The Battle for Origination Credit
Law firm origination policies typically play a significant part in partner compensation levels, although they have an adverse impact on specific groups of attorneys, namely women, racial minorities, and members of the LGBTQ+ community. Historically, law firm compensation systems and promotion criteria have been based on the production of high-quality work, an ability to relate to clients, and the capability to attract business. Additional considerations have also included collegiality, professional recognition, service to the community, and mentoring of junior lawyers.
The role of business generation in compensation has grown in recent years, as the market for legal services has become more competitive and relationships between law firms and clients have become more attenuated and short-term. In today’s economic climate, origination credit has become increasingly essential to many law firms’ compensation systems, and the trend does not suggest that it will change any time soon.
Origination credit and personal production based on billable hours tend to be the two main inputs that determine partner compensation in non-lockstep firms (i.e. firms that do not base compensation on seniority). Origination credit is determined based on the dollar value of revenue from clients or matters a partner has brought to a firm, and is awarded to that partner in the compensation process for those clients or matters, regardless of who is currently working on the matter. The most significant component of this compensation factor for our purposes is that it can end after a certain period of time, or it can continue indefinitely as long as the client continues to send work to the firm. But origination has historically come easily for white male attorneys, while it has often come at a price for women, racial minorities, and LGBTQ+ attorneys, who may have actually completed the majority of work on those client matters.
Women partners and partners of color report that racking up originations is more difficult for them for a number of reasons, including 1) having less access to networking and mentoring because their white male colleagues form more meaningful relationships with their white male supervisors, and 2) in the case of women, generally receiving less help from their networks than men. These attorneys also report that they are frequently asked to assist in client pitches to bring a prospective client to the firm, but then do not receive any credit for having brought in the client. Most in-firm committees overseeing compensation have little to no diversity, which makes appealing to management regarding origination conflicts more difficult. What’s most shocking is that women and minority attorneys have also reported being intimidated and bullied by male colleagues aggressively pursuing origination credit. Over the years, these behaviors have been the basis for many studies and articles aimed at shedding light on the origination divide, and the resulting compensation divide.
In 2010, the American Bar Association Commission on Women in the Profession, the Minority Corporate Counsel Association, and the Project for Attorney Retention released a report entitled New Millennium, Same Glass Ceiling?: The Impact of Law Firm Compensation Systems on Women. The study was based on a survey of almost 700 women law firm partners—only 14% of whom were women of color—in an effort to gain insight into their experiences and perspectives about compensation and closing the pay gap. Regarding origination credit, the study found that disputes over the credit are common among women partners, particularly women of color.
According to the report, origination credit ranked as one of the top factors in compensation. However, the report states that “[j]ust under three-fourths of white women equity partners and just under 80% of white women income partners reported having some sort of dispute over origination credit.” Comparatively, 84% of minority women reported having such disputes. Some respondents believed they are bullied no more than their white male counterparts. But origination disputes involving bullying, threats, and intimidation tactics have discouraged many other women and minorities from rustling any feathers by seeking out disputed origination credit. Women recalled blatant intimidation when senior partners demanded a large percentage of origination credit for a client where a woman was the relationship attorney, or claimed full supervisory origination credit because they “needed the credit that year” despite a woman being lead counsel on the trial team. Other reports included women being called “stupid” for believing they had earned an origination credit, and women being threatened to be cut from future relationships if origination credit was not shared or ceded.
As a result of these acts of intimidation, minority attorneys have even opted to avoid having others advocate on their behalf. For example, when Jeanine Wright, chief legal and administrative officer of Los Angeles-based podcast marketing startup Simplecast, threatened to fire outside counsel in 2015 unless the woman partner who was the point of contact at the firm began receiving origination credit, that female partner initially requested that Wright not give the firm an ultimatum, likely to avoid conflict within the firm. And when Marci Rubin, former deputy general counsel at Wells Fargo & Co., realized that two white male lawyers were receiving an origination credit for a colleague, and called to vouch for a Latino equity partner actually completing the work, the Latino partner reportedly did not want to stir up any trouble. Although the LGBTQ+ community has been largely overshadowed in many reports and testimonials on the issue, the evidence is overwhelming that minorities as a whole are disadvantaged in compensation discussions.
