Benchmarking Staffing Ratios: Identify Where Your Corporate Law Department is Leaking

Note: This article was originally published on the Wolters Kluwer ELM Solutions blog, 11/17/2019.

My colleague Margie Sleboda and I recently spoke about legal data at ELM 19, our annual usergroup conference, on a number of benchmarking topics.?Data nerd that I am, it was a wonderful opportunity to demonstrate the power of LegalVIEW Data Warehouse, our benchmarking database comprising over $130B in anonymized, real-world outside counsel spend.?We showed not only the newly-released Embedded Rate Benchmarks and LegalVIEW Rate Benchmarking Dashboard, but also a few custom-built prototype Tableau visualizations that benchmark things like the rate of timekeeper rate increases, the sorts of legal matters that make up the portfolios of different organizations, and law firm staffing ratios.

The staffing ratio prototype we built looks like Figure 1 below and helps you identify what I call staffing leakage.?Even more embarrassing than it sounds, staffing leakage is when you have partners doing associate work, associates doing paralegal work, and/or underutilization of paralegals.?Many industry observers, including this one, believe staffing leakage is a real problem, especially since not all law firms who laid off associates in 2008 hired many back.?Organizations that don’t monitor staffing ratios don’t know how the sausage they are buying is getting made, and unless that monitoring includes benchmarking it might be less useful than one might imagine, as there is no basis for comparison.

(See visualization pasted at top of this article).

In the visualization, you can see the percentage of hours billed by all timekeepers in our database over a four-year period, broken down by timekeeper level and industry.?This is real data reflecting the content of real invoices submitted into our eBilling platforms (Passport and T360) during the period identified.?You can also compare this to the data for Client 1, a hypothetical corporate law department operating in the “Financials Excluding Insurance” industry.?As you can see, 55% of all Client 1 work is being done by partners, compared to only 35% of work in the industry at large.?The percentage of work being done by paralegals is about the same between Client 1 and the benchmark, meaning that the extra Client 1 work being done by partners may represent work that would otherwise be done by associates.

The 20-point difference between Client 1 and its peers should incite curiosity, since it means potential staffing leakage in the form of partners doing associate work.?However, there is no reason to speculate, as the Tableau visualization allows us to drill down into and get more detail on what is driving the industry-level ratios we already reviewed:

(Figure 2 not available).

Figure 2 is a visualization of staffing ratios going on in the “Financials Excluding Insurance” industry segment, broken down by the three kinds of legal matters with the largest volume of hours in that industry (Commercial Transactions and Agreements, Finance and Securities, and Corporate), as well as a catch-all bucket for everything that doesn’t fall into one of those matter types.?We are able to produce this drill-down because our benchmarking database uses a proprietary methodology to tag each of the millions of legal matters within it with a standardized matter type that allows for apples-to-apples comparison across legal matters.

As you can see, the potential staffing leakage in Client 1’s organization isn’t distributed evenly across different matters, but is more prevalent in the “finance and securities” matter type (53% vs. 33% benchmark) as well as the catch-all bucket (a whopping 64% compared for 43% benchmark).?In the Corporate matter type, ratios are about equal.

The visualization allows us to drill down even further into, for instance, the “finance and securities” matter type to see “sub-matter type” data, as below:

(Figure 3 not available).

In this visualization, we see partner utilization is heavier than benchmark across both sub-matter types analyzed (“commercial loans and financing” and “investments and other financial instruments”), as well as the third, catch-all bucket (“all other matter sub-areas”).?The difference is most pronounced, however, in the commercial loans and financing work.

What can we conclude from looking not only at the matter areas, but the sub-areas that drive staffing ratios??I would caution that the level of information above, though powerful, should not be the end of the analysis, but the beginning of it.?Law departments that automatically jump to the conclusion that certain parts of their work portfolio are leaking just because ratios are off benchmark risk being wrong.?After all, there may be perfectly good explanations for the reason staffing ratios are the way they are, in which case there is no leakage.

Instead, figures like the above should cause corporate law departments to become curious and delve deeper.?For instance, the information can become even more revealing by breaking it down by the in-house counsel administering each bucket of work, the law firms involved, or even individual key matters.?Rather than try to boil the ocean, this helps identify a few key levers that are relatively quick and easy to pull and have enough weight to get the whole portfolio back on track.?In many instances, this would require nothing more than a few meetings with key relationship partners and inside counsel to reevaluate staffing patterns and set a plan for going forward.

More and more, corporate law departments are called upon to not only administer their work well, but to be able to prove to (sometimes skeptical) third parties the quality of their administration.?That is difficult, if not impossible, without quality benchmarking data like the above.?While the particular prototype above is not currently available for purchase, companies like ELM Solutions do offer powerful benchmarking products that allow CLD’s to improve the quality of their administration and prove to others the results of their hard work.