Law Department Management

Who cares if parochial, junior lawyers opine on global growth and its affect on legal work?

I bump into metrics and I can’t resist probing them. For example, a press release by the Association of Corporate Counsel, dated June 30, 2008, announces that “global growth drives agenda of in-house lawyers in top companies.”

I couldn’t help trying to figure out whether we should rely on that sweeping conclusion. The first paragraph says that “more than 100 senior corporate counsel” were polled at a recent conference so I assume 100 is close enough, as promoters always give the highest number possible. The conference used an audience response system (electronic voting pads and software) to survey the attendees. Of the attendees, “36% were counsel of companies with more than $10 billion in revenues, and 34% with $1-$10 billion in revenues.” That means that one third of the lawyers – presumably 30-35 of them – work in companies with less than $1 billion in revenue. Companies of that size are unlikely to be deeply immersed in global transactions and the attendant legal problems.

Moreover, “85% of the respondents were corporate counsel, with 62% in a chief legal officer (CLO) role or a direct report to the CLO.” But that means four out of ten of the corporate counsel do not report to the CLO, so they were presumably more junior lawyers and therefore endowed with less perspective on the company and its preparedness for global legal issues.

Additionally, the release does not indicate whether the CLOs at the conference were with the large companies or the small companies.

For all we know, junior lawyers from huge companies mixed with general counsel of small companies, neither of which have the depth and perspective to give informed opinions about global growth and how it shapes legal workload. As a connoisseur of reliable metrics, I mistrust broad statements made on what could well be an unreliable set of data.

Thoughts on benchmarking other than about individual metrics

This blog has at least a dozen posts on specific benchmarks for law departments. I will eventually compile and publish that metapost. Meanwhile, other aspects of benchmarks – aside from specific metrics – deserve mention.

A general counsel ought to give thought how best to present benchmark data to senior executives (See my post of March 19, 2005: metrics to defend, not to change; Oct. 1, 2006: visual display of quantitative data; and May 8, 2008: online tool to help graphically present data.).

Processes may be more important to learn about than metrics, but they are trickier to study (See my posts of May 18, 2008: harder to do; May 14, 2005; and Oct. 18, 2005: metrics, practices or both; Nov. 2, 2006: process improvement ratios; Feb. 4, 2008: visits to other departments; and Jan. 13, 2008: benchmarking bad practices.).

Very little data turned in for a benchmarking survey is sensitive, especially if provided to a reputable survey firm (See my posts of April 15, 2007: concerns about disclosing data; Oct. 25, 2006: anti-trust concerns; and Sept. 13, 2006: aggregate outside counsel spend is not sensitive.). What can your arch-rival do to you if it knows your outside counsel spending last year?

It is correct that close comparability of law departments cannot be found in benchmarking studies, but the directional usefulness of industry benchmark data remains valid (See my post of April 23, 2006: golden apples to apples.). Internal benchmarks tracked over time can give much guidance, and greatly diminish concerns about comparability (See my posts of Oct. 14, 2005: time-series measures; and April 6, 2008: law department versus other staff groups.).

Key benchmarks have remained remarkably stable over the past decade or more (See my post of Dec. 5, 2007 [two]: past 14 years.).

A cottage industry collects metrics from law departments and hammers them into benchmarks. For example, Altman Weil (the publications part of which is now part of American Lawyer Media), Thomson-Reuters (Hildebrandt) and Jon Bellis, who carried the PricewaterhouseCoopers survey with him, the General Counsel Roundtable, and Serengeti.

Practice area metrics deserve more attention than they have gotten by survey groups (See my posts of April 9, 2006; July 18, 2006; and May 21, 2006: intellectual property benchmarks; Feb. 12, 2006; and April 23, 2006 [two]: employment; as well as Jan. 25, 2006; Jan. 5, 2006; May 10, 2006; June 15, 2006; and April 17, 2007: litigation; and Feb. 25, 2008: references cited.

Do what seems to make sense, even if no other law department can be found that has tried it

For several years now I have chafed when clients respond to a recommendation with “Who else does this?” Even though lawyers like to follow precedent and many of them are allergic to risks and change, I haven’t yet screwed up my courage enough to say, “Who cares? If the change we are considering feels like it makes sense for your department, why does it matter whether or not others have tramped the path flat?”

Especially I feel this way since I believe that all practices are embedded in a layered context, such that someone else who adopts only a part of another law department’s practice cannot really follow suit (See my posts of Nov. 11, 2007: complex contexts; and Nov. 27, 2007: best practices ride roughshod on context.).

