Vol. 78, No. 6, June 2005

Making the Business Case for Diversity

by Roy S. Ginsburg

The representation of women and minorities in major U.S. law firms, especially at the partnership level, remains abysmally low. The numbers indicate that relative to the overall population (half women; one-third minority) and the profile of today's law graduates, women and minorities continue to be underrepresented in the partnership ranks at major law firms. According to the latest statistics from the National Association for Law Placement (NALP), approximately 17 percent of partners in such firms are women, while minorities account for slightly more than 4 percent. Similarly in Milwaukee, almost 17 percent of partners are women, but slightly less than 2 percent of partners are minorities. The NALP conducts an annual survey of more than 1,300 law firms nationwide. The statistics reported in this article were compiled during 2004 and released in November 2004.

Since the 1980s, nationwide almost half of law school graduates have been women. During that same period, the percentage of law school graduates who are minorities has doubled, from 10 percent to 20 percent. Perhaps in consequence, women and minority lawyers are better represented at the associate level than among partners. Nationally, approximately 43 percent of associates are women and 15 percent of associates are minorities; their placement thus lags roughly 5 percent below their representation among law school graduates. Locally, 38 percent of associates are women and 7 percent are minorities at Milwaukee law firms.

Progress has been slow. In 1993, 12 percent of partners nationwide were women, while 2.5 percent of partners nationwide were minorities. There has been considerable debate within the profession about what these numbers mean. One camp believes that the playing field is not level and never has been for women and minorities; in this view, a glass ceiling inhibits their success. Others maintain that the statistics reflect a personal choice to jump off the traditional law firm partnership track.

Why Diversity is Important

The debate over the importance of diversity has remained relatively unchanged over the years. What has changed dramatically over the past decade are the arguments about why diversity in law firms is important. Traditionally, diversity proponents have contended that diversity is the "right thing to do." This school of thought is reflected in remarks by Robert J. Grey Jr., the current American Bar Association president, who says he believes that "diversity preserves the legitimacy of our legal system and safeguards the integrity of our democratic government."

More recently however, many diversity proponents instead talk about diversity in terms of the "business case," that is, that diversity enhances the bottom line. As stated in a study by the Minority Corporate Counsel Association (MCCA), "Law firms that only pay lip service to diversity may pay a stiff economic price. Law firms that do not take diversity seriously are already losing money."

Diversity Enhances Business

This shift in the debate has been welcomed by many involved in diversity initiatives. Instead of lawyers in firms arguing about whether there is in fact anything "wrong" at their firm that needs correcting, they now discuss how improving their representation of women and minorities may enhance their business. That debate is usually a far less controversial one since, not surprisingly, it is easier for lawyers to reach a consensus about activities aimed at enhancing revenue and profits as opposed to ones aimed at achieving social justice.

Diversity helps the bottom line in a variety of ways. First, diverse law firms can be more selective when hiring. The pool of available white male law school graduates continues to shrink. As noted above, approximately half of law school graduates today are women, and 20 percent are minorities. Firms that recruit solely through the "old boys network" are finding that this network is becoming smaller and smaller. As a result, these firms lose out on many talented lawyers.

Law firms that do hire women and minorities, but fail to retain them, experience substantial turnover costs. It has been estimated that the cost of losing a second-year associate can be as much as $250,000 when one factors in the lost return on the investment in training the associate. Law firms that are able to retain their diversity hires reap the benefit of their investment in training. Occasionally, law firms that lose such associates face the risk of discrimination litigation with its attendant expense, distraction, and adverse publicity.

Another argument in favor of diversity relates to the quality of lawyering. Many corporate clients want diverse perspectives when seeking legal advice. As expressed by Catherine Lamboley, the general counsel of Shell Oil, "When you use people of diverse backgrounds and different ways of looking at things, you get a better solution."

A more controversial reason supporting the business case for diversity concerns the strategic use of women and minority attorneys in litigation. Jury pools today are more diverse. According to Emery Harlan, chair of the Milwaukee-based National Association of Minority and Women Owned Law Firms (NAMWOLF), "Using firms with lawyers of a different race, sex, and age may allow them to better connect with juries, who also are more diverse." Critics contend such use of women and minority attorneys is tantamount to exploitation. This criticism is frequently heard when companies intentionally seek out law firms that have women or minority attorneys available to help defend a lawsuit involving race or sex discrimination. The response to the critics is that as long as the attorneys are competent and their presence does not risk being viewed as window dressing by the jury, the strategy is simply smart advocacy.

New Business Through Diversity

Perhaps the most compelling argument underlying the business case for diversity relates to marketing and business development. The legal profession is a relationship-driven business. Once the competency threshold is passed, selection of counsel often is subjective and frequently is driven by the comfort and personal chemistry between lawyer and client. It is therefore not unusual, as a minority woman partner at a major national law firm noted, for clients to "want people who reflect their backgrounds."

According to the most recent MCCA survey, 14 percent of general counsels today are women, and 5 percent are minorities. In-house counsels are 20 percent women and 10 percent minorities. Twenty-five percent of business owners are women, and 15 percent are minorities. "Just like there's an old boys network, there's a network of people of color and women," says Harlan. "Nowadays at the large corporations, it's a person of color or a woman who is making the decision [of whom to use as outside counsel], and for some it's not appealing to deal with an all-white [male] firm."

Not only are women and minority lawyers developing new business relationships with clients, some corporate clients today are demanding that their law firms have respectable diversity statistics. If the firms don't, they won't get the company's business. As more and more companies have become committed to diversity, they in turn expect their vendors to be committed to diversity. "Diversity in our workplace and supplier base strengthens our company and our performance in the global marketplace," observes Robert Harkey, Delta Airline's general counsel.

More than Lip Service Needed

Two major companies that have garnered much recent publicity about their efforts to use diverse law firms are Shell Oil and Sara Lee. Both corporations gather extensive information from the law firms already doing business with them and those seeking to do business with them. These data go well beyond the number of women and minority attorneys at the firm. The companies want to know if women and minorities are actually doing the work and getting business development credit. They also examine the law firm's diversity policies. If the numbers are weak, what does the firm plan to do to make them stronger? Most importantly, the corporations are holding the law firms accountable. Says Shell Oil General Counsel Catherine Lamboley, "We no longer do business with [some] firms because they were simply giving lip service to diversity."

A number of other blue chip corporations evaluate diversity data (though less exhaustively than Shell Oil and Sara Lee) when considering whom to retain as outside counsel. The list includes corporations like Coca-Cola, American Airlines, Wells Fargo, Bank of America, Baxter Healthcare, and Merck, many of which maintain a regional presence in Wisconsin. This trend is best summed up by Merck's general counsel, Kenneth Frazier, who said, "We are in the fortunate position of having many highly capable law firms lining up to work with us. And it was hard in some ways to differentiate among these firms. But we found that diversity was something that would allow us to make that differentiation."

As the list of companies formally seeking diversity data continues to grow, there also are companies and individual in-house counsel who informally solicit such data before selecting counsel. Furthermore, an "underground network" of women and minority in-house counsel routinely recommend to others within their network law firms with good diversity records that these in-house counsel have retained. Under these circumstances, many law firms do not even get a seat at the table, thus losing potential business without ever knowing it.

Growing Your Business

In summary, law firms that do not take diversity seriously have already started to or may soon begin to lose business. Many people believe that the progress made by women and minorities in the legal profession has been too little, too late. As more law firms take notice of the business case for diversity, the progress is not only likely to continue but should do so at a faster pace than previously experienced.

Wisconsin Lawyer