Profit figures of law firms. The U.S. Census Bureau estimates that law firms in that country earned gross profits of $51 billion in 2003, which was a profit rate of 40 percent compared with revenues. However, the Rand report, “Innovations in the Provision of Legal Services in the United States, at 5 (fn. 1) explains that “these figures are not calculated in line with usual accounting standards.” GAAP Principles would reduce the profits. I have therefore mistakenly compared law firm profitability to the profitability of U.S. public companies (See my post of Sept. 22, 2008: traditionally high profit margins in law firms.).
Difference between “experience” goods and “credence” goods. A recent Rand report distinguished between these two terms. With experience goods and services, quality can only be confirm after use. With credence goods, quality may still be unclear even after the service was rendered because some event has not yet happened, and might never. Legal services are mostly experience goods and often credence goods, such as when a lawyer’s drafting of a contract is never tested in court (See my post of April 26, 2006: credence goods; and March 31, 2010: information asymmetry and credence goods.).
Kaldor-Hicks test for improvements. Pareto decision-making seeks to reach a point where any change would make someone worse off (See my post of Nov. 24, 2010: Pareto optimality.). Another criterion was put forward by two men (Kaldor and Hicks) that would permit change if those who are made better off by the change gain more than is lost by those who are made worse off by the change. Law department managers can maneuver more under the Kaldor-Hicks principle.
A privilege blow to third-party litigation funding. A District Judge in Delaware ruled in June 2010 that “disclosure of information to possible funders waived the attorney-client privilege.” This footnote from a Rand report, “Innovations in the Provision of Legal Services in the United States,” would seem to raise a significant issue for litigation finance organizations (See my post of April 11, 2011: litigation funding with 9 references.).
Macroeconomics takes a top-down perspective on economic activity whereas microeconomics looks at the elements of economic activity. According to Nicholas Wapshott, Keynes Hayek: the clash that defined modern economics (Norton 2011) at 196, John Maynard Keynes invented the macro branch. Possibly, but whether he did or not is beside the point of this post. Along the way Wapshott claims Keynes also invented econometrics, the measurement of economic activity at a national level. The genius of Keynes, Wapshott summarizes, switched the economic discourse from philosophical and abstract to social scientific and empirical.
Management of legal departments hardly stands shoulder to shoulder with economics, and in fact the comparison is risible. Still, a macro view of law departments would cite globalization, telecommunications, business models, environmentalism, and total flows of legal expenses and revenue. A micro view would break the subject up into components, perhaps like the categories on this blog. As far as a counterpart for econometrics, benchmarks anyone?
I admire the report just issued by Fronterion Top Ten Trends for Legal Outsourcing in 2012. The full version is at www.fronterion.com/tenfor2012. As I thought about trying to write a counterpart for law department management, another part of my mind objected. The objections carried the day.
Trend-spotting has an air of astrology. When you generalize grandly, you leave all kinds of interpretative flexibility. “Law departments will seek increasing flexibility and inward-outwardness.”
When you pronounce ex cathedra – “Law departments will exhibit more managerial agility” – you sacrifice the grounded grit of specificity. You smooth and polish reality to such a high shine it blinds.
You must assume a time frame during which the predictions will bear out, and you are certain to overstate short-term changes and understate fundamental changes (See my post of Feb. 21, 2011: technology’s effects mis-interpreted.).
The trends say more about the seer (reverse of Rees) than about reality. All kinds of cognitive biases run amok.
What you decide to label as a “trend” has all kinds of epistemological challenges (See my post of Jan. 2, 2009: trends in management of law departments with 7 references.).
Connotations permeate the order and wording of the trends.
Apart from their accuracy, your trends rely on rickety words and are laden with intended or unintended meanings.All trends imply less of the opposite or the status quo, but that flip side is rarely adequately discussed. Progressive improvement is the only order of the day.
The trend spotter ought to disclose biases (like trying to sell consulting services), assumptions, framework. For example, U.S. law departments of an approximate size, leaning toward large departments.
Hopes, especially those nurtured by ideology, do not trends make. A trend should be based on actual instances likely to spread, not a platform or agenda.
Ten is an arbitrary number, expected in a Letterman culture, and that goal can force a predictor to fabricate a weak reason or two.
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.
Economists often refer to changes that are cyclical, meaning that there is some regularity in the pattern of change and reversion, and changes that are structural. Structural changes are permanent, profound, often take effect gradually, and are sometimes hard to identify at the time. For example the demographic change of an aging population appears to be a structural shift, one that is much more permanent and deep than a cyclical swing.
For law departments, some management ideas are cyclical. I suspect that decentralization of reporting ebbs and flows in popularity. Convergence may be a cyclical swing of the pendulum as might partnering and a strong focus on cost control.
Structural changes that will affect law departments may include a shift in power and influence away from law firms. Over a number of years, off shoring may prove to be another structural change as well as unbundling services and third-party investments in law firms. Perhaps US style litigation is a structural change that will ripple out from our shores. Some people forecast that technology will transform the practice of law (See my post of Sept. 25, 2008: Cisco's Mark Chandler with 30 references.).
