A senior executive at a legal services company wrote me. He sent data about differences between law departments in the same industry in terms of lawyers per billion of revenue:
“Here are some Lawyer/Revenue ($Bn) figures (that may not be accurate) that I came up with combining the Fortune 500 data with the Corporate Counsel survey. In Insurance, Liberty Mutual 33 vs Nationwide 20, in Technology, Qualcomm 11 vs Motorola 5, in Pharma, Pfizer 7.7 vs Johnson & Johnson 3.3, in Utilities, Edison 7.2 vs Constellation Energy 2.8. The question I’m really asking is why do some quite comparable companies have such variability in the relative size of their law departments?”
An excellent question and let me speculate on some of the many possible explanations. One worries me, an ardent benchmarker. Perhaps at the size of these companies, “industry” is too broad. J&J manufactures and sells billions of dollars of medical devices, for example, and probably much more than Pfizer, which is more of a pure-play pharmaceutical company. If their businesses don’t actually resemble each other, if it is misleading to place them in the same “industry,” neither will their legal benchmarks match.
Or, even if the industry label applies reasonably well, business models might diverge. For all I know, Liberty Mutual does its defense work internally with employee lawyers while Nationwide turns to nominally independent staff counsel. Some CEOs insist on lean corporate staff, such as InBev’s, which leads to widely different benchmark metrics than, say, Anheuser-Busch.
Another cause of the wide differences in lawyers per billion may be that the companies have inverse ratios for spending on outside counsel: companies with more lawyers per billion spend less on outside counsel, and vice versa. After all, if you don’t make the legal advice inside, you can buy it from outside.