Articles Posted in Benchmarks

An open question has been whether the time of participation in a benchmark metrics survey correlates to statistically different samples.  Put differently, do law departments that submit data early in the collection period differ materially on key benchmarks from departments that submit their data months later, in the final stages of data collection?

To research this methodological issue, I took the law departments from U.S. and Canadian companies that signed up for the General Counsel Metrics benchmark survey this year for the first time.  My reasoning was that participants in the 2010 or 2011 survey who returned had responded to different factors than newcomers.  There are 191 law departments in the newcomer set, which I divided into thirds by the date they completed the online survey.

The earliest third of the participants – very roughly the Spring participants – are about a half lawyer per billion smaller than the late participants – think of those as the Fall participants.  The Spring participants also had much lower total legal spending as a percentage of revenue than the Falls (0.35% compared to 0.55%).  In terms of size, the median number of lawyers, three, was dead even for both groups.

You and you law department will benefit from taking part in the 2012 General Counsel Metrics benchmark survey.  We are on our way to over 1,000 participating law departments, which gives tremendous reliability and specificity to the metrics.

Plus, GC Metrics offers compensation data – more than 1,000 lawyers and administrators are covered so far,.

Plus plus, Releases, have in their 90+ pages, information on matter management software and contract management software.

A group of 600 HR managers, academics, and advisers “are drafting guidelines for standardizing measures of workforce diversity, turnover, job training, and the like.” Not only is this massive initiative trying to bring about consistent definitions and data collection methods, it is also trying to outline how companies should report such HR metrics to shareholders.

As explained in Bloomberg BusinessWeek, July 23, 2012 at 44, this is a multi-year effort that has already encountered a fair degree of opposition. No matter: It is a commendable effort.

It caused me think about the possibility that there will someday be both clearer definitions of legal staffing and spending but also more of that information available through public disclosure. If that day were to arrive, benchmarking would vastly improve and could move to a different, more insightful, level.

In Brazil, half of all businesses are limited liability companies while 45 percent are individual proprietorships.  Less than one percent are corporations and of these only about 100 are large companies listed on the Brazilian Stock Exchange.  This information comes from Canadian Corporate Counsel Assoc. Mag. (Autumn 2010) at 37.  Even so, last year and this year, the total number of participants from Brazil in the General Counsel Metrics benchmark survey exceeded 40.

My point is that if most companies in a country are small, the law department population will also be small (See my post of Aug. 15, 2012: predominance of very small companies in Spain and Italy.).

Quite often, the participants in the General Counsel Metrics benchmark survey from countries other than the United States are in fact a subsidiary of a US company. To give an example, if Ford Motor Indonesia has a law department and it completes the survey, the releases treat it as an Indonesian company for purposes of categorizing the country of its client company.

“Over the past two decades Spanish companies in sectors where products and services can be traded internationally raised their productivity five times more than their counterparts in purely domestic sectors.”  That finding in Fortune, July 23, 2012 at 16, suggests another reason why larger companies enjoy falling levels of total legal spend normalized for revenue.

The rigors of matching yourself against international business competitors keep you fitter, as evidenced by legal expenses per unit of revenue, than less-international companies that don’t face that test. If you are big enough to sell overseas, your revenue rises but your total legal costs do not rise as much.  There are many reasons for this correlation (See my post of Dec. 11, 2010: five reasons why globally dispersed US law departments might have lower total legal spending; April 30, 2011: globaloney; and May 6, 2011: tradable and non-tradable sectors with the difference that makes on law departments.).

As if 25 benchmarks by industry, revenue, and number of lawyers from nearly 500 law departments were not enough, Release 2.0 sent last week offered more.  It included an invitation to a free webinar to ask questions about the benchmarks, five trade groups with industry reports, an analysis of matter management and contract management software, and 49 pages of organized blog posts on statistics.

Release 3.0 will publish in early October and there may well be more than 700 participating law departments from 25 industries in it.  I hope your department takes part.

The 2012 General Counsel Metrics benchmark survey has staffing and spending data so far from more than 80 law departments at hospital and health systems.  A friend of mine told me that the “Joint Commission” that accredits U.S. hospitals recognized 5,754 of them in early 2012.  Their total expenses were $750 billion, and he explained that generally speaking the revenue of a hospital equals its expenses.  If so, those accredited hospitals averaged about $130 million in revenue.

Release 1.0 of this year’s GC Metrics survey (sent in June to participants) shows that the median for 68 health systems was 5.0 lawyers for every billion dollars of revenue.  If that ratio holds for the total revenue of the accredited hospital systems, that would mean 3,750 in-house counsel (750*5).   And, one more speculation: if we assume on average 3 lawyers per department, that suggests on the order of 1,250 health system law departments in the United States.

If you would like to participate, absolutely free, in the GC Metrics law department benchmark survey and get Release 2.0 in early August, provide the six data figures on staffing and spending by clicking on this secure survey link.

A point made at the InsideCounsel SuperConference by Kraig Washburn, the General Counsel of Flexera, is sound.  He includes in his corporate headcount one or two contract lawyers who have been working for him for a long time.  They do not get benefits, it is true, but it gives a more accurate picture of the law department to count them as employed lawyers.

Otherwise, benchmark ratios such as lawyers per unit of revenue or outside counsel spend per lawyer, or paralegals per lawyer will be distorted.  Even more, the legal function mis-represents itself within the company.

The larger the business the more global it and its legal department become and thus the greater its need for local in-house counsel.  A commenter on my article about benchmarks and matter-management software wrote, as if it were self-evident, that “global law is more expensive than domestic for a ton of reasons.”  This globalization surcharge, he proposed, explains the larger spend numbers at the high-end companies where matter management is more prevalent, even when those legal costs are normalized against higher global revenue.

But even if lawyers’ hourly rates are high, the total cost of local legal services may be less expensive than in chronically legislated, litigious and lawyered countries.  Internally and externally, the additional revenue may come at a lower legal expense.

Within the department, salaries may be lower for those lawyers based in the country.  As to external costs, one can well suppose that local in-house counsel, familiar with the next-door firms, choose more cost effectively than distant U.S. lawyers.  No high-cost U.S. lawyers who are “international” specialists would have the touch and feel.  They fall back on a familiar U.S. firm with a branch office in the country, and pay the price.  A recent article in Asian Lawyer, Summer 2012, backs this point: in Korea, “international firms are charging 30-50% more than domestic firms.”

A fascinating article concerns an analysis of causes of action in some 2,500 civil cases filed in Federal courts filed between 2000 and 2008.  The research was by Christina Boyd, et al, in “Building a Taxonomy of Litigation: Clusters of Causes of Action in Federal Complaints”, which is available electronically.  The four authors used a quantitative procedure known as cluster analysis, specifically spectral clustering, to determine from 11,439 causes of action eight primary clusters.    The article nicely explains all the research and draws solid conclusions.

From the standpoint of those who manage corporate litigation, this research has much potential.  If there were data for these cases on costs paid by the defendants as well as for durations of the cases, it would help predict case outcomes, case lengths, costs, and forms of resolution.  A law department could analyze its portfolio of pending litigation by cause of action and perhaps determine where proactive research makes sense, knowledge management have more payoff, form documents make a contribution, and choice of law firm.  The authors take mostly a scholarly approach to their work, but they do write (at 26), “the more systematic information that case actors have about their case and how it compares to others, the more able they should be to make strategically wise decisions.”   This is another example of the deep potential for evidence-based management.