Law Department Management

Spending data on Australian law departments from 2005

In February 2006, Mahlab Recruitment and Harris Cost Lawyers surveyed the members of the Australian Corporate Lawyers Association (ACLA). Most of the legal teams -- the report does not discuss numbers of lawyers -- were 10 or fewer people, which translates typically into five lawyers or less at the normal ratio of one lawyer for every non-lawyer. The report states that the average internal budget was $400,000, which seems extremely modest if there is something like two or three lawyers in that average department.

Even more astonishing, half of the respondents indicated that other corporate departments separately budget for legal costs (at 9). The average total legal cost paid by those other departments was $200,000. If you compare that figure to the average costs paid to an external counsel by the law department -- $350,000 -- you would conclude that the typical Australian law department controls only half of its company’s outside counsel spending.

New search powers for in-house lawyers of the near future

A few years from now, perhaps, in-house counsel may benefit from new search methods when they want to ask a question about a legal issue. Imagine a web site that collects all the postings on a certain area from blogs and law firm sites and legal publications – candidates might include environmental or employment. When in-house counsel search that mass of material, the software tracks the searches and pages they visit. Second, the searching lawyers can tag items as useful or not. Third, the software will do what the online search engine Ask does, which is to group items by theme. Already there are search engines, such as Clusty.com, that display results in thematic bundles.

The more various lawyers in a specialty use that material and enrich it with their tracks, tags and themes, the more useful it will be for other users. The idea is to look not only at links between pages, but also between people, and use social search techniques.

The marketing of law departments

A handful of law departments are drenched in ink. Much in the news, for example, is FMC Technologies, because of the prominence and innovativeness of its general counsel, Jeffrey Carr (See my posts of Oct. 24, 2005 about litigation counsel paying for local counsel; July 21, 2005 about rating law firms; and Oct. 26, 2005 about lawyers as contract managers.). Often, the spotlight law departments perform together (See my post of July 21, 2005 about Microsoft, GM and Cisco.). Other law departments that are often in the public eye include:

Microsoft (See my posts of Nov. 3, 2005 on e-billing; Nov. 11, 2005 on patent litigation; Aug. 3, 2005 on patent rates; Aug. 27, 2005 on Government Relations; and Jan. 4, 2006 on dealing with firms across boarders.);
Cisco (See my posts of Sept. 14, 2005 about its self-service model; Sept. 21, 2005 on e-discovery; Nov. 24, 2005 on litigation document infrastructure; Dec. 5, 2005 on virtual teams of law firms; and June 16, 2006 about electronic signatures.);

GE (See my posts of May 7, 2006 about reporting; April 7, 2006 about procurement; Sept. 4, 2005 regarding online auctions; July 31, 2005 on Six Sigma; July 31, 2005 on legal specialists; Jan. 1, 2006 on decentralized reporting; and April 4, 2006 on diversity.); and

DuPont, the grandest publicity hound in the pound (See my posts of April 2, 2005 about its litigation metrics; Sept. 5, 2005 about data on non-equity partners; Feb. 8, 2006 on recoveries; and March 15, 2006 on savings from early case assessment.).

What accounts for departments becoming celebrities? A general counsel who speaks to reporters (See my post of Dec. 19, 2005 that quotes Brad Smith of Microsoft and May 24, 2005 that quotes Mark Chandler of Cisco.) and champions a vision. A general counsel who is willing to speak at conferences (See my post of Jan. 25, 2006 about FMC and budget timetables.) and write articles (See my post of Oct. 24, 2005 about FMC and its use of decision trees.). A general counsel who takes management seriously (See my post of May 16, 2006 about Microsoft and benchmarking.) and who takes positions in associations. What also helps is size and brand recognition.

Five bases to charge business units for internal time

In February 2006, Mahlab Recruitment and Harris Cost Lawyers surveyed the members of the Australian Corporate Lawyers Association (ACLA). The survey found that almost a third of the law departments charge costs to their business units. About 17 percent charge by hourly bills at a single hourly rate; another 20 percent charge by hourly bills, but use different hourly rates for different lawyers (See my post of May 14, 2006 that disagrees with multiple rates.).

Some of those law departments (13%) charge back business units according to a percentage allocation based on time data; some 37 percent charge based on informal estimates of time, while 13 percent use other bases for charging (See my post of May 16, 2006 on the definition of “chargeable time.”).

Statistics and concepts to describe dispersion of law department data

Let’s take an example and look at some tools. A law department knows the number of matters each of its law firms handled during a year. The easiest ways to describe that data include the average, median, and mode of matters per firm (See my post of Nov. 30, 2005 for definitions of those terms.). A scatter-gram and its trend line, once you sort the data, depicts another aspect of the data’s dispersion (See my post of June 6, 2006 about scatter-grams and trend lines.). Here are three more concepts regarding how to show the dispersion of such a data set: central tendency, shape and variance.

To depict central tendency, you can use the minimum, maximum, and range of matter numbers per firm. The minimum is one; the maximum could be scores of matters, and the range is the difference between those two numbers. The inter-quartile mean is a truncated mean: discard the lowest and the highest group of matter numbers (sometimes the highest and lowest quartiles or quintiles); then calculate the average of the remaining numbers.

