Known total legal spend and the undercount of total external legal spend

Heads of the legal function should control all spending on external counsel. Should, but don’t.

Many general counsel oversee only certain expenditures by their company on external counsel. Finance may retain tax advisors; human resources turns to some partners (including non-law firms) for specialized advice on pensions; the general manager in a large company spends money from his or her budget on local law firms for local legal issues. General counsel whose companies have significant operations around the globe may be the main victims of incomplete spend control and data. Sometimes the CEO reserves the right to hire a firm unilaterally, or the head of strategic planning, and the Board of Directors may do the same.

For benchmarking studies, all that general can do is provide the data they know. The remaining spend is obscured. Benchmark reports, therefore, inevitably to some smallish degree understate the total legal spending of a company. The more accurate term would be “known total legal spend” (See my post of Aug. 21, 2008: total legal spend as percent of revenue with 9 references and one metapost.).

Over time, with enough data and well-crafted questions, a rule of thumb will be become clearer for the “dark spend” outside the ken and control of the chief legal officer.

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