Morrison on Metrics: Paralegals and Total Legal Spending

Without reflection and empirical support, many advocate law department lawyers delegating work to paralegals. Intuitively, it makes sense that tasks, especially those that are more routine, be performed by the lowest cost capable person take. How, testing is required to determine whether the results of such delegation, as measured by total legal spending per unit of revenue, bear out this seemingly commonsense recommendation.

To find out, I looked at data from the 2010 General Counsel Metrics benchmark survey. First, I took two important metrics--paralegals per billion dollars of revenue together with total legal spending per billion of revenue--and looked to see whether they moved in a pattern with each other. The correlation was only 0.052 with a p value of 0.163, meaning there is only a very small statistical relationship between paralegal support (normalized) and total legal spending (also normalized). The positive correlation even suggests that having relatively more paralegals is associated slightly with spending a little bit more on total legal costs.

Next, I looked at the ratio of paralegals to lawyers and tested that metric against the same total legal spending figure. Here, the correlation was even smaller but was at least slightly negative at -0.027. The p value was even lower. This finding suggests that adding paralegals, relative to in-house lawyers, pushes down total legal spending a tad.

For managers of legal departments, these findings may disappoint. So, I dug deeper. Perhaps, I thought, with many smaller law departments--those with only one, two or three lawyers--too few opportunities exist to use paralegals efficiently. That lump of law departments without paralegals may drag down whatever correlation there is, I thought.

Accordingly, I looked at only the law departments with five or more lawyers. Of the 437 where the data was complete, the correlation between lawyers and legal spending (both per billion of revenue) rose to 0.136, which was double the correlation for all companies. Still, however, the statistics say that having more paralegals correlates with more spending, not less.

Why? My guess would be that legal departments that face more issues, where legal spend is higher, more often see the value of adding paralegals. Had they not hired paralegals, their total spend might be even larger. We could test this hypothesis by looking at law departments of the same size that have paralegals and that do not have paralegals.

It may also be that the number of paralegals in the department has little effect on the amount spent on outside counsel. Inside paralegals do not substitute much for outside law firm expenses, discovery being the obvious counter example.

It also might be possible that paralegal usage falls more in areas of the law department that have not much relationship to the revenue of the company.

Still, commonsense would suggest that if they are productively busy on tasks that need to be done, paralegals produce work at a lower cost per unit than higher-paid lawyers and therefore should reduce legal spend. The data described here may not show it, but let the empirical research continue.

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Rees Morrison

Rees Morrison, Esq. is the founder of General Counsel Metrics, LLC. Based in Princeton, NJ, Rees has for the past 25 years consulted solely to...

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