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Companies don’t associate legal fees with corporate initiatives

Only rarely do companies track the legal costs – both either internal and external – that they accumulate in furtherance of a business initiative. For example, the roll out of a new product has intellectual property hurdles, marketing materials review, logistics contracts, perhaps employment agreements, and all manner of other legal work, but no one totals the cost of that legal work. If a company opens a new distribution center, who tracks the cost of the legal work to obtain the property, construct the building, hire the workers, transfer the executives, and otherwise get it up and running?

With activity-based costing (See my post of June 16, 2006 for an application of ABC; and April 12, 2006 for another.), companies try to break down the component costs of an activity. ABC doesn’t work with lawyers unless they track their internal time and manage their outside counsel expenses by initiatives, not the customary smaller units of matters.

There are instances, however, such as the acquisition of a company where the legal fees are tracked and capitalized. But for the most part, no one can say that the legal costs were a specific amount for the company to pursue a particular corporate initiative.