Law Department Management

Statistics compilation débuts in Release 2.0 of GC Metrics benchmarks, along with data 500+ companies – why don’t you join in?

Release 2.0 of the General Counsel Metrics global benchmark survey will go out in early August. It looks set to have more than 500 participating companies, on the way to a thousand this year.

A benefit to be introduced with this Release is a collection of 110 of my blog posts on statistics for legal department managers. It will include more than 48 pages of them, including a Table of Contents, index, and back references. The posts are organized by topics and listed in chronological order. For recipients of the Release, meaning all participants year to day, this will be a useful resource on a topic that is vitally important for benchmarks.

Whether statistics intrigue you or not, you have three weeks to submit your law department’s six pieces of information (number of lawyers, paralegals, and other legal staff as well as inside and outside legal spend and company revenue). Get your no-cost Release 2.0, all 100+ pages, in early August, by clicking on this survey link.

Posted by Rees Morrison at 8:43 AM in Benchmarks | Permalink | Comments (0)

Statistics compilation débuts in Release 2.0 of GC Metrics benchmarks, along with data 500+ companies – why don’t you join in?

Release 2.0 of the General Counsel Metrics global benchmark survey will go out in early August. It looks set to have more than 500 participating companies, on the way to a thousand this year.

Posted by Rees Morrison on July 3, 2012 in Benchmarks | Comments (0) | Permalink

A small attempt to stimulate collective thinking on law department operations

I tried something for the first time. I prepared a decent draft of an article to be published and circulated it for comments to about a half dozen people whose thoughts I would value. Academics do that all the time with works-in-process, but not only do I regrettably finish my articles just before the clock strikes midnight but also I did not know how people would react to my invitation.

In the event, several did, including Blane Erwin of Bridgeway, Jeff Hodge the consultant, Mark Poag of Datacert, and Rob Thomas of Serengeti. We exchanged ideas that improved my article. Since I can’t thank you in the article, I will thank you here.

Posted by Rees Morrison on July 2, 2012 in This Blog | Comments (1) | Permalink

A benchmark metric worth fighting for: lawyers per army combatants

During the Iraqi “surge,” the “Army had one lawyer or paralegal for every 240 combatants, and these legal professionals have ever more say over battlefield decisions. That is leaving aside the judge advocates general (or JAGs), who offer guidance on the laws of war.” This amazing quote comes from the NY Times Book Rev., June 10, 2012 at 22.

Lawyers per thousand employees has some credibility as a benchmark metric, although it does not rank very high in usefulness. Lawyers per soldier stands unique.

Posted by Rees Morrison on July 2, 2012 in Benchmarks | Comments (0) | Permalink

Reflections prompted by publicity regarding the ACC’s 2011 Census Report

The Association of Corporate counsel (ACC) collected data in the spring of 2011 and recently made it available in its 2011 Census Report. Based only on promotional material available on ACC's website, here are my initial thoughts. http://www.acc.com/legalresources/resource.cfm?show=1306363

The ACC collected date during April and May of 2011. The Report issued in March, so it took almost one year to massage and prepare the data.

Of the 4,161 companies represented in the Report, 3,652 were in the United States and 267 were in Canada. That 13-to-1 proportion is near the 10:1 last year in the world's largest law department benchmark survey, that of General Counsel Metrics. Maybe that ratio matches GDP and population figures for the two countries.

To continue with the same data of the first point, were the law departments physically located in the country or were their companies headquartered there? As an example, if someone from General Motors Canada completed the survey, were they counted as a U.S. or a Canadian company?

The summary page boldly states that "ACC used three sources to find all known in-house counsel: ACC's database, Aspen publishers and LEXIS-NEXIS." It is quite certain that this survey reached nowhere near the entire universe of in-house counsel in the world (See my post of July 2, 2012: estimates of at least 160,000 law departments worldwide.).

The definition of “census” is a complete enumeration, a thorough tally of whatever is being counted. These findings are not a census of inside counsel because they report data from no more than a small percentage of the total.

The report provides information on compensation. All the one-page summary states is "base salary, total" so it is unclear whether bonuses are broken out separately and whether equity awards are given any value.

It appears that both the compensation results and some of the benchmark results, such as budgets of law departments and numbers of attorneys, compete with the offering of Empsight International, which is one of the ACC's Partner/Affiliates. The website of the ACC explains: ACC has negotiated an exclusive agreement with Empsight International, LLC covering compensation surveys. Under the terms of this multi-year agreement, Empsight offers price discounts on its existing surveys to participating ACC member companies.

Finally, the report costs $495 for ACC members and $695 for non-members. It does not appear from what I could review that participants, who contributed their time and data, were thereby entitled to anything.