Do what makes sense for your circumstances even if you makes you a pioneer.

Benchmarking law against other staff departments in a company

If a company tracks total spending by staff functions – IT, Facilities, HR, and Finance – as a percentage of revenue, then each function can show relative performance over time as a benchmark against the other functions (See my posts of April 9, 2005: finance, IT and HR benchmarks; and Sept. 4, 2005: total spend as a percentage of revenue for staff groups.).

Additionally, to compare changes by function in personnel per thousand employees or internal spending per personnel allows you to benchmark relative performance within a company. The absolute numbers would not be what you report, but changes in ratios. Ratios are key (See my posts of March 12, 2006: librarians to lawyers; Feb. 4, 2007: partner time to other timekeepers’ time; Dec. 22, 2005: compliance and ethics spending to legal spending; June 15, 2005: D&O defense costs to settlements; Sept. 13, 2005: external spend on vendors to law firms.).

Would that there were a public warehouse of electronic survey data about law departments!

When economists publish articles based on results from analyzed datasets, they publish the dataset online so that others can test it or make use of it in other ways, according to Ian Ayres, Super-Crunchers: Why Thinking-By-Numbers is the New Way to be Smart (Bantam 2007). It would be wonderful if benchmark data about law departments, with confidentiality preserved, could at least be partially made available for everyone to study.

We need a creative commons license by respondents to surveys: I will give you my data but it must be made available for all others who can make use of it (See my post of June 6, 2006: Empirical Legal Studies.). That way there would be a shared pool of raw metrics, available to all researchers, with company names and industries deleted or somehow coded so that no one could figure out which law department a particular number comes from. A way around this worry, perhaps, would be to post online only ratios, not absolute numbers.

My dream is probably a long way off, although I happen to believe that most data of law departments, even if shouted from the rooftops, won’t help another law department (See my post of April 15, 2007: what information should law departments be concerned about disclosing.). The biggest obstacle is that those who collect the data make money from it and view the data as a source of proprietary gain from publicity and knowledge. It should be the analysis and clarity of graphics that distinguish someone, not the raw data itself.

At the least, the law departments of this world would be better off if there were common definitions of the terms used in data collections and surveys. It would be even better if there were a standard format for them to submit data, something like the Common Application for college admission.

Observations about the profusion of surveys that invite law departments to respond

Many organizations want to survey law departments. In my recent gargantuan collection, I listed 72 of my posts during 2007 that drew on a survey of law departments, most of which surveys had been conducted that year (See my post of March 2, 2008.). Because some survey results deserved more than one post, I would estimate that I found approximately 45 different surveys.

At least 35 different organizations conducted those surveys – law firms, trade publications, vendors, consultants, most of which are service providers of one kind or another. They seek metrics to gain insights into their market, to help them sell more of their services or products, or to attract favorable publicity (See my post of Aug. 5, 2007: possible bias in surveys by interested parties.).

Nearly all the surveys I wrote about targeted US law departments. If the average survey had 100 respondents after a five-percent response rate, then on average 2,000 law departments received each survey. Actually, my guess would be that the average number of participants invited to submit data is much higher and the response rate somewhat lower (See my posts of April 9, 2005: very low participation rates in a survey by a software vendor; and April 9, 2005: 3.6% rate.).

Obviously there is much overlap; the general counsel of the Fortune 500 must receive dozens of survey requests every year. Nor do all the surveys go to the general counsel of the company, although most do.

Surveys of law departments written about on this blog during 2007

Surveys of law departments go on all the time (See my post of Oct, 17, 2005 on the plethora of law-department surveys.), and I implore readers to send word of any to me. I warmly embrace every survey of law departments that I can lay my hands on (See my posts of Oct. 10, 2005: 10 surveys cited in 2005; June 27, 2006: collects 9 surveys by interested parties; and Aug. 5, 2007: suggests several more.).

What I hadn’t realized was how common surveys of law departments are. Metrics buff that I am, I laboriously looked at the 1,000 posts I published in 2007 and looked for ones that drew from a multi-department survey. I have listed them below in chronological order by quarter: an astonishing 72!.