A histogram shows the “shape” of the data, as it depicts the number of matters by the heights of columns. A histogram looks like a single-humped mountain with its peak at the mode if the distribution is reasonably normal (See my post of Oct. 24, 2005 on bell curves and the standard distribution.). You can go further and show the percentage of the total at each stage of a cumulative presentation. Skewness is a measure of the asymmetry of the distribution of data. Roughly speaking, a distribution has positive skew (right-skewed) if the higher-figure tail is longer and negative skew (left-skewed) if the lower-figure tail is longer. Kurtosis is a measure of the "peakedness" of the data’s distribution.

Variance is a measure of statistical dispersion, indicating how far from the expected value the actual values typically are (See my post of Nov. 13, 2005 on fractals and standard deviations.). Typically the point from which the deviation is measured is the value of either the median or the mean of the data set. The variance of a random variable is the square of its standard deviation range, or inter-quartile range, or absolute deviation. The average absolute deviation of a data set is the average of the absolute deviations and is a summary statistic of statistical dispersion.

A proposed standard for full-time lawyer equivalent

It distorts our quantitative analyses to rely so much on metrics per lawyer (See my posts of Nov. 16, 2005 on cost per lawyer hour inside and Sept. 27, 2005 on oddities from ACC metrics and the distortions this causes.). What law department managers and consultants need is an accepted translation of everyone in a law department into one equivalent figure (See my post of May 31, 2005 on the reason to normalize data.).

For example, the standard might be decided that 2.5 paralegals make up the equivalent in work output of a lawyer. If we were to convert four or five administrative assistants (See my post of May 17, 2006 on the title and definition of this position.), we would cover even more members of the department. We can already convert part-time lawyers, as we translate them into full-time equivalents (See my post of Oct. 18, 2005 on FTE and internal cost rates.). To convert all the other positions that law departments have (See my post of Sept. 10, 2005 on the multiplicity of law department positions.), it becomes harder, but relatively few law departments have them and perhaps the translation would be midway between paralegals and administrative assistants.

Somewhat like chess pieces all have a value in terms of pawns; the calculation of full-time lawyer equivalents would allow our benchmarking studies to be more accurate than we are now with the the current usage of legal staff, where each position counts for one.

Why law department managers should be vigilant about processes

A previous post defines the term “process” (See my post of April 27, 2006 that collects my efforts to that date.). A clear awareness of what process and alertness to them raises operational effectiveness in law departments.

Four reasons come to mind. Where it identifies a process, a law department can systemize and streamline it (See my post of Nov. 14, 2005 on Six Sigma and the posts cited.). Further, to train lawyers and clients it helps greatly if there is a repeatable process that you can describe and decompose (See my post of June 28, 2006 on possible repercussions of training.). A third benefit of sensitivity to processes is that efforts to coordinate and disseminate knowledge then have a focus (See my post of June 15, 2006 on individual disregard of efforts to help the group.). The ability to look at workloads of in-house lawyers more perceptively makes up the fourth reason for a concentration on processes.

All I would add is that the grander ones perspective, the easier it is to call something a process. Those in the hurly burly of activity may rail against what they believe is a false perception of consistency, logic, and linearity – a process – by those above them, not to mention consultants.

Does client training lighten or laden work?

Many law departments run training programs for their clients (See my post of July 14, 2005 regarding methods of training.) and others sponsor online legal and compliance training programs (See my post of June 13, 2006 on such software programs.). Still others circulate guidelines and primers to their clients to educate them about the law and its processes.

A hoped-for result of this combination of training and legal emancipation (See my posts of Sept. 14, 2005 and Feb. 16, 2006 on the self-service model for clients.), though what might result is the opposite. As clients become more sensitive to legal risks they may call upon their in-house counsel even more frequently than before. After all in every business action legal risk is ubiquitous and ineradicable. That being so, opening the eyes of clients may trigger demands for an outpouring of legal work.

Another irony of good intentions possibly backfiring (See my post of May 10, 2006 about Kraft’s IP training and its consequences.). Despite this potential boomerang, I am absolutely sure that training clients pays off.

Create profiles for key client groups

What kind of work does a client generate? What is the volume? Who at the client group tends to call us? A law department that researches, ponders, and answers these questions will be able to create client profiles. Having done so, the department could segment client groups into categories, such as “high maintenance” or “risk embracing” or even “doesn’t care whether we exist.”

What is a “client profile” that would help with these issues? It would be a guidelines for the kinds of services the client needs, who its key players are, the direction its business initiatives are going, preferences for outside lawyers, and anything else that would enhance client service and client satisfaction (See my post of May 14, 2005 on Service Level Agreements (SLAs).).

What added value services might your outside counsel offer?

I have run across a number of them, and welcome other examples:

(1) bolster your IT support (See my post of Oct. 22, 2005 about managers from both sides meeting.),

(2) provide access to documents (See my post of Oct. 31, 2005 about JennerNet.),

(3) offer CLE training,

(4) provide secondees (See my post of Sept. 21, 2005 about secondments.),

(5) set up extranets (See my post of Jan. 3, 2006 about Shook Hardy and Oct. 21, 2005 about a Minnesota firm’s offerings.)

(6) recruit jointly, such as did Orrick Harrington and Lucent Technologies several years ago, and

(7) track contracts (See my post of April 27, 2006.)