Moving From “How Diverse Are We?” To “How Should We Use Diversity?”

 The law firm approach to diversity needs to change. One reason given for being committed to diversity is that, “It’s the right thing to do.” Another reason is that firms want to reflect the changing demographics of the country, the communities in which they are located and their clients, so they put a great deal of emphasis on the representation of diverse lawyers in recruiting classes, associate ranks and in the partnership (all of which makes sense). However, little, if any, discussion is held about how to use diversity as a way to further business objectives—i.e., getting closer to clients. With the emergence of a more diverse global workforce, companies are looking for ways to leverage diversity to give them a competitive business advantage, and law firms should strive to do the same.

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An altruistic approach to diversity and concerns about the representation of diverse lawyers in the profession are not wrong. In fact, they are absolutely necessary and appropriate because they are consistent with the essence of the origins of workplace diversity and inclusion initiatives—i.e., ensuring fairness in providing economic opportunities for people regardless of their immutable differences and socioeconomic backgrounds, and creating an environment where people can progress regardless of these differences. However, altruism and headcount alone as the primary drivers behind diversity and inclusion confines the benefits of diversity to a very narrow box. And, unfortunately, this focus fosters a growing sense of frustration when it appears very little progress is being made, and that diversity and inclusion is not connected to the firm’s strategy.

Representation statistics are important, and do paint at least the beginning of a picture on diversity in law firms. But focusing solely on these metrics as indicators of success is limiting, because while law firms place most of their emphasis on headcount statistics, they pay little attention to how to strategically leverage the diversity within their firms. The value in diversity comes from being opportunistic in exploring how to fiercely and skillfully capitalize on the differences present in your law firms and among your current and prospective clients.

This two-part article will address the following: First, the inherent challenges and frustrations of measuring success by the representation of diverse lawyers due to various factors beyond the control of law firms. Second, how the Great Recession significantly changed the relationship between clients and their outside counsel, and provided an opening for firms to think strategically about their approach to diversity. And third, how law firms can take advantage of the changes brought forth by the recession to use diversity to their competitive advantage.

The Pipeline

The traditional approach to diversity has been to define success by how many people from certain groups are hired, fired, retained or promoted. Law firms (and many organizations with diversity programs) have followed this formula for as long as they have had diversity programs. According to Professor Martin Davidson of the University of Virginia Darden School of Business, this approach presents at least three shortcomings: (1) It lacks a strategic focus and, as a result, diversity is often approached as simply an extra activity that has no impact on an organization’s business; (2) It focuses on immediate results and fails to take the long view; (3) Finally, it can be reactive (e.g., we lost a lot of diverse lawyers, so let’s get more). Each point is important, but the third is particularly relevant for law firms, because law firms can do very little, if anything, to improve the diversity pipeline.

According to a report by the American Bar Association Pipeline Council, the diversity pipeline for the legal profession begins as early as pre-kindergarten. And, unfortunately, this is when the weeding-out process begins. Approximately 90 percent of all American children attend public schools, and racial minorities comprise more than half of these students. A report by the Southern Education Foundation states that 51 percent of all public school children from pre-kindergarten through 12th grade are eligible for free or reduced-price lunches. A consequence of having a majority-poor public school student population is that these children start kindergarten behind their wealthier peers in private schools, and probably will never catch up. The result is a leaky diversity pipeline, where there is a disparity in academic achievement between rich, poor, minority and non-minority children, higher dropout and expulsion rates for African American and Hispanic/Latino students, and lower scores on standardized tests. In “The Educational Pipeline to Law School—Too Broken and Too Narrow to Provide Diversity,” Professor Sara Redfield of the University of New Hampshire School of Law says these factors also result in disproportionately higher levels of disengaged minority and poor children. It is difficult for students facing this many obstacles to be among the pool of qualified law school applicants. As a result, not only is the pipeline leaky, it is narrow.

Despite the challenges mentioned above, students of color are attending law school. In fact, law schools are probably more diverse than ever (in terms of percentages rather than headcount). This shift is partly attributable to lower-tiered law schools—i.e., schools with the lowest median LSAT scores for incoming students—accepting disproportionately more African-American and/or Hispanic students, as well as the fact that fewer students are now going to law school in general. According to a report by Professor Aaron N. Taylor of Saint Louis University School of Law, law school student enrollment fell by 25 percent between 2010 (with a record high of 52,488 first-year students) and 2013 (with a record low of 39,675 first-year students). After analyzing LSAT scores and enrollment statistics for those two years, Professor Taylor noted that the schools with the highest median LSAT scores became less diverse, while the less prestigious schools became more diverse.