Posted by Rees Morrison on July 2, 2012 in Benchmarks | Comments (0) | Permalink

Wisdom about law departments and metrics from a GC serving as an interim CEO

Tom Kilroy, the General Counsel of a UK company has another role: “For the past three months, I've occupied a line management rather than a legal role, as acting Chief Executive Officer of a publicly listed company with 4,200 employees, operating in over 100 countries and making hundreds of millions of dollars in annual sales.” He wrote a long piece on his blog, GC’s Eye View, May 20, 2012, about metrics. I have quoted it extensively below but also omitted large portions and interpolated a few responsive thoughts.

“After discussing metrics with a large number of senior legal colleagues over the past year, I’ve concluded that metrics are widely distrusted by the legal profession. The topic certainly polarizes opinions. The most common charge made against metrics is that they provide a reductivist view of an activity which involves complex interactions that aren’t really capable of or susceptible to numerical measurement, such as the giving of legal advice.” [two paragraphs omitted]

[Rees Morrison: To state a person’s weight could be “reductivist” but it is more a description of one aspect that says what it says, and doesn’t claim to encompass the whole of the person’s being.]

“But, in business management roles, almost everyone believes that metrics and their variance can bring insight. I want to repeat those three words … can bring insight. It’s important to understand that metrics are not, in themselves, insight. But they can facilitate insight. [omitted portion]

So, when we all know that metrics are so widely used by others, why do lawyers remain suspicious of them? I think the answer lies in a misunderstanding that you most commonly see between accountants and lawyers. Accountants believe that words (for example in a contract) are very precise. They will often seek a definitive legal opinion on their meaning. Lawyers know, from long experience, that words are malleable and can have different meanings. Meanwhile, lawyers are convinced that numbers are very precise and often take them at face value, whereas accountants know that numbers are malleable. You will often see accountants asking questions about the assumptions that underlie a set of numbers.” [paragraph omitted]

[Rees Morrison. A nice point. Anyone who works with numbers comes to realize how squishy they are. You do the best you can, acknowledge the mis-steps inherent in gathering and massaging numbers, and rely on medians, directional trends, transparency, and unceasing efforts to improve.].

“Some legal metrics are “internal” and will help the GC run the legal function, but not provide insight to business colleagues. An example might be the time it takes to process a contract into the department’s contract storage mechanism. Other metrics are “external", useful to business colleagues. In a company relying heavily on export licenses, an example might include the measurement of cycle times in applying for and securing those licenses.

I don’t believe that many legal functions have metrics which are genuinely critical for running a business. If they did, legal functions would be generating more metrics. But legal teams could probably generate more useful metrics than business leaders currently realize, if GCs were prepared to offer them.

My advice to GCs is not to be defensive. You and your business colleagues may not know what a particular metric means. To decide, you’ll need insight. But metrics are a powerful tool in running any business and the legal function is no exception.”

[Rees Morrison: Metrics, good ones, should stimulate insights. Whether internal or external – and comparison benchmarks are most instructive to executives about the efficacy of the law department – law department metrics have a constructive role.]

Posted by Rees Morrison on July 2, 2012 in Benchmarks | Comments (0) | Permalink

If there are something like 80,000 publicly traded companies in the world, how many privately held companies with law departments might there be?

A Google search for “list of US publicly traded companies” turned up a link that referred to a Bloomberg directory with “over 33,000 companies.” The web site of Credit Risk Monitors claims to identify 20,899 public companies in the United States.

Credit Risk Monitors also lists about 56,000 non-US companies that are publicly traded and breaks them into broad sectors, within which are industries. Credit Risk claims the total worldwide group of publicly traded firms (U.S. and other countries) generated a total of $49 trillion of revenue. At five in-house lawyers for every billion dollars, a middle-of-the road metric for U.S. companies, those 49,000 billions project to 245,000 in-house counsel. If the U.S. median of three lawyers per law department even approximately holds, the quarter million lawyers means 80,000 law departments in publicly traded companies.

I don’t know the ratio, but for every public company with a law department, one can imagine several privately held companies with more than $100 million of revenue and at least one in-house attorney. If 80,000 global public companies with legal departments is approximately right, then is it plausible to add on two, three or four times as many for the privately held departments? Now, about government agencies, not-for-profits, partnerships …..

Posted by Rees Morrison on July 2, 2012 in Benchmarks | Comments (0) | Permalink

Rates and cost per hour comparisons between inside lawyers and lawyers at law firms in the United States

This blog has often referred to the fully loaded cost per hour of corporate attorneys. It has also from post to post provided data on the effective hourly rate of law-firm partners and associates. More recent data came as to the latter from Law Practice, July/August 2012 at 46, which provides metrics from the Lexis Firm Insight website. Those metrics say that "median effective hourly rate for partners has declined from $394 in 2009 to $378 in 2011." The median effective hourly rate for associates has declined from $243 in 2009 to $235 in 2011. Thus, over two years, a drop in outside counsel rates of nearly five percent in nominal dollars.

