of these legitimate standardized-definition law firms, or even better the ratio of them to revenue, that would distinguish whether you’re converged or not. (See my posts of March 24, 2005 concerning concentration over convergence and August 3, 2005 regarding Merrill Lynch.)

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