20,000 or so legal departments in the US, based on three directional estimates

Based on three different estimates, and admittedly sketchy data, it is plausible that more than 20,000 US companies have legal departments. Test my reasoning and let me know how well it holds up.

First, In-house lawyers as percentage of practicing lawyers, and then average lawyers per law department. Lawyers in the Us held about 759,200 legal jobs in 2008, according to the US Bureau of Labor Statistics website. http://www.bls.gov/oco/ocos053.htm Of them, what percentage practice as an employee of a company? An unpublished article by Michele DeStafano Beardslee and three co-authors, discussed at the Georgetown Conference on the Future of Law Firms at 6, n. 22, tells us that in the United States, “in-house counsel, as a percentage of all lawyers, was declining from 11% in 1970 to 8% in 1995, where it remained through 2005” (citations omitted).

Assuming the percentage has held since then and something like 800,000 lawyers practice law in the United States right now, an eight percent figure yields 64,000 in-house US lawyers (See my post of Sept. 25, 2005: ACCA estimate of 71,000 non-governmental in-house lawyers.).

Next, what is the average number of lawyers per law department (See my post of Feb. 9, 2008: 60% of legal departments in the US have fewer than 5 lawyers.)? At a norm of three lawyers per law department, the 64,000 in-house lawyers means 21,000 legal departments (See my post of Feb. 16, 2010 #2: extrapolation from Belgian figures.).

Second, US corporate revenue and lawyers per billion. Total revenue of the Fortune 500 companies in 2005 was $9.1 trillion (See my post of Dec. 3, 2006: cites this figure; and Sept. 10, 2005: the 100 largest corporate law departments.). By 2009, the figure had grown to $10.7 trillion. Since roughly four to five lawyers work in-house for every billion of revenue, that translates in 2009 to approximately 48,000 lawyers employed as lawyers in the Fortune 500. It wouldn’t shock me to have 50% more in all the rest of the US legal departments, which would mean 72,000 lawyers, or 24,000 legal departments (See my post of Feb. 9, 2010: similar reasoning from Global 500.).

Third, BigLaw revenue and external spend per lawyer. The AmLaw 200 firms had total revenue of $84.3 billion in 2008. That revenue was probably flat in 2009.

Further, let’s assume 85 percent of the revenue of those big firms comes from businesses, since most AmLaw 200 firms do not have significant individual practices.
Of course, not all businesses have in-house lawyers.  Perhaps as much as 20 percent of the spend on those big firms comes from companies that have no in-house lawyer?
Finally, might we estimate that that 10 percent of the corporate spend comes from outside the US?  After all, I have been advised, 13.7 percent of the lawyers in the latest NLJ250 (Nov. 2009) are based outside the US and a majority of them practice local law.  So, combining the non-US lawyers practicing local law and the lawyers in the US working for non-US corporations might yield around 10 percent from non-US clients.
So start with $84 billion and reduce it by 15 percent for fees from individuals, by 20 percent for companies without legal departments, and by 10 percent for non-US spend (each reduction off the $84 billion figure).  That leaves $46.4 billion in US-based fees from companies with a legal staff.  Now draw on a typical figure for spending on outside counsel per inside lawyer of $650,000.  When we divide $46.4 billion by $650,000 it suggests 71,300 corporate lawyers, or about 24,000 legal departments at an average of three lawyers per department.  I think that larger departments than average retain the AMLAW 200, so perhaps 20,000 departments.

Thus these three calculations — demographics of lawyers, revenue of major companies, and fees of major law firms — all suggest a population of US legal departments around the 20,000 mark.

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