Comprehensive legal spending by companies should include settlement, judgments, fines and awards. Data rarely appear on those outlays, but one source found that those “legal resolution costs” amount to about one quarter of internal and external legal costs. That ratio puts those costs at 20% of the total (See my post of Jan. 20, 2009: “for every $1 million spent internally and externally, the law department that conforms to this benchmark ratio spends $250,000 on legal resolution costs.”).
The broadest measure of legal spend should also include the whole array of costs paid for by a company that have a reasonable relationship to legal services (See my post of Sept. 6, 2011: 15 unusual expenses sometimes in legal department budgets; and Sept. 7, 2011: 14 more of those costs.). The total expenditures could rise even more if we included the all-in cost of clients who pitch in with legal-related work such as meeting with lawyers and preparation for depositions and assistance with document production.
Furthermore, a legal department may get support from the company, notably a bit of HR or Finance that might not be charged back to it. Then throw in expenses of workers compensation and claims management. All these costs that spread more broadly than the line items of the legal group we might term “peripheral legal costs.” What might all this amount to?
It should not dismay readers as a first order approximation that one-third of a typical U.S. company’s total expenditures on law-related activities goes to the internal expenses of the legal department, one-third to outside counsel and vendors paid by the legal department, and one-third to all the other peripheral legal costs paid for by a corporation.