Or maybe it’s our deep acculturation in the assumption, perhaps almost subconscious for many of us, that declining revenue must reflect net lawyer attrition, and if lawyers are leaving, well, we all know what that means….

Stepping back from Law Land, here are some of the leading corporations in this year’s Fortune Global 500:

  • Walmart, #1 at $482.130-billion revenue
  • Royal Dutch Shell, #5 at $272.156-billion
  • Exxon Mobil, #6 at $246.204-billion
  • Toyota, #8 at $236.592-billion
  • and Apple, #9 at $233.715-billion

How utterly different are the businesses which are all generating these massive amounts of revenue:

  • The great bulk of Walmart’s revenue comes not from products or services it has produced or developed, but from the intrinsic value of the merchandise it sells, produced by others. According to its 2016 financials, 74.9% of its revenue went to “Cost of Goods Sold.”
  • Royal Dutch Shell and Exxon Mobil, by contrast, must create and manage some of the most complex international supply chains in the world, transporting difficult to discover petroleum products from some of the most challenging locations on the planet, putting it through a dangerous refining process, and distributing it at retail to be sold gallon by gallon, all the while dealing with price fluctuations in the underlying commodity as violent as almost any other market of such scale.
  • Toyota and Apple, for present purposes, can be grouped together as well: Designing and assembling (by and large not producing components parts) of some of the highest-value, highest-profile consumer and business products for a worldwide market with a wide range of distinctive and to some extent fashion-prone tastes, while facing some of the most capable competitors capitalism has ever spawned.

Now, you will say, “but at least we’re all law firms.” Yes, tautologically, but not really in the meaningful metrics sense I’m driving at. What, really, do Gibson Dunn (2015 AmLaw firm #11) and Dentons (#14) have in common? Or Reed Smith (#19) and Davis Polk (#24)? Wachtell (#44) and Bingham (#47—oops!)?

The only sense in which a listing by gross revenue simpliciter tells us anything is, again, throw-weight. I don’t doubt for a moment the enormous management challenges that come with a huge volume of revenue, nor do I doubt that “with more you can do more”—more business analysts, better infrastructure, more client development, more investment in recruitment, etc. But those are second order effects which, if we value them, we ought to measure directly.

For a corporate-land analogy, look at the widely tracked indicator, percentage of revenue devoted to R&D. I’m sure it’s quite high for Apple, reasonably high for Toyota, breathtaking for Shell and Exxon Mobil if exploration costs are counted, and modest for Walmart. The point is that R&D is a metric that begins to actually reveal something meaningful about the firm’s intrinsic business model.

I wish we had more such metrics in Law Land, and I hope this series is at least a call to arms.


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