The metric system
General counsel often compare their department to peer law departments on a well-recognised metric, the number of lawyers they have for every billion dollars of revenue.When they apply that metric, general counsel should understand the methodological issues that surround it. More importantly, they should understand what drives that metric and how they might improve their own law department's score on it.
Lawyers per revenue is a key benchmark in-house teams are judged against. Rees Morrison and Paul Morrison explain
General counsel often compare their department to peer law departments on a well-recognised metric, the number of lawyers they have for every billion dollars of revenue.
When they apply that metric, general counsel should understand the methodological issues that surround it. More importantly, they should understand what drives that metric and how they might improve their own law department’s score on it.
Let’s consider each of these points in order – the calculation of the metric, what increases or decreases it, and how to manage the law department more effectively in terms of lawyers per billion of revenue.
The calculation poses no problems. Take your company’s revenue for the last fiscal year, and divide it by one billion (the concept holds if you account in sterling or euros, though the numbers will be affected). Then take the number of practising lawyers in the law department. Divide the billions of revenue into the number of lawyers. So, for example, a £1.62bn company with six in-house lawyers has 3.7 lawyers per billion. If you prefer, you can state this as one lawyer for every £270m of revenue.
Another adjustment is that the number of lawyers ought to include every practising lawyer in the company – with the possible exception of tax lawyers, who generally report to the finance function. Even if some lawyers report to a business executive, they should be folded into the calculation. Likewise, don’t alter the calculation if a practising lawyer is paid by a business unit.
Assuming reasonably consistent methodologies for US companies, a typical number is between three and five lawyers for every billion dollars of revenue. That means that, on average, most of them support around $200m (£135m) of company income. The metric tends to stay quite stable for a given company over time, but it can vary from company to company for several reasons.
As with any benchmark, the figure for any particular law department depends on a number of characteristics. Lawyers-per-billion varies according to three particular characteristics: the law department’s structure, its company’s view of the department’s role, and its industry. Let’s consider each of those influences.
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