With the data from the ongoing survey of General Counsel Metrics, it will be possible to tell whether departments in the UK, for example, differ in their fundamental metrics from departments in France. Certainly the metrics will differ, such as internal spend as a percentage of all legal spend. But how can we know if the difference is big enough to deserve commentary? Might it simply be an artifact of the particular participants or random fluctuation in values?

A statistical test called the two-group mean-comparison can look at the average of both countries and calculate the standard deviation of the metric in both. It then calculates the 95 percent confidence interval, which means the likelihood that 95 times out of a hundred the difference is real. This final step calculates that so-called p-value. The lower the p-value, the more likely the difference is significant from the statistical standpoint. Whether the difference is meaningful in the real world is an entirely different question.

According to a summary in a presentation I saw, researcher, author and thought leader Thomas Davenport maintains that knowledge management (KM):

1. Is expensive if done well, although I believe there are low-cost initiatives like search software that can make a difference in a legal department
2. Requires hybrid solutions of people and technology, which in fact may tilt more toward people than software (See my post of April 30, 2010: four ideas from Mintzberg.).
3. Is highly political, which means that knowledge creates and maintains power
4. Requires knowledge managers (See my post of Sept. 10, 2005: mentions them at International Paper and MetLife; Aug. 4, 2008: head of knowledge management; and June 4, 2007: five knowledge managers in legal departments.).
5. Requires a knowledge contract, which is a notion I have not heard about.
6. Calls for unnatural acts when it comes to sharing and using knowledge, which goes to my belief that unselfish information sharing is hard to sustain (See my post of March 5, 2005: altruistic information sharing.).
7. Means improving knowledge work processes, which hasn’t been explored on this blog
8. Only starts with access, which presumably means some relevance tools are also necessary
9. Benefits more from maps than models, more from markets than from hierarchies (See my post of May 13, 2009: management maps with 19 references and 1 metapost.).
10. Never ends. Amen

The coefficient of variation is the ratio of the standard deviation of a set of numbers to the average value of the numbers. The lower the coefficient the tighter the data set. For example, using more than 350 law departments that have participated in the General Counsel Metrics survey of Global Benchmarks, the standard deviation of the number of lawyers was 70.4, the average was 32.8 and therefore the coefficient of variation was 2.15. In comparison, for paralegals the standard deviation was 14.1, the average 7.96, and the coefficient of variation 1.78. Finally, for all other legal staff those figures were 38.6, 16.3, and a coefficient of 2.2.4.

Cross-tabulation analysis can tell whether there are significant differences between respondents and non-respondents on industry, size, location and other characteristics.

Third, analysts can scrutinize respondents to a survey for non-response bias. A Kolmogorov-Smirnove test indicates whether there are significant differences between respondents and non-respondents on such factors as geographic location, industry distribution, age, size or performance.” But you must know your survey group’s demographics. If a trade group invites its members to take part in a study, this statistical tool for benchmarking comes in handy.

Immodesty will get a blogger/consultant nowhere, so here are five praises that would make my mother proud, my children dubious, and my wife ironic.

“Rees Morrison was not presenting at the conference but attending. And as the guru of law department management with one of the most highly read online blogs, Law Department Management we requested an interview. … Rees has assisted more than 250 law departments and he has written scores of articles that appeared across the legal media blogosphere.

He is now running the largest general counsel metrics/global law department benchmarking ever undertaken (click here).

In this interview he talk about how legal department structures have changed in reaction to the economic downturn, the need to be more transparent about economics, and Web 2.0 effects on the legal industry:” Gregory P Bufithis,of ThePosseList.com and ProjectCounsel.com, April 1, 2010

Robert Ambrogi’s LawSites, describes several law-related blogs “and Rees Morrison whose sharp-eyed observation of the corporate legal world at Law Department Management is well recognized.”

Tim Cummins, head of the International Association of Contract and Commercial Managers (IACCM) weighs in: “All of these trends and the associated debates are captured nicely in Rees Morrison’s excellent blog, Law Department Management. A recent example is where Rees discusses the need for pre-legal vetting teams. In another, he highlights an article by the General Counsel at Carillion that calls for greater discipline in defining the role of the law department.”

Orange Rag by Charles Christian on Nov. 3, 2009 had this kudo: “This story first appeared on Rees Morrison's excellent Law Department Management Blog yesterday and is by guest author Bob Unterberger - www.lawdepartmentmanagementblog.com.”