A Mountain on the Road to Equity
It is undeniable that pay discrimination correlates to worldwide biases against minority groups. The civil rights movement has been an ongoing battle in the United States, findings its roots in racial discrimination and eventually providing solace to women, the LGBTQ+ community, and more. The “#MeToo” movement has also gained momentum since its founding in 2006, the “#BlackLivesMatter” movement has broken barriers since its founding in 2013, and the LGBTQ+ movement found new breath after the landmark 2015 Supreme Court decision in Obergefell v. Hodges, which legalized same-sex marriage nationwide.
On the heels of these movements, while partners continue to battle over origination credits, pay discrimination has been a growing trend in lawsuits. And, unfortunately, litigation is just one tip of the iceberg for some firms. Failure to adequately compensate attorneys can lead to overall attorney dissatisfaction, which can lead to high attrition and loss of revenue. These consequences are having long-lasting effects on a firm’s business opportunities.
According to the 2019 Inclusion Blueprint Report, less than 40% of law firms track origination credit for women, racial minorities, and LGBTQ+ attorneys, and only 50% have written processes for obtaining origination credit. But why are these origination metrics of any significance, and how can these metrics be improved? The authors of this ground-breaking report—Diversity Lab and ChIPs—have provided a great foundation for pinpointing the answer to these questions.
Diversity Lab is a self-proclaimed “incubator for innovative ideas and solutions that boost diversity and inclusion in law.” ChIPs, or Chiefs in Intellectual Property, is a 501(c)(3) organization that seeks to advance and connect women in technology, law, and policy. The two organizations launched their Inclusion Blueprint effort in 2018 to emphasize the diversity and inclusion statistics AM Law 200 firms must measure if they intend to attract and retain diverse talent. The report compares inclusion practices and activities from 73 participating law firms, and surveys whether the firms have met specific thresholds for diversity representation in each category, namely: 30% representation of women, 15% representation of racial and ethnic minorities, and 5% representation of LGBTQ+ attorneys. Tracked practices include non-billable activities, pay equity, and origination credit. Relevant to this and similar diversity and inclusion reports is that even as women and racial minorities represent nearly half of the United States’ population, they only make up less than 36% and 17% of all lawyers at top firms, respectively. Similarly, openly LGBTQ+ attorneys make up 3% of all attorneys compared with 4.5% of the general population. Clearly, much work needs to be done to diversify this age-old profession.
In an attempt to bridge the gap, break the glass ceiling, and level the playing field, a growing number of firms are holding each other to task to improve upon these statistics. Their first step has been eradicating compensation policies that have disproportionately benefited the overwhelming attorney majority: cisgender heterosexual white men. These compensation policies, specifically those addressing (or failing to address) origination credit, have largely excluded women and minorities from receiving origination credit despite their noteworthy contributions to ongoing client matters. Nevertheless, a change is coming with assistance from reports that highlight these disparities, such as the 2019 Inclusion Blueprint Report. And although the road towards fully eradicating these archaic compensation policies seems grim and rocky, it pales in comparison to the mountains women, racial minorities, and LGBTQ+ attorneys have climbed to reach this point.
Compensation at a Glance
A law firm’s compensation system can fuel employee satisfaction and shape the firm’s culture. That is because compensation how firms not only distribute money, but assign respect and define value (i.e., what it means to meaningfully contribute to that firm). According to Money and Meaning: The Moral Economy of Law Firm Compensation, When lawyers feel respected and valued, they work with greater confidence and “organization-based self-esteem,” which reflects one’s sense of “personal adequacy and worthiness as an organization member.” Greater self-esteem can motivate high achievers, boost a firm’s overall productivity, and attract attorneys to the firm. However, statistics show that confidence and “organization based self-esteem” may not be evenly nurtured across the board.
As of 2018, on average, women in America are paid only 82 cents for every dollar paid to men. And the metrics do not stop there. Recent studies have shown that white men out-earn all racial minorities (gender, race, and ethnicity combined), except Asian men (although their population is smaller), and that gay men and lesbian women tend to earn less than their heterosexual counterparts. Across the AmLaw 200, the median woman equity partner makes 86% of what the median man equity partner makes, while non-equity women partners make 89% of what non-equity men partners make and women associates make 94% of what men associates make. Though these differences appear slim, they are not equal or equitable. According to Veronica Root Martinez, this kind of structural discrimination occurs when organizations “adopt particular structural policies and procedures that are not discriminatory on their face but have the effect of producing inequities between groups.” These historical pay disparities cannot be founded upon a lack of individual productivity or worthiness. Rather, they are the result of an industry’s failure to implement rewarding compensation systems that intersect with their diversity and inclusion initiatives.
