Law Department Management

Innovative report combines data on matter management systems (MMS) with benchmark metrics

A ground-breaking report, which combines data on matter management systems (MMS) along with popular benchmark ratios, is the creation of General Counsel Metrics, LLC. MMS Insights reports on 130 Canadian and U.S. legal departments that use one of more than 15 matter management systems. Its dozen charts and explanatory text show how the MMS packages with at least three departments compare to each other on such benchmarks as average number of lawyers in the department and total legal spend as a percentage of revenue. Also, the 110-page report collects more than 150 posts from this blog regarding MMS, all organized under five commonly asked questions, edited, indexed, and cross-referenced.

A series of posts here will share some of the findings from the study. If your IT group or your law department would like to obtain MMS Insights, please write its analyst and author, Rees Morrison, at Rees@reesmorrison.com.

Posted by Rees Morrison at 9:03 AM in Technology | Permalink | Comments (0)

A secular trend toward less regulation as governments try to increase national competitiveness

Observers of the law department scene incessantly complain about thickets of regulations that drive up legal complexity and costs and they bemoan even more burdens on legal departments as regulations metastasize. But wait, here is the Economist, May 19, 2012, flying in the face of that dire prospect: "Many businesses, particularly in Europe, face deregulation as lagging economies seek to boost competitiveness through structural reform."

As much of the growth of U.S. companies will come from the not-yet-mature markets of other countries, including Europe, the longer-term trend may be for relatively less legal regulation (See my post of March 28, 2011: costs of regulation and value of law department with 7 references.).

Posted by Rees Morrison on May 25, 2012 in Productivity | Comments (0) | Permalink

A method to quantify co-location of in-house lawyers, and thus their value to the company

Let me propose a metric to show a law department’s value, based on the degree to which its lawyers are based in countries in proportion to the revenue from that country. In that regard, during the past two years, this blog has commented on several law departments with many locations of their lawyers (See my post of Jan. 12, 2012: P&G with 20 sites; March 28, 2011: Google with 21 and AB InBev with more than 20; and June 8, 2011: Wellpoint with 28 locations.).

The blog has skirted the quantification I am here proposing (See my post of Nov. 20, 2007: global law department if it has 10+ locations outside HQ country; Dec. 31, 2010: the “nerve center” where many specialist lawyers have offices; Feb. 28, 2012: attorney-client privilege headaches of multiple foreign offices; Oct. 17, 2011: dispersed lawyers characteristic of concentrated global industries; and Nov. 24, 2011: law departments of non-U.S. companies are more likely to be geographically dispersed.).

We could measure proximity of counsel to corporate revenue. If the proportion of a company’s revenue that comes from a country (or a region) matches the proportion of its in-house attorneys based in that country or region, the metric would be 1. To the degree that lawyers don’t follow the money, that number will decline (See my post of April 16, 2012: locate lawyers where revenue, and thus legal work, is generated.). For example, if 10 countries each account for 10% of a company’s earnings, but all its in-house lawyers are in one of those countries, the metric would be 0.1.

Posted by Rees Morrison on May 25, 2012 in Structure | Comments (0) | Permalink

Imitation, under-publicized, yet more likely to succeed than innovation

We hear all the time praise for law departments that innovate. Do something new, General Counsel are told, to keep up in the competitive race and make the cover of a trade journal. In fact, it may be far more effective to copy what other law departments do and perhaps add your own wrinkle. This is the message of an essay in the Economist, May 12, 2012 at 76. It flat-out states that "history shows that imitators often end up winners.” According to a recent book on this subject, "studies show that imitators do at least as well and often better from any new product as innovators do."

The media’s obsession with novelty shortchanges the effectiveness of borrowing ideas from others. The adoption of an idea that is borrowed – referred to often as a best practice – calls for its own competencies, and combinations of borrowed ideas can result in something we might deem to be innovative. Blatant copying of practices from other law departments should be welcomed and should be honored by those who give awards mostly to departments that pioneer (See my post of May 24, 2010: innovation and creativity with 6 metaposts.).

