General Counsels Join Law Firm Diversity Movement: Corporate Clients Use Incentives and Punishments to Inspire Diversity and Inclusion
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Summary: Find out how general counsels at major companies are pushing law firms to increase diversity and inclusion in this article.
If law firms are anything, they are responsive to client demands. Need a deal closed next week? No problem! Win a bet-the-company lawsuit? Got it! Stay all night or cancel that vacation? Without hesitation!
But what about when a major client demands the following: “Increase the diversity of the teams that staff our matters and put more women and minorities in firm leadership positions.” What happens then?
It is a scenario that is happening more and more frequently, and firms that value the business of large clients are taking notice. Concerned with a persistent and pernicious lack of diversity in firms that handle their matters, general counsels are leveraging the “power of the purse” to inspire or require outside law firms to step up diversity efforts. GC’s want more diversity in their law firms generally, in the teams that staff their matters, in relationship manager positions, and in firm leadership positions. They also want firms to make additional efforts to nurture and promote young women and minority attorneys.
The letter also acknowledged the influential role that corporate clients can play in the diversity movement, given that “as buyers of legal resources, [corporate clients] are in the best position to drive the changes necessary to dramatically improve diversity at all levels in the law firms that provide [corporate clients] with legal services.”
ABA Resolution 113 was approved in 2017.
Early Movement Leader Wal-Mart Moved Millions in Business Based on Diversity
Wal-Mart began its law firm diversity and inclusion program in 2005, when it informed its top 100 outside counsel that it would hold them accountable for diversity by either terminating or limiting its relationship with them based on factors such as retention of minority and women attorneys, percentage of minorities and women promoted to partner, and firm and attorney participation in diversity organizations. As part of that initial diversity initiative, the company also requested that each firm submit candidates—including one female attorney and one attorney of color—to be considered as the firm’s new relationship manager with the company.
Facebook Adopts Numerical Law Firm Diversity Targets
Facebook is one of the latest companies to issue a diversity mandate to its outside law firms. In the spring of 2017, the technology giant announced that its outside law firms must ensure that at least 33 percent of the teams staffing its matters are women and minorities. Additionally, the company now requires that firms wanting Facebook business must create leadership opportunities for women and minorities.
Microsoft Encourages Diverse Firm Leadership with Bonuses
Microsoft’s law firm diversity program, which has been in effect for eight years, has resulted in an increase in the diversity of staffing of company matters from 33.6% to 48.2%. Though the company’s policy formerly emphasized law firm diversity and diversity of staffing of Microsoft matters, in 2015 the company shifted to a bonus system that rewards diversity in leadership.
Under the new Microsoft Law Firm Diversity Program, firms within the company’s Premier Provider Program can earn bonuses of up to 2% of fees billed based on the firm’s increasing diversity in three ways: leading management of the firm, leading the firm’s relationship with Microsoft, and leading Microsoft’s matters.
Hewlett-Packard Gets Tough with a “Stick” Approach
Hewlett Packard has decided to use a stick rather than a carrot to effectuate law firm diversity. By a February 8, 2017 letter to law firm partners, HP’s general counsel, Kim Rivera, announced that the company would begin withholding up to 10% of fees from outside firms that do not meet one of two tests—either having a diverse relationship partner or having at least one female and one racially or ethnically diverse attorney handling at least 10% of HP-matter billable hours. Firms have a one-year grace period until the “diversity holdback” fees take effect.
An attachment to the letter provides details about the new policy, including that: “The definition of a ‘diverse’ attorney, including a Firm relationship partner, is limited to race/ethnicity, gender, LGBT status, and disability status.”
MetLife Emphasizes Retention and Promotion of Diverse Attorneys
For insurance behemoth MetLife, the main problem when it comes to law firm diversity is not lack of female or minority legal talent, but instead lack of retention and promotion of diverse attorneys. Recognizing that diverse attorneys enter major firms in large numbers but leave before they can assume prominent roles within them, MetLife’s general counsel, Ricardo Anzaldua, recently issued a directive to firms that if they want to keep working on MetLife matters they must develop talent development plans that target promotion and retention of diverse lawyers.
Morgan Stanley also requires its outside counsel to provide the company with annual data about the number and percentage of minority, female, and openly LGBT attorneys—both in the firm and as staffed on Morgan Stanley matters.
Lack of diversity continues to be a major problem within law firms, despite assiduous efforts to remedy it. Major corporate clients—upon whose business large law firms depend—are now joining the movement to ensure that the firms that serve them are truly diverse institutions, with diverse attorneys staffing matters and assuming firm leadership positions.
General counsels are using a host of tools to effectuate diversity. These tools include incentives like bonuses and awards, as well as punishments like “diversity holdback” fees and the withholding of business altogether from firms that lag behind when it comes to female, minority, disabled, and LGBT attorneys.
For more information about diversity, see the following articles: