September 19, 2018

Dollars and Cents: The Business Value of Diversity and Inclusion

Juan M. Sempertegui

Diversity and inclusion discussions have traditionally focused on creating equal opportunities for everyone, especially those in the minority based on gender, race, sexual orientation, and/or disability. In recent years, it has become quite clear that diversity also matters in business. The historic changing demographics of the United States should be forcing corporations and their law firms to consider diversity and inclusion of individuals from different backgrounds as imperative to growth and relevance.

During the American Bar Association Business Law Section’s 2016 Spring Meeting in Montréal, Canada, the Diversity and Inclusion Committee presented a CLE program titled Diversity & Inclusion: Your Clients Care And This Is Why You Should Too! The panel, moderated by Anne Gwal from Pepco Holdings, Inc., included: Joan Durocher from the National Council on Disability; Kenneth Fredeen from Deloitte LLP (Canada), Business Law Section Advisor Michele Coleman Mayes from the New York Public Library; Samuel M. Reeves from Walmart Stores, Inc.; and Joseph “Joe” K. West from Duane Morris LLP. The program materials for the CLE included written responses to diversity-related inquiries from more than 15 general counsel and legal officers at some of the largest companies in the world. The panelists, and those legal officers that provided written responses, discussed extensively the business value of diversity and its impact on the legal marketplace.

This article incorporates some of the CLE information presented during the Spring Meeting and provides additional support that diversity and inclusion have become business imperatives for corporations and law firms. First, we analyze the changing demographics and then we consider the tangible benefits that arise from a diverse workforce.

Diverse Consumer

As of July 1, 2014, the U.S. Census determined that the U.S. population is comprised of 13.2 percent African-Americans, 5.4 percent Asians, 17.4 percent Latinos, and 62.1 percent Whites, not including Latinos. As a result, more than 35 percent of the population is considered multicultural and it is projected to substantially increase in the coming years. Specifically, by around 2020, “‘more than half of the nation’s children are expected to be part of a minority race or ethnic group’. . . [and] ‘by 2044, the Census Bureau predicts no one racial or ethnic group will dominate the U.S. in terms of size.’” So why do these numbers matter for law firms and in-house counsel? The answer is quite simple—buying power.

From 2000 to 2013, the buying power for African-American households increased by 78 percent, for Asian American households it increased by 160 percent, and for Latino households the increase was 142 percent. Of note, Asian households, which have a higher median household income, spent 21 percent more than the average U.S. household.

Companies such as BB&T Bank have recognized these demographic changes and acted by creating a multicultural markets division. The bank recognized that the “major source of population growth is now represented by persons of African, Asian and Latino heritage” and focused on hiring “native-speaking associates to address communication and cultural differences” to serve them better. The company’s efforts resulted in increasing BB&T’s “multicultural financial centers by 35 percent, to 350.”

In terms of individuals with disabilities, the American Community Survey estimates that the “overall rate of disability in the U.S. population in 2014 was 12.6 percent.” But this underestimates the size of the market. In the 2016 Annual Report: The Global Economics of Disability, it is noted that the estimated population of 1.3 billion people with disabilities are an emerging market the size of China, and when you add family and friends, the number of potential customers grows by another 2.4 billion. This could represent 53 percent of the consumer market, and that number will grow as boomers, with their significant spending power, age. In terms of attorney employment, a 2012 study from the Washington State Bar Association found that 21 percent of its members have a disability, but yet employers nationwide frequently report less than 1 percent of their employees as having a disability. It is also worth noting that people with disabilities are represented in all other diverse groups.

“Efforts to quantify the LGBT [lesbian, gay, bisexual, and transgender] population, both by the government and outside polling sources, are relatively new, with much still unknown about this subsection of America.” As a result, it is currently difficult to provide reasonable U.S. estimates of the LGBT makeup in the population. Nonetheless, there is little doubt that the LGBT population is a prevalent part of the U.S. population and the marketplace.

It is undisputed that the substantial demographic change to a more diverse consumer base will impact the approaches that corporations take to market their products and services. To effectively serve their clients, law firms must be sensitive to these approaches and the changing marketplace. As noted below, many legal officers are mindful of these shifts and are already acting accordingly:

We live our values every day and everywhere, collaborating for the benefit of our customers, investors, employees, communities and partners. As the demographics of each of these key stakeholder groups grow more diverse, as the world in which we live and operate becomes increasingly global, and as the competition for customers and top talent becomes increasingly fierce, Alcoa will continue to succeed only if we foster an environment where people can bring unparalleled creativity, energy and new ways of thinking to the table. Audrey Strauss, Executive Vice President, Chief Legal Officer, Alcoa Inc.