Posted by Rees Morrison on May 25, 2012 in Knowledge Mgt. | Comments (0) | Permalink

Less or different work ahead for legal departments when companies can buy rights to use a patent on an exchange

A new financial exchange, called IPXI, will let companies buy, sell and hedge patent rights. On the exchange, companies will be able to buy and sell “unit license rights,” which is a one-time right to use a particular patented technology in a single product. This is explained in the Economist, May 12, 2012 at 72.

What an exchange like this might mean for law departments is that their lawyers will not have to negotiate so many licenses for intellectual property. That is expensive, time-consuming, and uncertain. Likewise, this alternative means to secure a patent right will lessen the need for outside counsel. To purchase a unit license right will therefore reduce demand for legal resources. Cutting against this forecast, however, it may be that companies will lean on their legal teams to monetize more of the company’s patent portfolios.

IPXI was set up in 2008 by Ocean Tomo. It will not be until later this year, however, that the exchange is open for business (See my post of Jan. 16, 2006: Ocean Tomo, patent auctioneer; and March 27, 2009: investor in patents.).

Posted by Rees Morrison on May 25, 2012 in Productivity | Comments (0) | Permalink

External spend per lawyer varies by matter management system: $10,000 per week processed per lawyer

A ground-breaking report, which combines data on matter management systems (MMS) with benchmark metrics, is now available from General Counsel Metrics, LLC. MMS Insights reports on 130 users of more than 15 matter management systems in Canadian and U.S. legal departments.

Typically, a large share of the spend by a company on outside counsel is captured in its MMS (if it has one). A table in Insights shows for each package the median amount spent per lawyer on external counsel and other vendors. The median stands at $496,000. The U.S. and Canadian medians from this year’s General Counsel Metrics benchmark survey are reasonably close to the medians of this group of law departments.

Broadly speaking, the finding from MMS Insights suggests that $10,000 per week for each in-house lawyer is processed by MMS software. Litigation lawyers account for the largest share of that spending, in the range of 40-50 percent.

If your IT group or your law department would like to find out more about the report or to purchase it, write its analyst and author, Rees Morrison, at Rees@reesmorrison.com.

Posted by Rees Morrison on May 25, 2012 in Benchmarks | Comments (0) | Permalink

Some data about the cost of a matter management system

On May 7, 2012, Law.com’s Corporate Counsel page offered some hardish data on the cost of a leading matter management system. “The cost of the [Serengeti Tracker] system ranges from about a quarter of a percent of a company’s outside legal spend, to about one percent of that budget.” Preceding that statement was some background information about the company and its product, focused more on law firms than on law departments: “Serengeti, which launched in 2001, now has 150,000 users in more than 180 countries, and adds more than 3,000 new users a month. Close to 500 in-house departments are on board—including Amazon.com, Heinz, Alcatel-Lucent, and Capital One.” My focus is the cost statement.

For a typical U.S. company with $1 billion in revenue, its total legal spend falls between $3 and $6 million. For our purposes, take the mid-point of $4.5 million and allocate 60% of that to outside counsel. That means the cost of Seregeti Tracker for such a hypothetical law department is somewhat more than a half-percent of $2.7 million, or somewhat above $13,000. As it is difficult to find public information about the cost of this common genre of law department software, this tidbit and estimated conversion to dollars has some value.

Posted by Rees Morrison on May 25, 2012 in Technology | Comments (1) | Permalink

Preliminary compensation data on general counsel in smaller law departments

For the first time, this year’s General Counsel Metrics benchmark survey collects and reports on compensation data. Only law departments in the United States or Canada are eligible to submit lawyer and administrator compensation data and receive a report, at no cost. To obtain your benchmark report, click on this link and submit your 2011 staffing and spending data.