“Nice shout-out for Brightleaf from Rees Morrison, the most prolific blogger in the legal technology/management biz (we’re working on our second cup of coffee and he’s already dropped five posts this morning). In addition to the dizzying pace of the work he produces, Rees is also perhaps the most respected legal department management consultant you could hope to find. If you work in-house and you have not read his e-book “Effective Structure for Your Law Department,” I suggest that you do so.” April 21st, 2010 on the blog of Brightleaf

These ideas come from Henry Mintzberg, Managing (FT Prentice Hall 2009). Prof. Henry Mintzberg, a thoughtful and prolific iconoclast about management, set out the four ideas that I have adopted below and applied to legal departments.

Communication and keeping up to date. Managers thrive on talking and listening, and on emails, as their primary method of gathering real-time information. Mintzberg does not believe they rely on management information systems, such as a matter management system. Databases, he believes, are too slow, rigid, and one-way. His point is valid. General counsel use matter management systems to compile data for reports, not to guide their reports in what to do.

Clients first. Most in-house counsel spend much the largest portion of their time with clients, not with colleagues. Mintzberg made this observation generally, but I suspect he would agree with my reformulation for legal departments. Sharing information with legal colleagues has its stature, but by far the most important and time-intensive relationships are with internal customers.

Cultures converge on management techniques. “A surprising number of such studies also ended up finding striking similarities across management practices in different cultures” (at 103). We simply do not know whether law department management varies significantly from country to country, but Mintzberg may be on to something. The roles of lawyers and the expectations clients have of them may differ around the world, but the management issues and responses probably overlap considerably.

Three-part model perspective. Mintzberg describes managing on three planes: information, people, and action. More metaphorically, that means brains, hearts, and muscles or in scholarly terms as knowledge, psychology, and decisions. It is yet another model for management (See my post of May 24, 2009: models for legal department managers with 12 references.).

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.

Having heard about licensing terms that need to be FRAN (fair, reasonable, and non-discriminatory), I thought of Most Favored Nation terms. Law departments so routinely insist on MFN terms from their primary firms that the privilege has been diluted to meaninglessness and firms don’t really know how to comply (See my post of April 30, 2009: MFN impositions with 8 posts.).

Best Terms under the Conditions Known comes closer to FRAN. A sliding scale of rights granted by law firms more fairly suits the complexities of different clients with different styles, expectations, and in-house capabilities, not to mention volume, sophistication, and predictability of work.

LexisNexis Martindale-Hubble, in conjunction with the Forbes Institute, recently published a benchmarking report based on data from legal departments in Russia. One of the findings shows that legal departments obtain higher discounts for more routine work. In fact, the pattern was quite clear.

At page 6 the study reports that “respondents received on average a 12% discount with their external law firms for complex, high profile, non-recurring matters, a 13% discount for complex recurring matters, and a 14% discount on routine and commodity matters.”

Those discounts and the graduated increases sound quite similar to the tiered discounts that aggressive legal departments obtain in the United States and the UK.

My hypothesis runs like this: as companies generate more revenue for each employee, they are likely to be in higher margin industries, less labor intensive, more intellectual property intensive. As such, per employee they probably have more lawyers in-house.

This speculation came to me as I read in the ACC Docket, March 2010 at 90, about Cox Communications. The $8.5 billion company has 23,000 employees and an internal legal department of 17 lawyers. Cox, therefore, generated $369,000 in revenue per employee and had two lawyers per billion of revenue. Stated in terms of other benchmarks, Cox generated $500 million per lawyer and had 1,352 employees per in-house attorney.

Ideas need legal protection and I predict that idea-rich companies have more lawyers per employee than other companies.

This is the thesis of Geoff Colvin, Talent is Overrated: What Really Separates World-Class Performers from Everybody Else (Penguin Group 2008). I am convinced by Colvin and we should all feel both liberated and empowered. Liberated because expertise and skill is not so much bestowed as earned; empowered because even those of us with pedestrian abilities can conceivably race with the best.

The effort demands thoughtful, deliberate practice – often with a coach – for long hours over a long period of time. In-house lawyers can excel even if they did not make law review. They can excel by dint of studied application, especially focused on weak areas, kept at with commitment and self-reflection. Excellence for Horatio Alger, Esq..

This blog has worked hard to stress the potential of focused effort (See my post of June 12, 2005: ten years to become expert; July 15, 2005: how to increase “deep smarts”; Nov. 6, 2006: experts work hard to chunk knowledge, pursue ambitious goals, and study hard; Jan. 18, 2007: a decade of concentrated effort; and Dec. 15, 2009: takes at least 7-10 years of experience for someone to survive as a solo lawyer in a legal department.).