The Aug. 2010 MarketView Report of Hyperion Research, “e-Billing and Matter Management Systems for Corporations,” includes a five-page history of those systems. It is a useful summary of where we are in 2011.

The comprehensive and detailed report foresees an integration of functions that currently operate from a variety of databases and other applications. The “solution footprint” that will bring together many of these functions they name “Enterprise Legal Management.” Of particular interest to me is a prediction that “as the ELM segment solidifies, we anticipate the entry of larger enterprise application vendors such as Oracle, SAP, Sage and Microsoft, as well as legal technology providers from other specialty areas.” Law department managers, they suggest, will continue to see a vibrant market at full competitive pitch.

Disclaimer: I know both founders and received a copy of the report at no cost.

A comparison of legal services provided in-house by lawyers of German companies and U.S. companies picks out several differences. According to page 88 of the General Counsel Benchmarking Report for 2009 by Otto Henning & Co., contract issues (Aligemeines Vertragsrecht) dominate German departments, with 95 percent of them handling it in-house, compared to 79 percent in the US. From the German text I was unable to determine the source of the US data.

Corporate Governance and what I think is corporate law (Gesellschaftrecht) came in at 87 percent and 79 percent in Germany compared to 78 and 77 percent in the U.S. The biggest difference showed up in employment law (Arbeitsrecht) where in Germany 72 percent is done inside and the corresponding figure is 58 percent in the U.S. This may be due to the significant presence of work councils in Germany or perhaps employment litigation in the U.S. The final comparison I will note is tax (Steuerrecht) where the percentage reached 72 in Germany but only 40 in the U.S., perhaps because US tax lawyers so often report into the Finance function.

Nat Slavin, co-founder of the Wicker Park Group, wrote extensively on his blog about the Wall Street Journal article (Feb. 23rd, page 1) on $1,000 an hour law firm partners. The article evidently disparaged such high priced legal talent, charging them with “taking advantage of companies.” Nat correctly pointed out that no one forces law departments to pay high rates; they do so because the very tiny number of partners who can bill at that level have earned that demand and respect. His full post is here.

When Nat sent me the link to his post, I wrote back with two observations and have one more. First, thousand-dollar partners are surrounded by a school of minor fish, but they charge time also. That is, you can’t get Chris Expert without a few associates and paralegals thrown in, because leverage means profit for Chris’s firm. To get undivided attention from a star, and only billings from him or her, is indeed a bargain.

Second, those stellar lawyers tend to be so much in demand that they rein in their own time, or at least I think they do. Like the adage, “If you want to get something done, ask a busy person,” partners with more work than time to do it tend to be more efficient. Others, I suspect, spend 15 minutes on the phone but put down 30 "because they know they are premium players."

Lastly, one more point. It rarely represents the legal industry well or fairly to single out extraordinary costs, wrongs, tactics or whatever. If .0002% of partners charge more than $1,000 an hour, and most are from megafirms in high-cost cities, does that give a representative picture about today’s buyer-seller scene for lawyers?

The well-done General Counsel Benchmarking Report for 2009 of Otto Henning & Co. at 64 provides data on the number of lawyers (Rechtsanwälte weltweit) worldwide its benchmark survey participants reported. From the 56 companies in the survey, all from the German Fortune 150, the overall average was 3.5 lawyers per billion Euros of revenue. That would be 2.3 lawyers per US billions of revenue at an exchange rate of $1.5 per Euro, which compares favorably to the medians for large US law departments: in the range of 3-to-5 lawyers per billion. The five industries for which detail is given vary considerably – from 5.5 to 1.3 lawyers per billion Euros.

As to lawyers per thousand employees (Beschäftigte), the Henning report states an average of 2.4. The industries do not vary as much on this benchmark: 2.5 to 1.1. In the US a typical figure for large companies would be quite similar.

Privileged to review a copy of the Aug. 201 MarketView Report of Hyperion Research, “e-Billing and Matter Management Systems for Corporations,” I will write a few blog posts. This post covers several thoughts.

First, the 76-page report offers huge value since it not only analyzes the market for licensed packages – more than two dozen of them – it also narrows down that large group to more manageable smaller sets.

Second, it lays out an eight-part framework for what to evaluate when you look at matter management and e-billing systems. That framework and other material in the report will also help how you conduct demos.

Third, the level of detail provided in the Hyperion report could certainly reduce the value of consultants, but consultants would still bring value to sort through the facts of a law department and conduct a competitive proposal process.

