The New Business Case For Diversity

In 1999, Charles Morgan, then executive vice president and general counsel of BellSouth Corporation, crafted and published a document commonly known as the Statement of Principle. The Statement was eventually signed by more than 500 general counsels and advocated the importance of diversity in the workplace both from a business perspective and because it is the right thing to do. The Statement also served as notice to the law firms representing the signatory corporations that diversity would be an important consideration in the selection of outside counsel. The operative language in Mr. Morgan's Statement of Principle as it relates to law firms reads as follows: 'We expect the law firms which represent our companies to work actively to promote diversity within their workplace. In making our respective decisions concerning selection of outside counsel, we will give significant weight to a firm's commitment and progress in this area.'

Harbinger of Change?

Assuming a customer/seller based paradigm, the Statement should have facilitated rapid and measurable improvement in the employment and advancement of women and minority attorneys in the country's leading law firms, ie, the law firms that were working for the over 500 signatory corporations. After all, the consumers of legal services (the signatory corporations) had clearly stated their expectations to the sellers of the services (the law firms). One would ordinarily expect a seller to be responsive to the demands of its customers, if for no other reason than fear of losing the customers' business to a competitor. This customer/seller-based concept seems to form the underlying premise of the much talked about 'business case for diversity.' Yet, despite this 'business case' motivation, in 2004 ethnic minorities comprised less than 5% of the partnership ranks at the nations largest law firms and women represented only about 17% of partners, according to statistics published by the National Association for Law Placement (NALP). These percentages reflected only marginal improvement over previous years and were not at all consistent with the rate at which women and ethnic minorities were graduating from law school each year. 2005-2006 NALP Directory of Legal Employers.

Considering the NALP research results, it would seem that, in spite of the well-intentioned efforts of Charles Morgan and the other general counsels who signed the Statement of Principle, the law firms were not responding as expected or desired. Why? One reason might be that the Statement of Principle did not contain sufficient accountability measures. The Statement clearly evidenced the signatories' commitment to diversity in the profession and desire that their outside counsel equally commit, but there was little suggestion of what consequences the law firms might experience if they failed to meet the signatories' expectations.

As a signatory to the Statement of Principal, Wal-Mart actively promotes diversity within its approximately 500 law firms. Following the Statement's approach, we have informed our law firms of the importance of diversity to our business and our desire that the attorneys representing the Company more closely reflect the customers and communities we serve. We have communicated to our firms that we expect them to promote a diverse workplace and have encouraged them to staff our files with more women and minority attorneys. Finally, we have told our firms that we would give significant consideration to a firm's demonstrated diversity commitment when selecting new counsel.

Unfortunately, a 2004 review of the diversity statistics of our law firms produced disappointing results. While some of our firms were doing quite well, collectively our firms fell at or below the (already low) national average for employment of women and minority attorneys in virtually every category. Most disappointing was the lack of women and minority partners.

From these results, we drew the unavoidable conclusion that our law firms were not listening to their customer. Despite our obvious interest in increasing the level of diversity in our law firms and our communication to our firms that we expected them to embrace and reflect our commitment, the majority of our firms were, for the most part, not making any meaningful progress. In short, we had not successfully made the 'business case' for diversity with our law firms.

A New Message

So in the Fall of 2004, we recognized that we needed to direct our firms' attention less on aspirational goals and more on results. Our law firms needed to understand that their diversity performance would impact their ongoing relationship with the Company; that a failure to demonstrate meaningful progress and an appreciation for our commitment to diversity could result in the termination of the law firm. Diversity would no longer be a footnote observation but would become one of the criteria by which the overall performance of the law firm would be evaluated. This new business case for diversity was first communicated to approximately 400 of our outside counsel at an outside counsel conference held in Bentonville in November 2004.

