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Legal costs per unit of profit; and steward company money more carefully than your own

Do you have blazoned on your office wall “for every dollar you spend, the company’s sales force has to generate $10 of additional revenue to cover that expense”? The authors, writing in ACC Docket, Nov. 2010 at 81, actually mean “profit,” not “revenue” but the point remains dramatic. If plus or minus a bit, one percent of revenue goes to total legal expenses and if plus or minus 10 percent of revenue makes it to the bottom line as profit, then every legal dollar costs $10 of profit.

The authors add a fillip: “Never spend the company’s money in a way that you would not spend your own. In fact, treat the company’s assets more dearly than your own.” Does that apply when the in-house lawyer takes a car service or flies business class or treats outside counsel to a fancy dinner? We all find it quite easy to spend reimbursed “company money” much more liberally than our own hard-earned income.

Anyway, legal spend per unit of revenue reigns as the Magi of Metrics, but in the bottom-line world of shareholder return and working capital, legal spend per unit of profit should be the king (See my post of March 4, 2008: profit margins and lawyers per billion; May 24, 2005: profit margin as a benchmark denominator; April 4, 2006 #1: “earn a dollar to pay a 3-cent bill of outside counsel”; May 23, 2007: profit per in-house lawyer; and Feb. 15, 2010: $4,300 per hour in revenue typically needed to pay for one hour of outside counsel.).

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One response to “Legal costs per unit of profit; and steward company money more carefully than your own”

  1. If each employee were to spend company money as they would their own, it just might backfire on the company. Better check on your employees’ credit ratings first before advocating this dangerous idea. Still, complicated questions arise, like: is it okay to go first class as long as I find discount business class tickets?