Fourth, the information in the report does not date quickly. An annual review of the state of the market will probably suffice for this gradual-change industry.

[Disclaimer: I know both founders and it is possible that we will do some things together jointly.]

A report based on 2008 data from 56 of the 150 largest German companies produced benchmark averages for paralegals (Rechtsanwaltsgehilfen) and admins (Sekretariatskräfte und weiter Assistenzkräfte) per in-house lawyer. Those departments averaged 0.2 paralegals per lawyer, i.e., five lawyers for every paralegal. US law departments show more leverage, on the order of three-to-four lawyers per paralegal. Admins and other staff ran in the German companies at about 0.3 per lawyer, which converts to three lawyer for each.

Combined, the personnel distribution in German law departments of large enterprises comes to the common ratio in the United States of about one non-lawyer for every lawyer. This benchmark data comes from the General Counsel Benchmarking Report for 2009 of Otto Henning & Co. at 66, based on lawyers worldwide (Rechtsanwälte weltweit) that its participants reported. Michael.Henning@oh-c.com

Coffee, tea, or electricity?

From the Daily Stat by Harvard Business Rev., Feb. 22, 2011:

“Research subjects who received electrical stimulation of the anterior temporal lobes of the brain were 3 times more likely to come up with the fresh insight needed to solve a difficult, unfamiliar problem than people in a control group, according to Richard Chi and Allan Snyder of the University of Sydney. The researchers say they envision a future when noninvasive brain stimulation is briefly employed for solving problems that have evaded traditional cognitive approaches.”

The source for this method to increase creativity is a paper entitled “Facilitate Insight by Non-Invasive Brain Stimulation.”

My interests on this blog are catholic, but this notion of electroidal brain jolts sounds hellish. I’ve seen Who Flew Over the Cuckoo’s Nest and electroshock therapy lite in the service of creativity will find few fans even among law department lawyers who crave innovation.

One of the many interesting parts of the impressive General Counsel Benchmarking Report for 2009 of the German consultants, Otto Henning & Co., discusses the total cost per in-house counsel (Anwalt) of centralized and decentralized law departments. I haven’t had translated all the German text (at 56) but I assume centralized and decentralized reporting structure means the same as we use those terms in English.

A chart shows that for the 56 participating law departments the internal cost per lawyer in 2009 was Euros 231,172 for the centralized departments (approximately $350,000 at the exchange rate during 2008) and Euros 297,967 (approximately $460,000) for decentralized. The difference amounts to a sharp 29 percent. As to such a differential, I have not seen other data on the cost gap between centralized and decentralized law departments. If a cost differential anything like that favors centralized reporting among US law departments, one has to wonder why decentralized reporting – other than overseas – holds anywhere.

A paper on patent litigation in the semiconductor industry includes an unusual metric: “chip design firms enforce roughly 4 out of every 100 patents they own,” a rate described later as comparable for biotechnology firms but somewhat lower than for financial firms. The paper by Bronwyn Hall and Rosemary Ziedonis was delivered at the Searle Center – Legal and Regulatory Studies, Northwestern Univ. School of Law, Nov. 18, 2010, at 3. They studied 136 companies in the semiconductor industry over a 29-year period.

Such a benchmark would be hard to obtain from the law departments themselves but it is discoverable through hard work to link patent filing and patent litigation databases. As with all benchmarks, it gives a general counsel a framework to understand better something about his or her department, in this instance patent litigation brought by it and associated costs.

The General Counsel Benchmarking Report for 2009 of the German strategy consultants Otto Henning & Co. comes in a very impressive book, though entirely in German. The participants in the study were 56 departments, all from the Fortune 150 of Germany. Among their responses, they provided data on their reporting lines (at 50-51).

The law department (Rechtsabteilung) reported half the time to the CEO, 19 pecent of the time to the Chief Financial Officer, 4 percent to the COO, 6 percent to HR’s head (Personalchef), 4 percent to the Chief Risk Officer, and 17 percent elsewhere. Since 2005, the year the biennial survey began, CEO reporting has increased significantly, with CFO and HR lines decreasing correspondingly.

Still, as compared to US general counsel, far fewer German general counsel report to the top executive of the company. Over here, CEO reporting reaches 80 percent or higher. It is also notable that nearly one out of five heads of legal in Germany, in very large companies to boot, report to someone other than the C-suiters mentioned above. Marketing, R&D, and even heads of business segments might account for that “other” category (Sonstige).