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Law Department Performance

July 8, 2010

For today’s IACCM ‘expert interview’, I spoke with Rees Morrison, author of the lawdepartmentmanagement blog.

Rees has been undertaking a massive benchmark of corporate law departments (including a significant number of IACCM members) and we were reviewing some of the results. At this point, much of the data is relatively high level – Rees explained his wish to continue collecting more input so that there could be reliable segmentation by country, industry and company size. Future questionnaires will also enable better understanding of the causes of variance – for example, does a high level of automation make a difference to efficiency?

The study aims to help General Counsel rate their relative efficiency and effectiveness – an important activity that as workloads increase, resource levels are under pressure, and demands for greater value continue to grow. Among the data points in the initial results, Rees has been able to extrapolate the mix of internal and external spend (‘make versus buy’) and an average fully-loaded effective billing rate (for US law departments, this equates to around $200 per hour). He has also made a start on what he terms ‘leverage’ – an attempt to understand the mix of personnel within a law department, such as administrative, paralegals and perhaps contract managers.

One data point that we discussed in some depth is the finding that the total legal spend as a percentage of company revenue in US corporations is approximately double that of equivalent European companies. There may of course be many factors – the legal system, the regulatory environment, the relative propensity to resort to law, as well as the tendency to do deals on a handshake versus via a formal contract. This will certainly be an area for continued investigation.

The data has also shown that about half the average law department staff is undertaking commercial activity and around half of that time is on specific contract-related tasks (drafting, reviewing, negotiating).

As legal services become more and more subject to the disciplines of category management, benchmark data will be an important element of resource and organizational decision-making. Similar disciplines are likely to apply increasingly to services like Procurement and Contract Management, since outsourced alternatives now exist. The demand for reliable benchmark information will therefore grow – especially if that data can assist in understanding not just relative cost of service, but more importantly the models and investment levels that drive the greatest added value.

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