Negative Effects on the Firm
When attorneys are unhappy, they exit… stage left. By their fifth year of practice, 85% of minority associates have left their firms, compared to 76% of non-minority associates. Although black attorneys are being hired as junior associates more often, they show a much higher attrition rate than their white colleagues. Happiness may be subjective, but objective contributing factors such as organizational structure, culture, and other behaviors overlap in these attorney’s lives. According to the 2019 Inclusion Blueprint report, law firms are more successful at achieving the Inclusion Blueprint diversity target thresholds for historically underrepresented lawyers at the non-equity partnership level than at the equity partnership level. These hierarchal norms can often explain why attorneys feel undervalued and tend to flee firms in an apparent mass exodus. Managing partners continue to grapple with risks associated with these departures on a daily basis.
As partners leave, firms run the risk of entering what has been termed a “death spiral.” This occurs because exiting partners “1) strip out their capital (immediately or through a balance sheet adjustment), 2) take with them as many of their paying client accounts as possible, 3) render their outstanding receivables less collectible, and 4) leave behind overhead in the form of vacant offices, and unnecessary associates and staff.” In short, when partners leave, revenues are immediately effected, which can send any law firm into a financial frenzy. This is why it is crucial for law firms to interrupt their biases and create policies that favor diversity over division.
For women, two patterns of gender bias lead to disputes over origination credit, which compensation and governance committees have had to address. First, according to the New Millennium, Same Glass Ceiling report, women of all backgrounds believe they have to “try twice as hard to get half as far” due to an “unspoken sense that men are entitled to share credit (but women are not).” Second, women often find themselves in a “double bind,” where they are punished or faulted for lacking in collegiality or exhibiting behaviors that, when exhibited by men, are seen as showing that he is competent and confident.” Women who have spoken up and challenged origination credit decisions feared getting “a reputation as a difficult woman” or getting impressions from the male partners that they were being “uppity” or “selfish.” It would seem as though these concerns could be addressed head-on with one-on-one interventions or firm-wide implicit bias trainings and policies. However, according to Gerry Riskin, founding principal and chairman of law firm management consultancy Edge International, “[m]ost law firm leaders hate having to confront a partner about a problem with their behavior, so they tend to minimize the problem or look for solutions that are overly simplistic.” Therein lies another dilemma.
Rainmakers, or those partners who have generated substantial origination income for law firms, have been perceived as having unfettered power and a lack of accountability. For one, these partners are rarely reprimanded for their problematic practices, and two, most of their practices have been engrained in the culture of the firm such that any corrective action might become problematic in and of itself. For example, partners with origination credit have disproportionately left these credits to white men as part of their succession/retirement plan without any supervisorial involvement. Such instances contribute to the cycle of exclusion women and minority attorneys experience in firms, which negatively impacts the firm’s business. Although some firms have responded by intervening in the succession planning process, much of the work that must be done needs to be proactive, instead of reactive.
The Path Forward
In recent years, firms have started to rethink their origination policies. In 2015, Robert Bodian, managing member of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., revamped his firm’s origination approach because he worried that the firm’s previous policy of awarding all origination credit to the partner who first brought a client to the firm, in perpetuity, “established the wrong incentives, even though it was a long-standing practice across the industry.” In reformulating the firm’s policy, Bodian’s goals included fostering teamwork, putting clients first, and getting younger, diverse attorneys to take more ownership. Under Mintz’s new system, no partner receives 100% of an origination credit; instead, the maximum percentage a partner can now receive for old or new business developed for a client is capped at 75%. The remaining 25% is awarded to the firm or a partner who helped bring in the client. King & Spalding has also revamped its origination policy in the last 10 years. The King & Spalding policy, however, contains a “sunset provision” that transforms new clients into firm clients after three years, and in an effort to encourage teamwork, the policy includes no limitation on how many partners may claim origination credit. The result of these new policies: a possibility of 15 or more names on a client origination sheet. Nevertheless, at least in regards to Mintz, Bodian says profits are up 30% over the past three years and he doesn’t believe it is a coincidence that the new origination approach was implemented within that timeframe.
