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To know your total spend is not enough; put it in the corporate context with a ratio to revenue

Don’t congratulate yourself and stop once you have gathered and confirmed the total amount your law department spends. Stopping there is a risk, as Ron Pol sees it, because “measuring total legal costs reinforces perceiving legal as a cost-center drain on resources.” He points this out in ACC Docket, Dec. 2010 at 20. Better to state legal costs as a percentage of corporate revenue, “a more strategic viewpoint [that] links legal directly with core organizational goals.”

Pol is right. Costs of support groups tax the bottom line, so a good strategy for a company is to moderate those costs, including legal costs, while still attentive to quality and coverage. A general counsel who thinks in terms of legal costs expressed as the share of revenue devoted to them will be closer to the client’s strategic heart beat.

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One response to “To know your total spend is not enough; put it in the corporate context with a ratio to revenue”

  1. John Conlon says:

    Every so often, I am asked to review a legal bill for an insurer or an individual from a major law firm whose principle client base is large corporations. I never cease to be appalled at the amount of overbilling I come across in those legal bills. I find things that are squarely unethical or otherwise contrary to settled case law. It is fairly obvious to me that these firms bill this way because their corporate clients let them get away with it. Thus it is that such abusive billing tactics become part of the firms’ billing culture. My question is why their corporate clients let them get by with such abusive billing tactics. I also question whether corporate law departments use of metrics for law firm costs is more for show (for their CEOs, CFOs) and might be seen as more akin to rearranging the deck chairs on the Titantic rather than squarely facing the real causes of high corporate legal costs such as abusive billing tactics by their outside law firms.