More than 20% of Canadian lawyers are in-house. CCCA Magazine, in its Fall 2011 issue at 7, has a piece by the Chair of the trade group, Geoffrey Creighton. He writes that “more and more legal practitioners in Canada are working as in-house counsel” and a sentence later that “Some estimates place the figure as high as 25 percent of the profession.” That proportion would be higher than comparable estimates for the United States, although the number of in-house counsel in Federal, state and local government agencies is hard to come by. Creighton says that of the 400,000 member American Bar Association, those who are in-house number 17,000 (See my post of Sept. 25, 2005: ACCA estimate of 71,000 non-governmental U.S. in-house lawyers; Dec. 3, 2006: possible Fortune 500 staff figures; Dec. 11, 2006: ratios in the State of New Jersey; Dec. 31, 2008: oblique data suggests about 21% in-house; March 9, 2009: ABF data suggests 11% in-house in the US; April 2, 2009 #3: rapid growth of in-house bar since 1961; and June 15, 2009: almost one out of five lawyers in a large survey had gone in-house by their seventh year of practice.).
Another online RFP site. Announced during a law department conference in Asia was the “imminent launch” of LIVS (Legal Insight Visibility Services & Systems) a new, secure and stream-lined legal procurement system for RFP’s. This news comes from Asia-MENA Counsel, Vol. 9, Issue 7 at 16 (See my post of Sept. 4, 2005: online Dutch auction by GE with 142 law firms invited.).
More on estimates of the legal market, whatever that is. In a report dated June 2010, Jomati Consultants states that the “American legal market” stands as the largest in the world at around $255 billion (See my post of Oct. 28, 2011: the global or U.S. legal markets and three citations.).
Fiscal year ends and benchmark metrics. Law department managers that complete benchmark surveys know headcount numbers as of the end of a calendar year. That much is easy. But revenue for a company depends on fiscal year aggregations and may not be known for the 12 months ending December 31st (See my post of March 18, 2005: lag and lead spend by lawyers crosses fiscal years; and Feb. 20, 2008: general counsel don't spread litigation costs over fiscal years.).
Presumption of 1,800 chargeable hours per inside lawyer. Data in Corp. Counsel, Nov. 2011 at 30, indicate that for the AmLaw 200 during 2001-2007, chargeable hours per lawyer stayed around 1,750. Assuming marketing and down time accounts for more hours by external counsel, and that internal counsel do not face those drags (not entirely true I note), an estimated in-house equivalent of 1,800 or 1,850 seems quite plausible (See my post of May 21, 2009: internal chargeable hours with 12 references.).
Average does not mean typical. Many people think that the term “average” means “typical.” Not so. Average (or mean) is a calculated number and there may in fact be no member of the set that is itself average. 30+40+50+60+70 averages 42, which is not among the set (See my post of Dec. 22, 2010: descriptions of dispersion beyond averages, medians, and trimmed means.).
A company that provides communications tools for major litigation. For the Defense, Aug. 2011 at 75, has an ad for TrialWorks. It promotes its case management software and promotes its connectivity services, including skype, iChat, video teleconferencing, instant message, text, email, webinar, fax, and phone. The site does not call out any law department clients, but they must exist.
Another way to cluster companies for benchmark comparisons. An article I just read used the four-digit GICS code “because it has been shown to explain many financial results better than SIC codes and NAICS codes” (See my post of Dec. 27, 2010: use codes to create finer distinctions than “industry”.).
It is not possible to define numbers formally. This axiom-based inability has no bearing on the importance of metrics, but it fascinates me that “providing a univocal formal definition of what we call numbers is essentially impossible: the concept of number is primitive and undefinable,” as explained more fully in Stanislas Dehaene, The Number Sense: how the mind creates mathematics (Oxford 2d ed. 2011) at 224-225 (emphasis in original). Fortunately, our calculating minds don’t rely on axiomatic definitions.
A rule of thumb for the accuracy of metrics – look at the right-most zero. “The rule is that a number’s accuracy is given by its last non-zero digit starting from the right.” This useful tidbit comes from Stanislas Dehaene, The Number Sense: how the mind creates mathematics (Oxford 2d ed. 2011) at 95. I have taken to task false precision in survey results (See my post of Aug. 30, 2006: metrics with false precision.).
More Twitter followers and referrals. I note a steady increase in the number of readers who come here from Twitter, amounting to 5-10 a day. I can’t tell how they see my posts, or the Twitterized form of the posts, but they arrive. To try to figure it out, I looked at my followers and was surprised to find that there are 536. Nine months ago there were 344 so I may come close to doubling the number in a year (See my post of Feb. 3, 2011 #3: on 25 Twitter group lists and 344 followers.).
Astonishing news, this. Bloomberg announced yesterday that five partners (partners!) from Willkie Farr & Gallagher will become part of the existing Bloomberg legal team, effective January 1, 2012. One of them, Dick DeScherer, will become Chief Legal Officer.
I can’t fathom the economics and logic of this massive move. Here is the bland statement in the release. “As a growing company operating in almost 200 locations around the world, we are finding unprecedented opportunities for growth in our customer base, our product offerings and our local partners. Bloomberg will benefit greatly from a ramp-up of both the number and range of expertise of in-house legal staff to ensure we are much more efficient and nimble as we seek to take advantage of these global opportunities” said Bloomberg CEO Daniel L. Doctoroff.
The release adds that “Willkie Farr & Gallagher has been Bloomberg's primary outside legal counsel since 1987 and DeScherer has worked with the company during the same time period, serving on the Bloomberg Board of Directors for more than 25 years -- a role he will continue.”
Spot awards not appropriate for lawyers? I heard the view that spot bonuses are not appropriate for lawyers. “It’s not a very professional way to deal with lawyers!” I don’t agree. Since promotions are rare and turnover low, general counsel need some treats in the bag to hand out (See my post of Nov. 8, 2007: on-the-spot awards; and July 28, 2008: hard decisions to award spot bonuses.). Total amount of spending by law departments. Ken Cutshaw’s column in the ACC Docket, Sept. 2011 at 22, refers to “the $60 billion global legal services market.” I wrote Ken but he has not supplied the backup for that number. kcutshaw@churchs.com Then I read in the brochure for the Litigation Summit and Exposition, to be held Nov. 15-16, 2011 at 9: It is estimated that Fortune 500 Companies spend more than $200 Billion a year on litigation.” No source given and no believability possible (See my post of March 29, 2009: “The US corporate legal services market generates $96B per year in spending.”).
U.S. decisions reported each year. According to Legal Comm. & Rhetoric, Fall 2011 at 100, n. 40, there are “200,000 new American cases reported each year from 600 courts.” Need we say more about the constant development and the likely increasing complexity of the law? Yes, because some decisions clarify, simplify, and resolve areas of law (See my post of Feb. 16, 2006: more than 4,000,000 state and federal decisions.). Even so, the deluge of decisions awes us.
Robert’s Rules of Order to encourage comments in a meeting. “No one can speak twice till everyone who wants to has spoken once.” This would be quite a rule in meetings. It would push people to think carefully before they spoke, but it might also push them to throw in everything once they get the microphone. This technique comes from the Harv. Bus. Rev., Sept. 2011 at 92 (See my post of Feb. 18, 2009: ten ways to hear from everyone in a group.).
Ample apps. The Economist, Oct. 8, 2011 at 9, astounded me with its report that the ten largest app stores offer more than 1.2 million apps! Most of them are games, weather services, variations for social networks, maps, music-related – not business and professional. Still, they give people access to information, simply, cheaply, and easily, on their users increasingly powerful smart phones. Websites don’t look good on tiny screens so the programs relied on by in-house lawyers don’ translate well to them (See my post of Sept. 26, 2011: mobile apps.).
For more consistency, have the administrator oversee evaluations of non-lawyers. When paralegals and support staff report to the administrator of a legal department, with input from the lawyer leading the team they support, the greatest benefit is consistency in performance objectives and measurement. The head of operations can calibrate across roles and compensation bands to bring more balance and internal equity to the evaluations (See my post of March 26, 2005: risk that non-lawyers reporting to lawyers become second-class citizens.).
There can be no such thing as an ultimate explanation. David Deutsch, The Beginning of Infinity: Explanations that Transform the World (Viking 2011) at 64, makes that claim because the resolution of any problem makes us aware of deeper problems. If a general counsel believes that competition drives most people’s fundamental behavior – that they strive to advance relative to others – that cannot serve as an ultimate explanation. What explains competition and why not another foundational driver? This notion relates to mental models (See my post of Sept. 10, 2005: mental models and decisions; and June 6, 2006: mental models are closer to theories.).
Australian Corporate Counsel Association predates ACC by two decades. Benny Tabalujan, ed. Leadership and Management Challenges of In-House Legal Counsel (LexisNexis Australia 2008) at 8, points out that “With its origins in the 1960’s, ACLA was one of the first fully dedicated in-house lawyer member organisations established” (See my post of Oct. 5, 2009: ACC’s predecessor formed in 1981.).
Parochialism and too-broad conclusions drawn from U.S. law departments. Parochialism, as used throughout David Deutsch, The Beginning of Infinity: Explanations that Transform the World (Viking 2011), means “mistaking …local regularities for universal laws” (at 76). People think parochially when they fail to appreciate that what they observe may not apply to a wider phenomenon. To speak of three lawyers per paralegal as a typical ratio, without adding “in mature U.S. law departments in the 21st century,” succumbs to parochialism (See my post of Jan. 18, 2011: differences between countries in key benchmarks.).