The first quarter started with 18 posts (See my posts of Feb. 11, 2007: ACC’s Seventh Annual Chief Legal Officer Survey on pro bono; Feb. 11, 2007 [four posts]: ACC’s Seventh Annual Chief Legal Officer Survey; Feb. 16, 2007: American Lawyer survey of law firms on markups of contract attorneys; Feb. 18, 2007: Corp. Secretary: corporate responsibility officers; Feb. 19, 2007: Altman Weil/LexisNexis Martindale-Hubble time needed to find outside counsel; Feb. 19, 2007: ACC’s Seventh Annual Chief Legal Officer Survey on firing law firms; March 7, 2007 [Brad Blickstein]: In-house Tech survey; March 9, 2007: International Paralegal Managers Association on billable hours; March 13, 2007: on procurement; March 17, 2007: Legal Week and UK firings of firms; March 26, 2007: InsideCounsel on hiring preferences [four posts]; and March 31, 2007: LexisNexis Martindale-Hubble/Altman Weil on obstacles to alignment with clients.).

During the second quarter of 2007, there were another 21 posts (See my posts of April 8, 2007: InsideCounsel on small firms’ receptivity to alternative fees [two posts]; April 13, 2007: 2006 ACC/Serengeti Managing Outside Counsel Survey on savings from matter management systems; April 13, 2007: Law Dept. Quarterly on quality management initiatives; April 15, 2007: Lloyds on collective action on legal fees; April 23, 2007: LexisNexis Martindale-Hubbell on law departments in Europe; April 27, 2007: Edge Legal Marketing on attendees of LegalTech NY; May 4, 2007: BTI on prestige of firms hired; May 11, 2007: 2006 ACC/Serengeti Managing Outside Counsel Survey regarding inexperienced law-firm associates; May 23, 2007: Juristes Associes on French law departments and education; May 23, 2007: law firm reputations; May 24, 2007: Canadian Corporate Counsel Association on hours worked per week; May 26, 2007 [two posts] and May 27, 2007: Canadian Corporate Counsel Association on cost control; May 27, 2007: American Arbitration Association; May 4, 2007: PriceWaterhouseCoopers on international arbitration; May 9, 2007: 2006 ACC/Serengeti Managing Outside Counsel Survey on low numbers of RFP responses; June 18, 2007 on a consultant’s headlines about law departments “firing” law firms; June 16, 2007 [Brad Blickstein]: LexisNexis survey on early case assessment; and June 20, 2007: ALM on preferred counsel overseas.).

In the third quarter, 10 more surveys provided material (See my posts of July 2, 2007: GCR Outside Counsel Management Survey [three posts]; 10, 2007: Legal Week on professional development training; July 17, 2007: InsideCounsel about Different views on cost efforts of law firms; July 19, 2007 [two posts]: InsideCounsel on creativity by law firms; July 27, 2007: InsideCounsel on bill padding; July 29, 2007: InsideCounsel on minor factors in selecting outside counsel; Aug. 5, 2007: ALM and selection of international outside counsel;

The year closed with 23 survey-based posts (See my posts of Oct. 25, 2007: 2006 ACC/Serengeti Managing Outside Counsel Survey on discounts for early payments of bills; Oct. 26, 2007, 29, Oct. 31, and Dec. 6, 2007: Fulbright & Jaworski’s Fourth Annual Litigation Trends Survey on discovery costs; Nov. 10, 2007: Corporate Board Magazine and FTI Consulting on compliance [five posts]; Nov. 6, 2007 #2: ACC and Empsight with compensation data; Nov. 6, 2007: Hildebrandt on long-term compensation; Nov. 11, 2007: Commerce & Industry (C&I) and BDO Stoy Hayward on value delivered for law firm fees; Nov. 11, 2007: C&I about strengths of the hourly billing model; Nov. 24, 2007: C&I on fixed fees and commitments by law departments; Nov. 28, 30, and Dec. 2, 2007: the Legal Electronic Data Exchange Standard (LEDES) Oversight Committee on e-billing; Dec. 5, 2007 – two posts: Hildebrandt and little change in basic metrics; Nov. 27, 2007: CMS Cameron McKenna on four cost-control methods; Dec. 12, 2007: Lovells and reporting lines of European GCs; and Dec. 19, 2007: Altman Weil about prohibitions of some associates from working on matters.).

Where’s the luster of DuPont in light of its metrics on legal spend and staff?

Volumes have been written on DuPont’s management initiatives to improve its law department’s effectiveness (See my post of June 30, 2006 on the marketing of law departments and four references to DuPont.) Hence, it caught my attention where a piece in Corp. Counsel, Vol.15, Jan. 2008, at 111, states that DuPont's "legal team has an annual global legal budget of around $230 million." I used that figure to benchmark two important measures of any law department: spend and staffing to revenue.

