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June 22, 2021 Mind Your Business

Demographics as destiny: Making the case for law firm diversity and inclusion

By Colleen Cochran
It turns out that one of the most effective and least expensive routes to improving the bottom line is to increase the level of diversity in a firm.

It turns out that one of the most effective and least expensive routes to improving the bottom line is to increase the level of diversity in a firm.

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To maintain an edge over competition, law firms often encourage attorneys to work long hours and they invest heavily in technologies, outside consultants, and branding and marketing efforts.

It turns out that one of the most effective and least expensive routes to improving the bottom line is to increase the level of diversity within the workforce—that is, to ensure women and people of different cultural and sexual orientations are included on the team.

For many years now, it has been well documented and reported that promoting diversity is an unequivocal pathway to success, and of the many routes that lead to law firm advancement, this pathway is simpler and less expensive to achieve.

Diversity equals financial power

“Banking on Diversity: Diversity and Inclusion as Profit Drivers—The Business Case for Diversity,” a 2014 article published by the American Bar Association, noted study after study that indicated diversity and inclusion are catalysts for both law firm and corporate profitability.

One of the studies it listed, published over a decade ago, concluded that within Am Law 200 firms, those in the top quarter of diversity rankings generated $100,000 of additional profit per partner over same-size firms in the vicinity with equivalent hours and leverage.

A 2020 study shows that this profit differential has grown. Dr. Evan Parker, founder of Parker Analytics, developed a statistical model that revealed the gap between low- and high-diversity firms is nearly $180,000 per partner per year.

In fact, all businesses and industries benefit from diversity. In a 2020 study from McKinsey & Company titled “Diversity wins: How inclusion matters,” the consulting firm found that the more diverse a company is, the more likely it is to outperform less-diverse peers on profitability.

McKinsey, which has been following the diversity trajectories of hundreds of companies throughout the world since 2014, found that companies in the top quartile for gender diversity on their executive teams were 25% more likely to have above-average profitability than companies in the fourth quartile. Companies that fell in the top quartile for ethnic and cultural diversity in their executive teams showed even greater gains. They outperformed fourth-quartile companies by 36%.

Yet law firm diversity figures remain low

Despite the studies that show diversity drives profitability, most law firms have not been taking great strides to become more inclusive.

When the National Association of Women Lawyers surveyed the top 200 grossing firms in 2009, it showed that women made up about 16% of these firms’ equity partners. Ten years later, that figure had risen only to 21%. It is a dreary gain, given the fact that more than 54% of law students at ABA-accredited law schools nationwide are women.

The report also showed that people of color made up 9% of equity partners and women of color only 3%. LGBTQI+ individuals were about 2% of all equity partners, and persons with disabilities were about 1%. The figures for these latter two groups are less certain, however, since many firms do not collect data on disabled or LGBTQI+ individuals.

When it comes to retaining the women and minorities they do hire, firms face an even greater challenge. The attrition rate among women, and particularly women of color, is high. Some of the reasons women give for leaving a firm include unfair compensation systems, feelings of being sideliners in the firm, denial of access to significant assignments and pathways for advancement, lack of mentors, and stress of trying to maintain work life and home life.

Not only does law firm attrition constitute a tremendous loss of talent, but it is also exorbitantly costly. A 2014 white paper from JD Match & The Right Profile estimated that the costs of attrition for just the 400 largest firms was roughly $9.1 billion per year. The study estimated the average cost to replace a single associate at a conservative $400,000.

“We don’t want our women lawyers to have to choose between childbearing [and] family and career. We try to accommodate their needs and also provide them with opportunity so they can have a long and productive career with us,” says Dion Cominos, managing partner of Gordon Rees Scully Mansukhani.

He points out nearly half of his firm’s offices are led by female and/or minority partners while noting that Gordon Rees has earned a 100% rating on the Corporate Equality Index for LGBTQ equality from 2016 to the present and a No. 25 ranking on the Women in Law Scorecard by the National Law Journal, among other honors.

One of the ways the firm provides opportunities for women is through its Women’s Initiative. This group provides business education and mentoring services as well as marketing opportunities between women lawyers and potential clients. The firm has also established five affinity groups to support African Americans, LGBTQ, Hispanic/Latino, Asian American and South Asian law firm members. Like the Women’s Initiative, their purpose is to provide networking and mentoring opportunities.

“Intentions are not enough,” says Cominos. “If we don’t put forth the effort, we are going to have the same patterns [of attrition] repeating themselves. We are not yet where we hope to be in terms of our overall numbers, but we are working diligently towards a future where women and persons of color occupy a significant percentage of the highest ranks of our leadership, management and ownership within the organization.”

Diversity is becoming a necessity

Law firms soon may have no choice but to become more inclusive. One reason is because the businesses they partner with are beginning to demand it. For instance, in 2017, Facebook began requiring that its outside counsel’s teams consist of at least 33% women and ethnic minorities.

That same year, general counsel at Hewlett-Packard informed its outside law firms that it will withhold up to 10% of invoiced fees should those firms fail to meet its diversity standards. Back in 2008, Microsoft introduced an incentive-based program to reward its strategic partner law firms for fostering diversity. By May 2019, the percentage of hours worked on Microsoft matters by diverse lawyers from outside partner firms who participated in the incentive program increased from 33.6% to 58.7%.

Another reason diversity is becoming necessity has to do with demographics. According to the Brookings Institute, as of 2020, approximately 60% of people identified as white alone, not Hispanic-white. Beginning in 2045, according to the U.S. Census, the population of non-Hispanic white people is expected to decline to the point that they no longer make up the majority of the U.S. population.

The majority sector of the American population will be composed of people of Hispanic ethnicity, followed by Blacks, Asians and multiracial people. By 2060, one in three Americans will be a race other than white, and the population of people who are two or more races will be the fastest-growing racial or ethnic group over the next several decades.

Overall, the legal system benefits when it is representative of all the people it serves. When law firms open themselves up to people who possess a range of different perspectives, they become more creative, innovative and appealing to clients. Diversity is smart and ethical business practice, and the firms that choose to make it a priority will discover it is also very profitable.

Colleen Cochran, JD, is editor at IMS Consulting & Expert Services, a legal services provider to the nation’s Am Law 200 firms and Fortune 500 corporate legal departments.

Mind Your Business is a series of columns written by lawyers, legal professionals and others within the legal industry. The purpose of these columns is to offer practical guidance for attorneys on how to run their practices, provide information about the latest trends in legal technology, and how it can help lawyers work more efficiently, and strategies for building a thriving business.

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