One laughable metric (total liability); one new metric (budget to actual)

The Nov. 10, 2005 report by The Corporate Legal Standard includes a table entitled Top 25 Law Department Operations Metrics (at 10). Most of the proposed metrics are quite standard; two of them I would like to single out (See my posts of Sept. 13, 2006 for other comments on this report.).

One dubious metric is “total liability of matters handled by the law department.” If “liability” is defined as the amounts sought by plaintiffs in lawsuits or ADR proceedings, one could add up all the monetary claims. Such damages sought by plaintiffs, we all know, can be grossly inflated figures — and the vagaries of punitive damage assessments push them even higher. Hence, even in litigation the “total liability” metric has no quantification or real-world significance.

If “liability” covers even more broadly the risk of damages arising from a contract breach or dispute, the foolhardy law department that tries to limn that exposure would become a laughingstock. At its broadest reach, “liability” potentially lurks behind everything a law department touches: advice on environmental remediation, counsel on employment matters, due diligence in acquisitions, and so on forever. Total liability is a wrong-headed metric.

By contrast, a second metric in this set is “budget to actual internal and external expenses ratio.” The law department that keeps this metric over a period of years might glean some wisdom as to how to make more accurate their budgets of legal expenses.

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