Sixty-three general counsel have so far provided their salary, bonus, and equity award. On average they have been out of law school 23 years. The average number of lawyers in their departments was just under five, so bear in mind that these are smaller departments. As such their size is representative of the majority of legal departments in the United States. Smaller departments don’t pay as handsomely as large departments (See my post of April 16, 2012: five specialty areas and compensation.).

The median general counsel salary last year was $220,000, while the median cash bonus was $55,000. Overall, for salary plus cash bonus, the median general counsel of this group received $279,457.

Of note, 38 of the general counsel (60%) received no equity award at all. Of those who did, the median award reached a whopping $260,000! Perhaps just an artifact of this particular slice of preliminary data, even so for general counsel granted options or restricted stock, that grant was almost as large as their cash compensation. Combining equity and bonus, the incentive portion of compensation was half or more.

Posted by Rees Morrison on May 23, 2012 in Talent | Comments (0) | Permalink

On the order of 100,000 in-house lawyers in the United States?

The Fortune 500 amassed revenue of close to $10 trillion in 2011. At five lawyers typically for every billion of revenue, they alone would employ something like 50,000 in-house lawyers. What else can we cobble together about the number of law departments in the United States.

With something like 25,000 law departments in the United States (See my post of Sept. 25, 2005: ACCA estimate of 71,000 non-governmental in-house lawyers; Dec. 3, 2006: possible Fortune 500 staff figures; Dec. 31, 2008: oblique data suggests about 21% in-house; March 9, 2009: ABA data and 8% in-house; April 2, 2009 #2: data from 1961 to 1991; June 15, 2009: almost one out of five lawyers in a large survey had gone in-house by their seventh year of practice; Oct. 7, 2010 #1: US has 30,000 companies with 100+ employees; Dec. 31, 2010: clues from subscriptions to trade journals and listings of largest law departments; July 20, 2011: estimates 30,000 departments; and Dec. 20, 2011: closer to 30,000 departments. ), employing at least one lawyer per department – call it 20,000 more. Governmental legal staffs contribute more – a pure guess at 15,000 federal and 20,000 state and local (See my post of May 13, 2012: law departments of government agencies.).

OK, so how can we correlate the estimate of 100,000 in-house lawyers to other facts? There are approximately one million lawyers practicing law in the United States, but 500,000 of them are solo practitioners who do very little corporate work. Take away 100,000 in-house lawyers from the remainder, then that leaves 400,000 in multi-lawyer private practices.

But every in-house lawyer supports approximately one lawyer in private practice (See my post of Aug. 14, 2006: one hour for one hour.), so the numbers don’t work out. It must be that many of the multi-lawyer practitioners serve individuals or entities without in-house counsel.

Posted by Rees Morrison on May 23, 2012 in Benchmarks | Comments (0) | Permalink

According to an innovative report, three clusters of matter management systems (MMS), by average number of lawyers

Heretofore, no one has combined data on matter management systems (MMS) and staffing or spending benchmark metrics. Such a fertile mash-up, however, is now available from General Counsel Metrics, LLC. MMS Insights reports on 130 users of more than 15 matter management systems in Canadian and U.S. legal departments.

Typical sizes of the law departments that use a MMS differentiate the packages. For example, for the eight packages with the most departments using them, the average department size is 51 lawyers. Custom-application departments, of which there were 19, averaged 14 lawyers. In the smallest range, law departments that indicated they had no MMS or did not identify one averaged 8.4 lawyers. Clearly, the larger the department, the more likely it is to have licensed a matter management package.

If your IT group or your law department would like to learn more about MMS Insights, please write its analyst and author, Rees Morrison.

Posted by Rees Morrison on May 23, 2012 in Technology | Comments (0) | Permalink

The broadest measure of legal-related spending by corporations – one-third for each portion?

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.

Posted by Rees Morrison on May 23, 2012 in Non-Law Firm Costs | Comments (0) | Permalink