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Early last year, Shell Oil Co. sent word to law firms it had worked with in the past that it was hosting a beauty contest. The company planned to select a group of “strategic partners” — a nucleus of firms that would handle most of the legal work for the Houston oil company, an affiliate of Royal Dutch/Shell Group. At the time, Shell used hundreds of law firms. But it believed that it would be better served by a small number of firms that had a deeper understanding of Shell’s business and that could share information and work cooperatively. Many companies have launched similar strategies — E.I. du Pont de Nemours and Co. being one of the first and best-known proponents of this less-is-more approach. Shell asked prospective strategic partners to submit information about their expertise and geographical reach. Soon, word circulated that Shell’s business was up for grabs, and firms deluged the company with business pitches. Shell’s in-house legal department culled the data and then gathered its own intelligence about firms’ strengths and weaknesses. In the spring of 2003, Shell invited a select number of firms to Houston to be interviewed. The firms’ representatives gathered in a Shell auditorium, where they donned name tags and listened to presentations by general counsel Catherine Lamboley and associate general counsel Carla Powers Herron. The Shell lawyers laid out the criteria that they would consider in choosing firms. Quality, cost-effectiveness, and professionalism were key factors. No surprise there. But the fourth and last factor was a little more unusual. Shell wanted firms that were committed to diversity — the applicants would all have to report the number of women and minorities at their firms. Lamboley is a very vocal advocate of diversity. “When you use people with diverse backgrounds and different ways of looking at things, you get to a better solution,” she says. Companies are particularly fond of having multihued legal teams when they head to court — they obviously want lawyers who look and think like jurors. But Lamboley says it is also vital to staff corporate work diversely. “It is critical that you have new thinking on deals,” she says. After Lamboley and Herron sketched out their vision for the strategic partner program, each firm was sent to a designated room to be interviewed by a team of Shell lawyers. The interviews generally lasted no more than two hours and involved discussions on a range of matters, from diversity to strategies for escaping the tyranny of the billable hour, say lawyers involved in the process. Some firms were called back to Houston for a second round of interviews.In the summer of 2003, Shell selected the winners. The company won’t disclose the names, but Herron says Shell chose 27 firms. They include Bracewell & Patterson, King & Spalding, Haynes and Boone, Vinson & Elkins, Fulbright & Jaworski, Thelen Reid & Priest, and Debevoise & Plimpton. These firms all rank at least in the top half of the diversity scorecard published by The Minority Law Journal, an affiliate of The American Lawyer. Lawyers at the winning firms happily report that they are now landing much more Shell business. Lamboley says that the company will continue to send much of its routine and complex work to its strategic partners. The goal is eventually to send the vast majority of Shell work to these firms, adds Herron. “The level of Shell work has increased, and it has become much broader,” says Jennifer Kuenster, the Thelen Reid partner in charge of the Shell account. She says, for example, that her firm is now handling labor and employment work for Shell, which it had never done before. “We do contract disputes, litigation, nonlitigation,” Kuenster says. “In the last nine months, there have been a lot of new [Shell] matters.” As with every beauty contest, there were also losers. The Houston bar, for example, is abuzz with the fact that local powerhouse Baker Botts is not on the strategic partner list. The firm has done litigation and transactional work for Shell in the past, and, more embarrassingly, it is headquartered at One Shell Plaza in Houston. Firm partner Maria Boyce says that she doesn’t know why the firm wasn’t selected. “We strove to be on that list in light of our diverse body of lawyers, many of whom are in leadership positions,” she says. Indeed, on the MLJ‘s diversity scorecard, Baker Botts ranks as high as or higher than some of the winning firms. Shell will not comment about the firm. Baker Botts may not have been ousted for lack of diversity. But that was nonetheless a key factor for at least one firm that had worked for Shell in the past and that Herron says was bounced simply because it did not have the right stuff on diversity. (She declined to name the firm.) Moreover, seven of the 27 winning firms, such as El Paso’s Delgado, Acosta, Braden & Jones, have partnerships in which racial or ethnic minorities and women outnumber white men. Shell’s strategic partners, in fact, have come to learn just how serious the company is about diversity. It hosts annual diversity seminars for its outside counsel; last year’s event was held at Minute Maid Park, where the Houston Astros play. The several hundred attendees gathered in a conference room, overlooking center field, where they discussed strategies for retaining and advancing minority lawyers. Shell also asks its strategic partners to break down their invoices according to the race, ethnicity and gender of the billing lawyers. Shell then drills deeper to ensure that women and minorities aren’t relegated to handling only junior-level tasks. Once a year Shell sends out report cards, which show how its firms stack up, diversity-wise, against other Shell outside counsel. The reports, for example, detail what percentage of each firm’s Shell fees were generated by women and minorities. The reports then compare that percentage to the comparable percentage at other firms. To drive the point home, the reports feature bar graphs illustrating the amount of fees generated and hours billed by female partners, female associates, minority partners and minority associates. “The report card is unusual in the sense of being so organized,” says Marcia Backus, the lead Shell attorney at Vinson & Elkins. “This [report card] makes you think about [diversity] when you put together teams for [Shell] matters.” Lamboley says that if a firm does not show at least gradual improvement in its diversity efforts, she will ask the firm to submit an action plan about how it expects to advance the ball. Eventually, if a firm continues to lag, it will be cast aside. “If a law firm is not serious about diversity,” says Lamboley, “I would have a hard time going forward with that firm.” Shell’s strategic partner program is another example of the market, not courts, dictating diversity. A growing number of corporate clients now include diversity as hiring criteria. In fact, more than 500 general counsel (including, for example, the top lawyers at Bank of America Corp. and International Paper Co.) have signed BellSouth Corp.’s 1998 statement