A general formula for calculating heterogeneity in a group is 1-Σi2 where i is the proportion of members in the ith category. What does that mean in English? Let’s apply it to law firms retained by a department.

Let’s say a law department retained a group of 100 law firms in 2010 and for this calculation placed each firm in one of five size categories according to its number of lawyers. A category might be law firms of 1-5 lawyers, 6-15 lawyers, 16-30 lawyers, 31-99, and 100+ lawyers. It would be easy to calculate the percentage of all the 100 firms in each category. If the department retained 6 percent of its firms that were in the smallest, first category, the formula would include 6 percent squared (.0036). The next smallest category of firms (6-15 lawyers) might have, say, 7 percent so the sum would include .07 squared (.0049). You keep adding the squared percentage for each category until done, which is the meaning of the Greek letter sigma (Σ), and then subtract the total of all those category-percentages squared from 1.

If all the rest of the firms used by this department were in the fifth, largest category of firm size, there would be 87 percent in that category. Squared, 87 percent equals .7568 so the sum for each of the three categories is .765 and the difference between that sum and 1 is .235.

The higher the score on this index the more the diversity of size of law firm; the lower the score the more the firms are alike, homogeneous. To illustrate, if the fourth category had 40 percent of the firms (31-99 lawyers) and the fifth had 47 percent, the index rises substantially to .602. The law department’s retention pattern showed much more variability.

The same index could show a law department’s degree of minority lawyers by category. Or it could show the percentages of users of various software programs. The formula depicts the distribution of fees paid to law firms during a year or lawyers by office. This method to quantify the allocation of anything has much power for analytically included legal departments.

A trade-off appears to exist: as you become more expert in a knowledge area (such as tax law) you become less flexible. An article dubs this “cognitive entrenchment,” and to explain the phenomenon grounds it in schemas of knowledge (Acad. Mgt. Rev. 2010, at 579).

Schemas resemble networks of knowledge. Scholars proposes that people organize their domain knowledge in schemas, which are networks of facts, concepts, relationships, and memories. Experts’ schemas tend to be relatively larger than novices’ schemas. Expert schemas tend to have more inter-relationships than novice schemas. As a consequence of their more detailed and accurate network of knowledge, experts make decisions more quickly, remember domain information better, spot patterns more easily, and solve problems more effectively (often in a forward-oriented direction).

The downside, however, of such an enriched cognitive architecture is that the knowledge schemas of very experienced lawyers can become more stable and resistant to modification. Acquisition of domain expertise can lead to this cognitive entrenchment.

One example is the “Einstellung” of fact, which occurs when the first idea that comes to mind prevents alternatives from being considered. Experts may fall prey to this. They may be less able to adapt to changes in the environment and ironically they may be less creative. To combat cognitive entrenchment, the article urges experts to focus their attention more widely – toward tasks and activities not only within but also outside their domain.

“Currently, the average U.S. manager stays with an employer for a median of six years, and about two thirds of the open positions are filled by outsiders.” Both figures from Perspectives, Nov. 2010 at 46, seem high if I consider turnover of senior lawyers in law departments – the direct reports to the general counsel and the general counsel – and where their replacements come from. The article claims that newly hired executives more often find their position through their own networking efforts than any other method, followed by through executive search firms. “Executive search firms fill about 54% of all U.S. positions with an annual compensation level of $150,000 and above,” based on data from 2003 (so perhaps $175,000 might be the comparable compensation band today).

Other findings, if applicable to law departments, discuss research that found that executive search firms favor luring senior lawyers from law departments of companies with strong reputations and performance. “The executive’s actual performance inside the high-status organization matters less, because it is difficult to obtain relevant information on the performance and because this status-based process produces ‘defensible’ candidates.”

Much as law firms hire associates from prestigious law schools, law departments that rely on search firms gravitate lawyers from ranked companies. One would expect many lawyers leading legal teams in the U.S. to have matriculated from Fortune 100 legal departments.

National coordinating counsel handle important tasks. They can help responses to document requests be responded to consistently. They can work with public relations to build a consistent picture for the public of a spate of suits. They can take similar positions in pleadings around the country and can assess the relative contributions of local counsel. They can shift lawyers and paralegals to brushfires as needed.

One of the contributions that I hadn’t realized is that coordinating counsel, alongside the inside lawyer in charge of a family of cases, can pick which ones to fight. With finite resources, law departments can only go to trial on the most likely winners and it helps to have an advisor knowledgeable enough of the range of lawsuits to advise on that call.

Rent-seekers, a term used by economists and political scientists for those who extort extra benefits because of their power, exist in law departments. A Deputy General Counsel who balks at agreeing to a new software package may get a pass on having her team have to use it for a year; another senior lawyer may withhold approval of a firm for the panel until her favored firm is added.