According to the latest Hildebrandt benchmarking survey (Executive Summary, pg. 3) "median total legal spending as a percent of U.S. revenues is 0.44% among all participants." Of its worldwide revenue of approximately $28 billion, something like 40 percent of that was generated in the United States, which means approximately $11 billion. Therefore, DuPont’s total global legal spending would be a touch above two percent of its US revenue.

If worldwide revenue is made the denominator, DuPont’s legal spending as a percentage of that revenue is 0.79 percent, double the Hildebrandt median. And DuPont, with its enormous size, might be expected to produce a better-than-average cost/revenue profile (See my posts of May 4, 2005: total legal spending as a percentage of revenue declining as revenue increases; and Dec. 3, 2007: possible explanations.).

As to its staff, With 195 lawyers, the legal spend per lawyer is just over $1 million per lawyer. That’s a standard figure, but it may be because DuPont has a bulge of lawyers. At seven lawyers per billion of global revenue, the colossus has a much higher ratio than most manufacturers. The median for manufacturers is closer to three lawyers per billion.

DuPont has a reputation for innovative management of its legal function, but if this back-of-the-envelope analysis is directionally correct, the Wilmington giant’s basic spending and staffing metrics ido not seem to support that renown (See my post of March 15, 2006: questions on some ECA data from DuPont.).

Practice area benchmarks for seven practices

We lack reliable benchmark metrics for practice areas of law departments (See my posts of July 20, 2005 and May 28, 2005 on this missing set of metrics.). A few, though, have appeared on this blog.

Contracts (See my post of Jan. 6, 2006: contracts handled per commercial lawyer.);

Corporate secretary (See my post of Feb. 4, 2008: cost per entity maintained.);

Litigation (See my posts of Jan. 25, 2006: lawsuits pending; May 31, 2005: Canadian caseloads per litigator; June 15, 2006: claims per lawsuit; Nov. 22, 2007: litigation loads.);

Intellectual property (See my posts of Aug. 3, 2005 and July 18, 2006 on 27 metrics for patents; Dec. 21, 2005: per R&D spend; and April 9, 2006: trademarks.);

HR/employment (See my posts of Jan. 3, 2006: EEOC charges; June 7, 2006: lawyers per 1,000 employees; Jan. 6, 2006: employment.);

International mergers and acquisitions (See my posts of Dec. 22, 2005: deals per lawyer; March 19, 2006: foreign to domestic revenue); and

M&A (See my post of March 24, 2005: deal value per lawyer.).

Still incognito are metrics that suggest the appropriate staff for environmental work, antitrust and import/export. At some point these, too, as well as other practice group metrics, will be unmasked (See my post of April 7, 2006 on international lawyers in the US; and Dec. 22, 2005 on compliance spend compared to legal spend.).

Other posts related to this topic have been scattered throughout (See my posts of May 16, 2007: create an index of change; and Sept. 3, 2006: a retrospective on this topic.). Even posts on paralegals by practice area (See my posts of Dec. 22, 2006 and March 12, 2006.)

Examples of correlations in law department management

It is a powerful tool to quantify how some amount changes when another number changes, such as to understand how the number of independent claims in a litigated patent influences total outside counsel fees -- to calculate the correlation between one set of numbers and the other (See my post of Jan. 14, 2007: variance in an independent variable explained by correlation.).

Many correlations have been mentioned on this blog (See my posts of April 5, 2005: innovation and law department size; May 10, 2005, Sept. 10, 2005 and Jan. 3, 2007: effective billing rates and law firm size; Sept. 10, 2005: law firm size and rank on league tables; March 10, 2005: stakes in patent litigation and representation costs; Nov. 20, 2006: size of law department and number of law firms retained; Oct. 23, 2005: law firm size and overhead costs; July 2, 2007 (two posts): market capitalization and both number of in-house lawyers and total legal spend; June 9, 2007: department size and size of law firms it retains; and Nov. 28, 2007: average years of lawyer experience and total legal spending.).

Wherever there are benchmarks there could be correlations, although usually the analysts fail to push that far (See my post of Feb. 12, 2008.). Unfortunately, mathematical correlation does not prove causation (See my posts of Jan. 27, 2006: cause and effect; July 4, 2006: empirical studies of law departments are needed.).