Internal client expertise reduces total legal spending (TLS) in large companies

The larger the company the more it sustains specialized groups whose work fringes on that of lawyers. Those groups whose work is larded with law – the likes of human resources, risk management, environmental safety, leasing and real estate acquisition – understand well most of the practical law that applies day-to-day to their activities. To that degree, they need to rely on an in-house law department less than their compatriots in smaller, less-well-staffed or sophisticated companies (See my post of Aug. 30, 2006 that discusses legal moons around the law department planet.).

If this hypothesis holds true, it partly explains why total legal spending as a percentage of revenue drops off as revenue increases (See my post of May 4, 2005 with some explanations.). If there were some measurement of the cost to a company of legal knowledge that doesn’t reside in the law department, the total spend ratio would not decline as much, but no one has attempted that quantification (See my post of July 20, 2005 which emphasizes this point.).

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