Is the business case for diversity mere “wishful thinking”? A report issued earlier this year by the Institute for Inclusion in the Legal Profession — titled “The Business Case for Diversity: Reality or Wishful Thinking,” certainly suggests this might be the case.
Even as the corporate community has stepped up efforts to promote diversity among its outside counsel, the IILP report cites pervasive disappointment among law firms and diverse partners over the lack of measureable increases in business resulting from diversity programs.
Among the more interesting findings in the IILP report:
• The common fear that corporations will penalize law firms that perform poorly against the company’s diversity metrics or objectives is essentially an urban legend. Only 12.5 percent of the responding corporations indicated that they had actually done so, and 89.6 percent reported that they had not.
• Worse, when corporations did change their relationships with law firms because of poor diversity performance, only 16.6 percent terminated the relationship with the law firms. The rest relied instead on a reduction in the use of the law firms as outside counsel.
• Among the responding law firms, 72.7 percent receive only 0-5 percent of their gross revenues from clients who ask about the firm’s diversity.
• And 80 percent of the responding law firms said they had never been told that they had received business, in whole or in part, because of the diversity of the lawyers in the law firm or the firm’s diversity efforts.
These are but a few snapshots from the grim picture that the IILP report paints in painstaking statistical detail.
The report concludes that there is a business case for diversity but that it is not as effective as it ought to be — a bittersweet conclusion that sounds a lot like Samuel Johnson’s description of second marriages — a “triumph of hope over experience.”
While acknowledging the importance of the business case, the report also cautions that it is equally important to remind ourselves of the moral imperative — that the value of a more diverse and inclusive legal profession cannot be measured solely by dollars and cents, but rather must be judged by the strength of our commitment to social justice.
I agree that the moral argument is vital. Blank Rome, where I serve as chief officer for diversity and inclusion, was founded in 1946 by lawyers who were excluded from employment at the city’s major law firms because of their religion. Although such overt religious discrimination has largely passed into the dustbins of history — at least within the legal community in Philadelphia — the ethic of embracing diversity because “it is the right thing to do” remains very much alive in the Blank Rome of today.
The moral case for diversity remains attractive because it is easily understood, draws on experiences that cross ethnic and religious boundaries, and touches key emotional aspirations of our nation and our profession.
Unfortunately, in America, morality often takes a backseat to economics. When the Great Recession steamrolled over law firms, the National Association for Law Placement (NALP) reported that diversity among law firm associates fell for the first time in 17 years. Evidently, morality was important, but survival was even more important. Given the small numbers of diverse equity partners, one would also have to conclude that morality plays little, if any role, in partner promotion and compensation decisions.
So, at the end of the day, no matter how fervently one might wish things were different, to bluntly paraphrase President Calvin Coolidge, “the business of America is business,” and if the legal profession wants to see diversity, the business case will have to take precedence.
This leads naturally back to the implications of the question posed at the start of this article. If the business case for diversity is mere wishful thinking, and diversity efforts are sustainable only if they are supported by sound economic justification (read, profitability), is diversity in law firms doomed?
I think not — and not because I am Pollyannish about the benevolence of law firms. Rather, my view is that the business case is valid, but that the vision set out for the business case in the IILP report, and as articulated by many law firms today, is too myopic.
The IILP report views the business case entirely through the lens of corporate-driven diversity, where corporate clients dangle the “carrot” of divvying out more business, or alternatively, wield the “stick” of withdrawing business, as incentives for outside counsel to become more diverse. In this model, corporations hope they can catalyze change by nudging their legal providers in the right direction.
This approach has two glaring weaknesses. First, while some corporations may place a high value on diversity, even those that do regard diversity as merely one of several criteria used to select counsel. Second, given the increasing specialization of legal practice, it should come as no surprise that, at least at present, most law firms cannot field diverse attorneys across all of their specialties. So, the nudging that takes place in corporate-driven diversity is necessarily limited, and as the IILP report noted, the expectation that diversity programs would bring major increases in business was unrealistic and unmet.
Is there another business case that makes diversity worth pursuing for law firms?
Absolutely. Diversity can be a wellspring of sustainable competitive advantage. Diverse workforces enhance performance, bringing different backgrounds and experiences to bear in solving increasingly complex problems.
Whether it is the work on differences of professor Scott Page at the University of Michigan, or studies of the effectiveness of corporate boards conducted by Accenture, or the notion underlying Section 342 of Dodd-Frank that fresh and diverse thinking might have been helpful in staving off the financial crisis, a growing consensus has emerged that diversity serves valuable business purposes in generating ideas that may have gone unnoticed and adding new “tools” to the toolkit otherwise available to solve complex problems.
In addition to a diverse workforce enhancing performance, another business case that makes diversity worth pursuing for law firms is that it helps them to recruit from the broadest pool of talent and retain that talent. And this includes recruiting and retaining nondiverse associates. As one young associate told me, companies with diverse workforces are perceived by his generation as “hip”; they are places where talent wants to congregate.
Beyond its impact on the workforce, diversity may also play a key role in helping law firms adapt to a rapidly evolving and highly competitive environment. Law firms face daunting external environmental threats, not the least of which are the changing demographics of the nation and our clients, the globalization of the economy, and intense pressure from corporate clients to develop models for delivering value other than the standard billable hour.
Like the proverbial buggy whip maker, firms that dismiss diversity and concentrate on perfecting their existing business models may find themselves the victims of disruptive innovation and change, as competitors fashion relationships, arrangements, and approaches that serve their clients not only better, but also differently. In business, as in genetics, diversity breeds hardiness; with more variation, it is likely that some individuals in a population will survive environmental threats proving fatal to others, enabling the population as a whole to endure.
To be sure, the competitive advantages conferred by diversity, when viewed from the perspective of this broadened business case, may be difficult to measure. But I would argue that, unlike the corporate clients they service, most law firms have not even begun to try to devise metrics that accurately measure the broader benefits of diversity. And, in any event, law firms myopically obsessed with billable hours and origination would do well to heed the advice posted by Albert Einstein in his office at Princeton: “Not everything that counts can be counted, and not everything that can be counted counts.”
Christopher A. Lewis is a partner and the chief officer for diversity and inclusion at
Blank Rome. He is an energy attorney and a minority business advocate, as well as a former secretary of the commonwealth of Pennsylvania.