of principle, which provides that companies should “give significant weight to a firm’s commitment [to diversity]” in selecting outside counsel. Many corporations — such as AMR Corp. (the parent of American Airlines) and Bank of America — also track the number of women and minorities who are billing time to the companies. “At least once a quarter, I get a request from a client that asks, ‘Show us the percentage of hours [billed] by women attorneys and attorneys of color,’” says Steven Wall, a partner at Morgan, Lewis & Bockius, which is No. 83 on the diversity scorecard. (The firm did not apply to be a Shell strategic partner.) “[Clients] are moving beyond a situation of just, ‘Do you have associate of color on the case or females?’” he says, noting that they now ask, “‘Do you have high-quality senior partners who are diverse, and are they available to handle our matters?’” Michael Turbes, operations counsel at BellSouth and co-chair of the legal department’s diversity committee, offers a simple reason why companies should regularly track the level of minority representation on their matters. “What gets measured gets done,” he says. “That is the catchphrase in business.” OK, so achieving diversity is now critical for law firms. The money question is, how much diversity is enough — enough, that is, to impress important clients such as Shell? Carla Herron says that Shell doesn’t have a specific diversity threshold in mind; the company, she says, is more interested in a firm’s steady improvement over time. Ditto the Sara Lee Corp. “If you have one set of [diversity] targets and say, ‘This applies to every firm,’ you might miss firms that are performing well,” says Roderick Palmore, Sara Lee’s general counsel (and an African American). But, on the flip side, he says, it is impossible to miss the firms that are not doing well. “It isn’t, ‘Oh, gee, they are close to the line.’ The firms performing poorly are clear,” says Palmore, though he declines to name them. Last year Sara Lee launched its “preferred partner” program, in which the company created three roughly defined tiers of outside counsel based on firms’ diversity records. The company analyzed several years’ worth of data submitted by the firms, including the number of minority and women lawyers at prospective firms, the status of such lawyers within the firms, and how the retention rates for minority lawyers compare to the retention rates for whites. Firms with the best diversity records, such as Sidley Austin Brown & Wood, were placed in Sara Lee’s top tier and will get more work than those in the lower tiers. In administering this program, Palmore concedes, “it would be convenient to have numerical [diversity] targets.” But he says he is satisfied with his I-know-it-when-I-see-it approach. Even if companies can’t offer clear diversity targets to law firms, they are nonetheless getting their point across. “With Shell doing this [strategic partner program], it becomes part of law firms’ consciousness about what it takes to get business,” says Lynne Liberato, a partner at Haynes and Boone, one of the winners in the beauty contest. “I think firms really want to be more diverse. But that is still outside of some people’s comfort zone. But give them a business reason to do it, and it will happen.” Adds Debevoise partner Molly Boast: “People don’t always think about gender and race when they staff matters. [The strategic partner program] is a good reminder. It is helpful to know there is someone welcoming [diversity].” Liberato and Boast are the lead Shell lawyers for their respective firms. Significantly, most of the strategic partners interviewed for this article had designated women as their Shell partners-in-charge. That is no coincidence. Herron said that Shell pushed firms to appoint women and minorities as client heads, or “focal points” in Shell-speak. “In some cases, we delayed the firm’s choice of focal points [when it had chosen white men] to see if there were women and minorities ready to serve in that role,” says Herron. “When firms put women and minorities in key roles with client responsibility, it gives them more standing and power.” Veta Richardson, executive director of the Minority Corporate Counsel Association, concurs. “Women and minorities may beg to keep up their billables, but opportunities aren’t there. Alliances are formed early on in firms, and partners tend to pick people [to staff matters] who they believe are like themselves,” she says. “There are few women and minorities in leadership at firms so … firms need to shake things up.” Shell, Sara Lee, and others are certainly doing some of the shaking for firms, but these companies’ efforts continue to be unusual. Many companies still care little about a prospective law firm’s demographic profile. This year Pittsburgh’s Kirkpatrick & Lockhart released a two-year study of in-house counsel at nearly 200 companies in the Fortune 1000. Kirkpatrick found that respondents rated diversity only a 4.1 in importance in choosing outside counsel for routine matters (on a scale of 0 to 10). The number dropped to 3.3 on bet-the-company matters. In contrast, “teamwork” ranked 8.5 in importance. Even more sobering, less than half of 1 percent of the respondents listed diversity as the reason they had hired a particular firm. The study concluded that diversity is at best a “tiebreaker” advantage among firms that are roughly equal according to more traditional hiring criteria. “The first issues for companies [in hiring firms] are still quality and cost,” says Carl Cooper, the chief diversity officer at Kirkpatrick. But even if diversity is at best a tiebreaker, how many firms can ignore it in this competitive legal market? Plus, Cooper adds, women and minority general counsel tend to be more attuned to diversity issues. And these lawyers represent a growing segment of the market. According to the Minority Corporate Counsel Association, there are now 103 women or minority general counsel at Fortune 500 companies; in 1996 there were only 25 such lawyers. “General counsel, themselves, are becoming more diverse, and they want people who reflect their backgrounds,” says Mary Richardson-Lowry, an African-American partner at Mayer, Brown, Rowe & Maw. As long as diversity means something to some general counsel, it will also be of concern to firms. Programs such as Shell’s strategic partner initiative underscore the importance for firms of not only hiring a diverse class of incoming associates, but also doing a good job of retaining minorities. Companies want diversity at all levels of the firm hierarchy. And clients are starting to punish firms that can’t offer that. The marketplace has indeed changed. Not long ago, clients wanted their attorneys to look a certain way, namely white and male. Now, many firms would think twice about sending out an all-white-male team to pitch business. “If you are a trophy client, you can push suppliers to maintain a diverse workforce,” says Debevoise partner Boast. Clients are pushing, and the business case for diversity is slowly becoming clearer.

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