Even in-house counsel, such as the legal department at Wal-Mart, are attempting to hold law firms accountable in these specific diversity and inclusion efforts. Back in June 2005, Wal-Mart required each of its top 100 law firms to demonstrate a “meaningful interests in the importance of diversity.” To that end, Wal-Mart sent out surveys to measure each firm’s institutional diversity performance. The surveys included questions or requests for information regarding the number of minority and women attorneys/partners/associates in the firm, retention rates for minority and women lawyers, percentages of minorities and women promoted to partner, diversity promotion activities within the firm and legal profession, firm and attorney participation in diversity organizations, and leadership positions held by women and minorities. Wal-Mart also required each firm to submit a list of candidates for consideration for appointment as the new relationship attorney at the firm, to include at least one woman and one attorney of color. Upon receiving the results, Wal-Mart reported that 40 relationship attorneys changed, which represented a shift in $60 million of legal work to be managed by women and minor attorneys, and Wal-Mart ended its relationship with two law firms that failed to meet its diversity expectations. Work remains to be done, but firms must consider two important factors moving forward:
Representation Matters
Only 46% of firms responding to the Inclusion Blueprint report have increased female representation on compensation committees, while 34% have seen an increase in racial minority representation and 11% have seen an increase in LGBTQ+ representation. Moreover, women are more likely to be promoted to equity partner over non-equity partner, while racial minorities and LGBTQ+ attorneys are more likely to be promoted to non-equity partner over equity partner. The lost message is this: Women Attorneys Matter. Minority Attorneys Matter. LGBTQ+ Attorneys Matter. Individually and equally. Attorneys must see themselves represented in leadership, specifically in partnership roles and on governance committees, in order to work confidently knowing that their voices are being heard and their concerns are being addressed. For that reason, any compensation committee and any compensation policy drafted in 2020 and beyond must intersect with industry-wide diversity and inclusion initiatives. When minority attorneys are fairly represented and compensated, their value is reinforced, clients are happier, more attorneys are attracted to the firm and the firm thrives as a result.
Comprehensive Policies and Statistics Matter
Firms must continuously keep the current disparity in compensation statistics at the forefront if they intend to attract new business and attorneys. Although 46% of firms have implemented a process to appeal origination credit, 7% say they intend to implement a process in 2020. Similarly, 50% of firms have a written process for origination credit, and 11% say they intend to implement a process in 2020.
But on the whole, despite the fact that origination credit remains one of the most important factors in compensation, less than 40% of firms comparatively measure origination credit for women, racial minorities, and LGBTQ+ attorneys. The less niche your practice, the less likely origination credit will be tracked (e.g., origination credit for women, racial minorities or LGBTQ+ attorneys in antitrust, IP, privacy and cyber practices is tracked by 56% of firms on average versus the same group in the litigation practice being tracked by 35% of firms on average). Minority attorneys are at a constant battle for adequate compensation, which can make or break their firm experiences.
Retroactively addressing negative compensation trends on a case-by-case basis does not create a blanket of security for rising minority attorneys. By formally writing out a process for credits and appeals, firms will not only add the security minorities seek, but firms will informally add reassurance that instances of bullying or intimidation shall be prevented or swiftly addressed. When attorneys feel protected, they may feel emboldened to speak up for themselves and contribute more meaningfully to the firm. Firms must improve upon these policies and statistics to begin reaping the proven benefits of a diverse and inclusive employ. To that end, firms should consider policies that include sunset provisions, award origination credit by matter (instead of client), and prohibit unsupervised inheritance of origination credits.
Conclusion: Perfecting a Better Model
Origination credit may be one of the foremost compensation factors, but the policies surrounding that credit continue to have lasting adverse effects on women, racial minorities, and LGBTQ+ attorneys. The 2019 Inclusion Blueprint Report illuminates those AmLaw 200 firms hoping to shift the narrative away from the inequities in the legal profession, while simultaneously highlighting the percentage of firms that have not yet begun implementing diverse policies and hiring diverse attorneys. These metrics will continue to have significance as the legal profession improves upon its diversity and inclusion. If firms intend to thrive in today’s economic climate, they will need to revamp their policies and their politics. Until then, the road ahead will be littered with rubble from the mountains women, racial minorities, and LGBTQ+ attorneys continue to climb on a daily basis.
About the Authors
Tracey J. Coates (left) is a partner at Paley Rothman, and creator of The Tracey Coates Show, a podcast about trending legal and relationship issues. Eva N. Juncker (middle) is a partner at Paley Rothman, and past chair of the Virginia State Bar Diversity Committee. Geoffrey Witherspoon (right) is a law clerk with Paley Rothman.