If it is roughly true that for every partner hour charged there is an associate hour (See my post of Feb. 4, 2007: partner time to other timekeepers' time.), then in 2011 the combination of those two levels would result in close to a $307 hourly effective rate for outside counsel. Compare that figure to $191 per fully loaded attorney hour for 212 law departments in the United States from the latest data in the General Counsel Metrics benchmark survey. The gap is sizeable, $307 an hour is 60% higher than $191 an hour.

What is even more interesting to me is that the same source suggests that 1,600 chargeable hours is typical pace for lawyers at private law firms. If the law-department fully loaded cost were calculated not on 1,800 hours but on the lower 1,600 of law firms, the internal cost would rise 11% to $212. The difference between that higher cost per hour inside and the $307 external cost, is approximately 45% (See my post of Feb. 17, 2008: 1,850 assumed internal chargeable hours may be too high.).

Posted by Rees Morrison on June 28, 2012 in Outside Counsel | Comments (0) | Permalink

Two “proven” profitability techniques of law firms that law departments should refuse

An article in Law Practice, July/August 2012 at 40, describes "15 proven profitability techniques" for today's law firms. Two of them raised my eyebrows and should do the same for general counsel.

Under the technique "unbundle operating costs from case related expenses," the author writes that "clients should be asked to prepay anticipated major cost items, such as expert witness fees, deposition expenses, extensive travel and other case-related costs." Law departments generally accept being billed directly for some major disbursements, notably expert witness fees, but to be asked to pay for travel expenses, and especially to pay them in advance, should meet stiff resistance (See my post of April 18, 2005: e-billing vendors paid directly by law departments; July 31, 2006: national vendors selected by a law department; Feb. 11, 2007: direct billings to the law department by vendors; Feb. 14, 2007: data on disbursements paid firms or charged through directly; Nov. 29, 2009: direct billings by law firms for disbursements should be considered outside costs; March 12, 2012: benchmark metrics influence by direct payments to vendors.).

Under the technique "New systems, methods and technology" comes this contentious recommendation "Bill appropriately for form documents. You must be paid for development efforts, and it is both reasonable and proper to charge based on what the document is worth to the client, not for the few minutes it takes you to pull it from the computer." To the contrary, law departments do not subscribe to value billing along these lines. You should not pay for the development time of a form document, whether or not it is available to the firm in software. Others have paid for the firm’s learning curve. Now, the form is an expected enabler, not a profit center.

Posted by Rees Morrison on June 28, 2012 in Outside Counsel | Comments (0) | Permalink

Five categories for how your law firms might be rating you

In Law Practice, July/August 2012 at 14, a law firm consultant describes a “client scorecard.” With it, your law firms might rate you on five categories: "level of cooperation”; “how enjoyable your work is”; how profitable your work is; your relative ability to pay the firm's fees; and one category one about referrals that is irrelevant to law departments.

Just because your department buys legal services does not mean you can act miserably and niggardly toward the law firms you retain. The evaluations go to this. The first two boil down to “nice to work with.” The next two go to economics. Since companies that sustain a law department can pay legal fees, “ability to pay” has little meaning. Thus, these five categories really boil down to whether your lawyers are for likable, your work is interesting, and your services needed make the firm money. A sensible assessment by firms and a sensible objective for your department.

Posted by Rees Morrison on June 28, 2012 in Outside Counsel | Comments (0) | Permalink

Somewhat misleading data about law departments and e-billing: leading and laggard countries

A former executive of two matter management and legal e-billing companies, Jeff Hodge recently wrote a white paper for Bridgeway, one of the leading providers of both kinds of software. Entitled Legal Spend Management: An International Perspective, it discusses at page 5 the migration of U.S. law departments to Europe and beyond and “With this expansion comes the need for both global and local legal expertise on an unprecedented scale." Figure 1 immediately below that sentence maps the world with countries color-coded as it “shows the predominance and pace of e-billing uptake worldwide." It’s easy to read this as pertaining to legal invoices that arrive electronically, but that is not right.

Strikingly, the "Leaders" include Mexico, Chile, and Brazil in South America as well as three Scandinavian countries and Switzerland. This seems so improbable in terms of law departments and e-billing that I investigated the source of the data: Billentis. The Billentis report in May 2012 covers e-invoicing generally, not specifically legal e-billing. Based on my consulting experience as well as MMS Insights, and at the risk of chauvinism, I suspect that U.S. legal departments lead in terms of volume and proportion of legal invoices handled electronically.

Posted by Rees Morrison on June 27, 2012 in Technology | Comments (1) | Permalink