Rees Morrison’s Morsels #162: posts longa, morsels breva

Splines. A spline function is based on the difference between a firm’s performance and the performance of a relevant comparison group. For instance, a spline function would look at a manufacturer’s law department metrics after subtracting from them the medians in that industry (See my post of July 31, 2011: smaller law departments should adjust when comparing themselves to benchmarks dominated by large departments; April 24, 2009: adjustments of share price changes for industry and size; and Dec. 31, 2006: nominal versus inflation-adjusted figures.). If each company in the industry is then subtracted from the median, its performance would be stripped of the broader industry fluctuations. This is also referred to as “scaling” — all the above from Acad. Mgt. J., 2011 at 725.

Gibrat’s Law. Gibrat formulated the law of proportionate effect for growth rates to explain what he empirically observed as the pattern for manufacturing firms. The law states that a firm’s expected growth rate should be independent of its size. In other words, “the probability of a given proportionate change in size during a specified period is the same for all firms in a given industry – regardless of their size at the beginning of the period.” If that is true for the revenue of a company, given the relationship between revenue and number of lawyers in a legal department for the same industry, one would guess that Gibrat’s Law holds for law departments (See my post of Oct. 22, 2006: the “laws” of Gresham, Murphy and Damon Runyon.).

Publicly traded company in legal management. We can now add Epiq Systems (NASDAQ: EPIQ) but we must remove LECG (See my post of March 20, 2007: lists four publicly traded firms that do forensic accounting — CRA International; FTI Consulting; LECG, and Navigant Consulting.).

Government law departments larger than any corporate department
. In Diversity & the Bar, Sept./Oct. 2011 at 28, the profile of Shiela Cheston, now the general counsel of Northrop Grumman, says that previously she served as general counsel of the U.S. Air Force. There she “oversaw approximately 1,500 lawyers stationed worldwide.” I do not think there is a corporate law department with that number of lawyers.

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