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Relative complexity of legal departments calculated as an entropy index of diversification

An entropy index of diversification is an indicator widely employed in management research to quantify relative diversification among companies. It is based on the number and distribution of line-of-business activity in each company, which I think could be comparable to total lawyer-equivalent hours per area of law practice, both internal and external hours, and number of practice areas (See my post of Feb. 4, 2010: the meaning of “lawyer-equivalent hours”.).

The formula for calculating the index takes into account the number of each law department’s practice areas (excluding tiny, sporadic legal issues for the department, such as bankruptcy or maritime law) and the percentage of a department’s total legal services, measured by hours, in each area. This application of a mathematical technique comes from Admin. Sciences Quarterly, Dec. 2002 at 713. The formula normalizes for the size of a department because in general the more lawyers the more practice areas. The higher the index, the more diversified the department. The more diversified the department, the more complexity it has.

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