Busting the Myth That Clients Are Driving Big Law Diversity

I wish I had a bitcoin—actually, let’s make that the good old nickel—every time someone told me that the business case for diversity in Big Law has been made.

You know the spiel: Corporate clients are demanding that major law firms do the right thing and step up their diversity game. And by charm or force, those clients are using their economic might to pressure staid white, male institutions into becoming bastions of diversity and inclusion. So woe to firms that are not getting the message.

The reality: Corporate customers are neither giving much of their precious business to underrepresented members of the profession, nor are they applying meaningful pressure on firms to change.

That’s the cheery finding from the Institute for Inclusion in the Legal Profession. Its new study of 136 corporations, half of which identified as Fortune 500 companies, found that most clients—58% of respondents—dole out less than 10% of their law-firm business to racial or ethnic minorities.

“Our research shows that client pressure isn’t so robust or consistent as we’ve been led to believe,” said Sandra Yamate, the CEO of IILP.

After covering diversity in the legal profession for over 20 years, I’m hardly shocked. Partnership rates for underrepresented groups at major law firms continue to be abysmal: Last year, people of color made up just 10% of all partners, while women comprised 25%, according to the National Association for Law Placement. (Keep in mind we’re not talking about equity partnership rates, which are far lower.)

The new study finds that almost three-quarters of business clients track the diversity of their outside counsel, and about 60% of clients say they discuss the diversity data collected with their outside firms. But that means that 40% of companies do not.

And the vast majority of clients—82.5%—have not set any diversity goals for their outside firms.

So clients are making a big deal about diversity data collection, often driving their law firms batty with demands for granular information, and then doing little with the findings. (Not to state the obvious, but isn’t it bonkers to track diversity without setting clear goals?)

Carrot. Stick. Hybrid.

When firms come up short on diversity, companies usually handle the problem in four ways, said Yamate: “They’ll send a letter, a sort of gentle nudge. Or the client will call a meeting with the firm—which can be a more detailed discussion about expectations. Or they’ll start withdrawing business—a stick approach. And the fourth way is a carrot approach—tell them you’ll get more work if you improve.”

Which one of those techniques work? “Sadly, punitive measures seem to send a clear message to the recipient,” said Yamate. “But the client is often reluctant.”

Let me put it less politely: Clients are wimps. Or maybe they don’t really care.

Perhaps that sounds harsh but I’ve seen a lot of hopey-changey stuff over the years, and it’s gotten nowhere. A much more muscular approach to diversity seems long overdue.

One of the few companies to take the “stick” approach is HP Inc., which adopted an initiative in 2017 that mandated outside firms to involve at least one diverse lawyer to work on its matters or face a 10% cut in fees. When that program first launched, the company reported a 46% compliance rate; now, it is above 90%.

“It takes courage for companies to say to firms that we will withhold your billables,” said HP associate general counsel Christophe Mosby, adding, “we had to evangelize” to overcome initial resistance to the plan at the company.

What made the sell easier is that HP’s then-general counsel Kim Rivera spearheaded the plan. Plus, “as a tech company, we have to innovate,” said Mosby. “If you’re part of the financial services industry, it might be more difficult; they tend to be more conservative.”

But the trend, according to the IILP report, is for clients to use a softer approach.

One company that’s embraced the carrot approach is Microsoft Corp., which gives some firms a bonus of up to 3% of their annual fees for meeting diversity targets. Last year, 94% of eligible firms earned a bonus, with more than half meeting 50% or more of the diversity goals, reports Microsoft.

Lucky Vidmar, Microsoft’s associate general counsel and head of IP litigation, said the carrot approach carries plenty of leverage. “The biggest stick that I have is not awarding a case to a firm that proposes an insufficiently diverse team, especially in lead/co-lead roles. And we do that regularly.”

Arguably, the carrot/stick differential is not so stark. “We’re all trying to get to the same goal,” said Mosby. “But we didn’t think we should pay firms for something they should have been doing. I would love it if other companies took the same approach as us. The consistency would force action.”

What’s clear from the report is that there’s no consistency.

Among its recommendations is that clients keep a close eye on the type of work that’s given to diverse lawyers and how the firm handles issues like origination credit, and relationship partner credit, and their effect on partnership and compensation for diverse lawyers.

But do clients want that degree of oversight? “We’ve neither the time, personnel, or interest in having to police our outside counsel,” says one client in the report. “We tell them we want to see more diversity but we shouldn’t have to monitor it.”

It’s easier to bang the diversity drum, collect copious amounts of data, and let it all sit on a shelf. But that leaves us pretty much where we started.