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An attempt to quantify the added value of knowledge of the business

A legal consultant’s presentation I have seen includes a slide that ascribes values to three intangible benefits of in-house lawyers. One is “Knowledge of the business.” In a column to the right entitled “Value” are the enticing words “20 to 25% added value.”

Mirabile dictu! This claim, unsupported by any reference, suggests that a typical corporate lawyer provides a quarter more value for cost than an outside lawyer – given the same amount of time either employed or retained by the company — because of how well the employed lawyer understands the company’s business. The general notion makes sense but it’s nonsensical without backup and explanation to quantify it.

The third benefit on the slide was “early intervention/preventive law” to which a quantified value was also prescribed: “Significant value — conservative estimate — 10 to 15%.” This value delivered must assume that in-house lawyers will become involved more early in matters and also that they can train clients and therefore ward off legal evils.

Now, here’s one attempt to combine these specious benefits from the slide’s three intangible benefits. Compared to outside counsel, the inside lawyer is approximately 30 percent less costly, but adds approximately 25 percent more value from business knowledge and 15 percent more for early involvement. That means that a $200 an hour inside lawyer brings the value of a $415 an hour partner (one-third less cost than $300 an hour partner, but add to the $300 base $75 an hour for knowledge of the business and $40 an hour for early involvement.).

Confused? Well, what do you think these toss-off metrics mean?

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