Collaborating with a diverse group of coworkers, who reflect the customers and communities we serve, has led to better problem solving, thereby positively impacting our customer satisfaction ratings and service reliability efforts. —Kevin Fitzgerald, Executive Vice President and General Counsel, Pepco Holdings, Inc.

Hundreds of millions of diverse customers and members shop in our stores and clubs each week. The more we reflect our customers and their perspectives, the better positioned we will be to meet their needs. —Samuel M. Reeves, Senior Vice President, General Counsel, Walmart Stores, Inc.

Diversity [s]trengthens our culture and increases our agility and ability to compete in a complex, fast-paced, global environment, [e]nables us to deepen our understanding of customers in each of our markets and businesses, [u]nleashes creativity, innovation and business value by welcoming different perspectives, experiences and beliefs, [r]educes and eliminates barriers to full participation in the workplace to help all employees reach their greatest potential. —Melissa Kennedy, Executive Vice-President and Chief Legal Officer, Sun Life Financial

We believe that an inclusive and diverse workforce, where we learn from our differences, leads to higher employee engagement, which is integral to creating great customer experiences and enhanced loyalty.Bindu Cudjoe, Deputy General Counsel & Chief Administrative Officer Bank of Montreal

Tangible Benefits

The value of diversity extends beyond appealing to consumers. Employees from diverse backgrounds also provide tangible benefits to corporations and law firms in many distinct ways.

Acritas Research Ltd. published a Diversity Report on May 12, 2016, addressing the impact of a diverse legal team. The report is based on 1,771 interviews with senior-in-house counsel around the world, with respondents defining diversity primarily in terms of gender, but also according to race and ethnicity, nationality, LGBT identification, age, and years of experience. The survey determined that “compared to ‘not at all diverse’ external legal support teams, ‘very diverse’ teams provide a superior performance to their clients across all key performance areas.”

The evidence gathered in the study established that diverse teams deliver enhanced performance across various attributes “including responsiveness, business understanding, client focus, commerciality and efficiency.” Specifically, law firms were “more than one and a half times as likely to achieve a perfect ten performance score from their clients when the team was considered diverse.” In addition, law firms with diverse teams received over three times higher Net Promoter Score. As a result, the clients were much “more likely to promote the law firm they are working with to others,” the “ultimate signal of a strong client relationship.” The proof manifests itself in share of wallet, with very diverse teams earning 25 percent more in revenue than not at all diverse teams. The study found similar substantial benefits to in-house teams. Legal departments with diverse teams were found to have improved overall performance, better value, better relationships, and improved efficiency compared to nondiverse teams.

The survey results clearly establish that a diverse team has a positive impact on both sides of the legal relationship. As stated below, in-house counsel from various corporations also recognize the value of diversity:

At 3M, we view diversity as the appreciation of differences, and we use inclusion of those differences as a competitive advantage to power our curiosity and creativity. By enabling broader perspectives, insights, and ideas, diversity and inclusion gives us a greater edge in all we do. And diversity and inclusion allows everyone in the workplace to bring his or her “full self” to work and be respected and valued. —Ivan Fong, SVP, Legal Affairs & General Counsel, 3M Company

We believe diverse teams create greater innovation with different approaches, questions and ideas.Horacio Gutierrez, General Counsel and VP of Legal Affairs, Microsoft Corporation

The differing perspectives brought to the workplace by employees who reflect the culture in which we operate helps ensure that the organization’s products and services meet the needs of the different communities in our society, and helps ensure that our organization stays away from “groupthink” and other cultural biases. —John Mountain, SVP, Legal, CCO & Corporate Secretary, NEI Investments

We may believe that we are considering all aspects of an issue, but if everyone involved in the debate approaches the issue from the same perspective, we run the risk of thinking we have considered all options when in reality we are just operating in an echo chamber. It therefore is vital that our legal department, and our outside counsel, include individuals with diverse backgrounds, life experiences, and perspectives. Without that diversity, we can’t produce the best and most complete legal guidance to our clients. —Craig Silliman, Executive VP – Public Policy and General Counsel, Verizon Communications.

Conclusion

Inclusion of diverse lawyers will play a major role in helping law firms and corporations deal with the demographic shifts that are taking place. The changes are real and they are having a substantial impact on the marketing of products and services. The associated challenges will require addressing many issues with new approaches. Hence, as Business Law Section Advisor Michelle Mayes stated in Montréal, quoting Carla Harris, a Managing Director at Morgan Stanley: 

To have the innovation everyone seeks, you need new ideas;
To generate new ideas, you need different perspectives;
To have different perspectives, you need different experiences,
And to achieve this, you need diversity.

Juan M. Sempertegui

Juan M. Sempertegui works for a state financial regulatory agency and serves as the Vice-Chair for the Lawyers of Color Subcommittee in the American Bar Association, Business Law Section’s Diversity & Inclusion Committee.