Professor Taylor attributes this development to many factors, including the need for lower-tiered schools to maintain revenue by (wittingly or unwittingly) using diversity to help accomplish this goal, as well as elite law schools using the economic downturn as an opportunity to focus more on admitting students with the highest LSAT scores. This “racial and ethnic stratification” among law schools could have long-term consequences on the career paths and trajectories of minority students. For example, research by the Law and Society Association reveals that more than 50 percent of graduates from top 10 law schools either work in law firms with at least 250 lawyers or in prestigious federal government positions. Only 4 percent of graduates of lower-tiered schools work in law firms, and many of these graduates work in small, solo practices or in state government jobs. So not only is the diversity pipeline for AmLaw 100 law firms narrow and leaky, it also lacks depth. Consequently, top law firms fiercely compete against each other over a very small segment of the law student population.

The following hypothetical is illustrative of the competitive nature of diversity recruiting: According to NALP statistics, minorities represented 32 percent of 2014 summer associates in law firms with 700+ lawyers. These law firms are recruiting students in the top 10-15 percent of the class at the top 30 law schools. Let’s assume for purposes of this hypothetical that there are 250 second-year law students at a particular law school. Of those 250 students, only 25-38 (the top 10-15 percent) will have the credentials for a summer associate position. Let’s also assume that that law students of color are 32 percent of those 25-38 students (the same as the diverse representation of the 2014 summer associate class). That is only 8–11 students of color.

Every major firm committed to diversity is aggressively recruiting the same small group of prospective minority summer associates. This creates a situation where demand clearly surpasses supply: dozens of firms competing for a handful of diverse students at a few law schools. The best students—regardless of race, ethnicity, gender, sexual orientation—have plenty of options (some of which may not include going to law firms), so firms must also compete with these students’ other interests. What starts off as 8-11 students in our hypothetical law school may actually be closer to 4-6 students. And, according to Professor Taylor’s report, these numbers may be an overestimation, because fewer minorities are gaining admission to top-tier schools.

So every year, law firms pursue a handful of minority students at elite schools with the purpose of accomplishing a long-standing law firm diversity goal: having a firm that numerically reflects the diversity of the country, the community, and their clients. The problem, however, is that while the country is rapidly becoming more diverse, the legal profession is not. According to the U.S. Census, from 2000-2010, the representation of the white non-Hispanics in the United States decreased by 3 percent (from 75 percent to 72 percent). By contrast, the white non-Hispanic population in the legal profession decreased by 0.7 percent (88.8 percent to 88.1 percent) during the same period. In Diversity Explosion: How New Racial Demographics Are Remaking America, author William H. Frey states that in 2011, more minority babies were born than white babies for the first time in our nation’s history. In approximately 25 years, the entire country will be majority-minority (a trend that has already occurred in 22 of the country’s largest cities). This diversity explosion will profoundly impact business, politics and, of course, the law.

Unfortunately, there is no diversity explosion in the legal profession. According to Professor Redfield’s research, in 2030, the overall lawyer population will be estimated at 1.1 million, and drastic changes would have to occur for African American and Hispanic attorneys to approach parity with their representation in the general population. Specifically, the profession would have to add 100,000 and 230,000 black and Hispanic lawyers, respectively. That would require increasing current African American admission rates by 45 percent (from currently 3,980 per year to approximately 5,800), and increasing Hispanic admission rates by a staggering 195 percent (from currently 4,400 per year to approximately 13,000 per year). Based on previous and current law school enrollment statistics, it is highly unlikely that increases of this magnitude will occur.

The statistics are sobering (and, let’s face it, discouraging), but this is not an excuse to throw up our hands up on improving diversity in the profession. Law firms should continue focusing on diversity headcount issues, but this alone should not define success, because there are so many variables affecting the legal diversity pipeline that are beyond the control of law firms specifically and the legal profession generally. Further, if headcount is the sole measure for success, then law firms will continue to engage in an exercise akin to chasing their tails—which only leads to frustration, resentment, indifference or all three.

Absent a willingness on the part of firms to go deeper into the class at top-tier schools, and/or expand target schools beyond the top 50, a better approach is to accept the pipeline numbers for what they are and accept that diverse representation will ebb and flow because the competition is fierce and these students have a lot of options. So firms should ask and answer three questions: One, are you doing everything possible to attract your fair share of diverse talent within the existing parameters—i.e., your firm’s hiring criteria and the current state of the diversity pipeline? Two, are you doing everything you can to cultivate and promote a diverse group lawyers? And third, are you thinking strategically in how to use diversity to engage current and prospective clients—especially in this post Great Recession environment?

