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Overhead cost cuts by generalist consulting firms – bad news for law departments

Many companies, trying to control overhead costs, have hired a big-name consulting firm, such as McKinsey or Bain, to review their so-called administrative cost structure.  The large consulting firm sweeps into its analysis of the law department and produces simplistic but harsh metrics regarding legal cost to be cut and amounts that can be saved.  I have worked with two companies where the scythe of the consulting firm recommended lopping off 20 percent or more of legal costs.

Neither consulting behemoth understood law departments; neither of them understood the role or cost structure of outside counsel and the intricacies of retaining them; and neither had any sensitivity to the difference between headcount and external spending.  In both situations the law departments needed to defend themselves against the depredations of the ignorant generalist consulting firm.  Here, then, is one of the uses of benchmark data, namely, to show the ill-informed metrics of someone else mis-portray the cost structure of the law department.