Free-riders enjoy the fruits of others’ efforts without doing any plowing, hoeing or watering: for example, they draw on the laboriously compiled corporate policies but never contribute any or work on them; they proudly talk about the innovation award won by the department but remain reactionary; they make ample use of the library’s resources but don’t serve on the committee for it.

An astute and observant general counsel will deal with power brokers and parasites. This blog has touched on the economic tems rent and free rider (See my post of March 22, 2006: free riders; April 27, 2006: rents; and July 29, 2007: economic rents.).

In 2006, Fujitsu began publishing its intellectual property strategy. Fujitsu, according to Intellectual Prop. Mag., Sept. 2010 at 93, is the world’s third largest IT services company and a major technology innovator. Making its IP direction available to the world, the company leads in this practice – few have followed its lead, however – because it wanted everyone in the company to understand research directions, the importance of IP, and the commercial promise of IP. It also wanted customers to have peace of mind about where the company was headed with new products. It also serves as an excellent promotional piece.

The article makes clear “that the published report is informative but does not give too much away.” Even so, lawyers work hard on it. Thus, my reason for writing about the IP strategy document of Fujitsu is not only to point out a source for readers of such a document but also to acknowledge the significant burden placed on an IP group of in-house lawyers if they bear primary responsibility for the drafting.

How does EADS, the global aerospace Group that manufactures the Airbus, encourage innovation among its researchers? What it does, works. As summarized in 2010 Intelligence Report & Directory Series of Leaders League at 67, EADS had 7,200 patents in its 2009 portfolio, “of which 1,100 were first registered in 2008. [Aha, a benchmark metric of recent patent grants as a percentage of all active patent records!]

To prime researchers toward patentable discoveries, EADS gives the Airbus Award of Excellence every year to the company’s most promising researcher. It seems volume is not the measure but potential. Second, there is a bi-annual ceremony called the Airbus Hall of Fame. Each company within the Group nominates its best researcher and they receive prizes. Third, the company remunerates employee’s inventions, “giving them a fixed sum of between €300 and €50,000, and another which varies according to the value of the innovation.” In all this the IP lawyers of the company play a role.

A study conducted in 2009 by OPI, a French intellectual property consultancy, looked at the reporting position of intellectual property departments (patents, trademarks, designs and models). As summarized in 2010 Intelligence Report & Directory Series of Leaders League at 81, OPI found that 34.5 percent of the time in French companies that responded to its survey IP reports to the law department, 29 percent of the time to R&D, 11 percent to “Executive Management,” 7 percent to “Innovation,” 4 to “Valuation,” 1.5 to “Marketing,” and in 13 percent of the companies the IP group reported to two functions.

My consulting experience from this side of the Atlantic suggests that the chief IP lawyer much more often reports to the general counsel. Next in frequency would be R&D.

When you want new solutions to a problem, you should realize some researchers believe that traditional brainstorming posits an old-fashioned view of creativity. It divorces inspiration from analysis, which is far from the way the brain operates. According to strategy + bus., 2010, Issue 61 at 24, “There is no left brain; there is no right. There is only learning and recall, in various combinations, throughout the entire brain.”

Creativity flows most effectively from (1) minds full of examples of problems and solutions from the past, (2) presence of mind – a conscious effort to clear your brain of all expectations regarding, (3) flashes of unbidden insight where the pieces, or some of them, come together; and (4) resolution, the will to act on the idea despite obstacles.

The article describes a process developed by General Electric to help problem solvers harness this technique. Under a draft description of the problem to be solved – draft because the framing of the situation may change – a team lists rows of “actions you think you might need to take to succeed in the situation.” In columns you try to identify possible sources of the all-important question for each action: “Has anyone else in the world ever made progress on any piece of this puzzle?”

The intuitive combination of possible actions and possible sources of ideas about those actions, left to ferment cognitively, often leads to flashes of insight. The methodology sounds promising for law departments. Other companies have tried reverse brainstorming where you collect ideas bubbled up during the past week rather than force them during a meeting (See my post of June 1, 2009: reverse brainstorming.).

One way to establish the relative importance of legislation quantifies its impact either in costs imposed or benefits obtained. Researchers at Georgetown University, under Susan Dudley, Director of its Regulatory Studies Center, deem an “economically significant” consequence of a regulatory rule to mean that either the rule’s costs, or its benefits, exceed $100 million a year. (Yes, I could agree that is significant.).

By their reckoning, in the first two years of President Obama, the federal government issued 132 economically significant rules. This fascinating quantification of legal impact, and therefore I submit often a proxy for legal complexity, comes from the Economist, Jan. 22, 2011, at 35.

A law department might rank the statutes that generated those significant rules in terms of their applicability to their company’s business. The picture that results could be a way to show value delivered, since the law department helps the company navigate those requirements. Contrariwise, if the law department hasn’t focused as much on the major rules, it might reassess its priorities.