The first two questions are easy to answer. The third is less clear, because law firms have not emphasized how to use diversity to better engage clients. Many firms allocate a great deal of resources to their diversity recruiting efforts such as supporting diverse student groups, participating in minority job fairs and involvement with various organizations that prepare incoming law students for their first year. In addition, for years, there has been a lot of discussion about the lack of diversity in the partnership ranks, and some firms have responded by creating (or exploring the creation of) intentional efforts to help with their diversity retention and advancement efforts. While firms can always improve their diversity hiring and retention initiatives, these efforts already receive a great deal of attention, so law firms have access to a lot of guidance on how to address these two areas. But minimal, if any, instruction is available on how to use diversity strategically, and this may be because there has not been a reason to reevaluate the traditional law firm diversity approach. The Great Recession, however, presents an opportunity for law firms to re-think how to use diversity as a way to further firm objectives.

The Great Recession: Never Let a Crisis Go to Waste

The three years leading up to the Great Recession (2004-2007) were boom years for the legal industry. According to a report by the Georgetown Law Center for the Study of the Legal Profession, U.S. law firms saw revenue and profits per equity partner grow at staggering rates of 37.5 percent and 25.6 percent respectively. The good times, however, came to a halt in 2008 at the beginning of the Great Recession. Law firms responded to the economic downturn by laying off lawyers and administrative staff, cutting salaries, instituting hiring freezes, reducing and in some instances (temporarily) abolishing their summer associate programs—which also resulted in staggering unemployment numbers for law school graduates. Accordingly, diversity also suffered a significant setback during the downturn. For example, minorities comprised approximately 21 percent of all lawyers who left firms in 2009, despite only representing 13 percent of the overall law firm attorney population, as reported by a Minority Corporate Council Association survey.

Another consequence of the recession on the legal industry was the shift in power from the sellers of legal services to the buyers. Clients acquired a great deal of influence, and used it in ways that profoundly altered their relationships with outside counsel because they had to reduce costs in response to the downturn. For example, clients pushed back on fees, asked for discounts (and firms begrudgingly gave them) and some refused to pay for first-year associates on their matters. Many clients even changed the way they conducted their internal business. According to an Altman Weil survey of chief legal officers, 40 percent of survey respondents increased the size of their in-house staffs, 36 percent shifted work to firms with lower rates; and 34 percent reduced the amount of work sent to outside counsel. Non-traditional legal service providers—whose existence preceded the recession—saw an opportunity in the chaos and began competing with firms for commoditized work, which gave clients more options and opportunities to cut costs.

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To survive (and thrive) in the new legal environment, law firms had to embrace change and look for ways to remain relevant and responsive to clients, while differentiating themselves from their traditional and non-traditional competitors. Firms had to become more efficient, predictable and cost effective in providing legal services in a market with modest growth. Law firms faced additional pressure from clients’ willingness to shift more work in-house and disaggregate services between law firms and non-traditional legal vendors. In response to these pressures, law firms created various fee arrangements—e.g., fixed fees, capped fees, fee collars, etc.—and implemented project management to be more efficient and to improve budget forecasting. Some firms even partnered with other legal vendors.

The Great Recession was not entirely a crisis for corporate legal departments. The scale tipped in their favor and they used their influence to drive the behavior of their outside counsel, resulting in significant changes—e.g., the law firm willingness to adopt other billing practices in addition to the billable hour. Firms that were responsive to client demands and weathered the Recession demonstrated that they could be nimble, creative and adaptable under tough economic conditions—further cementing their relationships with clients. Law firms, however, did not use the recession as an opportunity to reassess their diversity programs and identify how to use it to get closer to clients.

Now you are probably thinking, “Why would firms focus on diversity when they didn’t know if they would even be able to keep the lights on?” or “Clients aren’t thinking about diversity when they’re faced with a bet-the-business matter.” Both reactions are correct. Diversity, like so many other things, will not be top of mind when law firms and/or their clients face crises. However, the need to improve diversity doesn’t subside during a crisis either. Based on all the client surveys and RFPs that include diversity-related questions, it is obvious clients do care about this issue. In fact, a report by Professor David Wilkins of Harvard Law School revealed that diversity ranked fifth out of 10 factors legal departments consider when hiring law firms—just behind (1) Results in similar cases, (2) Reputation, (3) Prior relationship and (4) Firm size. The question now becomes: how can law firms leverage diversity in this post-recession environment to further their business objectives?

This is the first of a two-part series by Kenneth Imo. See part two here

About the Author

ImoKenneth Imo is the director of diversity at WilmerHale. He can be reached at kenneth.imo@wilmerhale.com.

 

 

(Image Credit: ShutterStock)

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