Also in 2004, Rick Palmore, the general counsel of Sara Lee Corporation, drafted and circulated the Call to Action. This document specifically references the Statement of Principle and, like the Statement, acknowledges the importance of diversity to the business interests of corporate clients and calls for greater diversity among outside counsel. However, unlike the Statement of Principle, the Call to Action describes the consequences of both meeting the signatories' expectations and failing to do so.

The signatories to the Call pledge to take 'action consistent with the ' Statement.' The signatories further commit to 'look for opportunities for firms we regularly use which positively distinguish themselves' in the area of diversity and to 'end or limit our relationships with firms whose performance consistently evidences a lack of meaningful interest in being diverse.' (See, http://www.clocalltoaction.com/ for complete text.) In other words, firms that 'positively distinguish' themselves in the area of diversity stand to be rewarded with more work. Firms that fail to perform in the area of diversity stand to find their work with the signatory client substantially reduced or eliminated altogether. Wal-Mart is a signatory to the Call to Action, along with approximately 100 other major corporations.

While each of the signatory corporations will carry out the commitments in the Call to Action in its own way and according to its own timetable, there seems to be one inescapable conclusion to be drawn from the fact so many corporations have already signed on to the Call. Corporate law departments have grown impatient with the diversity by erosion that seems to be occurring in our nation's top law firms and the legal profession generally. As for Wal-Mart, we view the Call as the perfect vehicle for advancing the new business case for diversity.

The new business case is premised on the fact that the customer has a choice in its selection of legal service providers. Under the new business case for diversity, the customer will choose to retain and utilize law firms that distinguish themselves in the area of diversity. Likewise, the customer will terminate law firms that fail to meet its diversity expectations and replace those failing firms with firms that are able to develop and execute a meaningful diversity strategy. Under the new business case for diversity, law firms will either meet their clients' diversity expectations or they will have no clients.

Under the new business case, law firms that embrace diversity and demonstrate the ability to execute an effective diversity plan will have a significant competitive advantage over firms that don't. Firms will have to decide as a matter of business strategy whether they will respond to ' or ignore ' the expectations of their best clients. Diversity will be the most effective way for a firm to develop a brand image and distinguish itself from its competitors. This is especially true among those firms seeking to obtain and keep the legal business of the corporations who have signed on to the Call to Action.

Skeptics reading this article are probably shaking their heads saying, 'Yeah, we've heard this rhetoric before, but we all know corporations have their preferred law firms, and they will keep those law firms regardless of how poorly they perform in the area of diversity.' In some instances, those skeptics are likely referring to their own law firms that have not made any meaningful improvements or progress in retaining and promoting women and minorities yet continue to receive substantial business from the very clients that publicly demand diversity of their law firms. For those of you who think that will continue, you do so at your own (or your law firm's) risk.

Under the new business case paradigm, Wal-Mart has terminated law firms based solely on their unwillingness to embrace and appreciate our diversity commitment. Other law firms have been given warnings and are currently at risk of being terminated if they do not quickly demonstrate dramatic improvement. Additionally, when a firm is terminated, for any reason, we give priority to firms with proven diversity track records when we reallocate the work from the terminated firm.

More importantly, though, Wal-Mart isn't the only corporation that is taking this approach and embracing the new business case paradigm. I have personally spoken to other corporate counsel throughout the country who report that they have terminated law firms solely on the basis of the firm's poor diversity performance. Though other corporations might not characterize the termination of a firm for poor diversity performance an adoption of the new business case paradigm, the effect is nonetheless the same.

The impact of the Call to Action on law firms across the country should be self-evident. Law firms who do not demonstrate meaningful improvement and execution in hiring, retaining and promoting diverse attorneys will experience a direct reduction in the amount of legal work they will be called upon to perform for many of the nation's major corporations. In some instances, the firms will be terminated outright and the work sent to a competitor. Whether the firm is terminated from existing work or simply not called upon for future assignments, the effect will be the same; there will be a noticeable negative effect on the firm's revenue.

How Firms Should React

So how should a law firm respond to the Call?

• Read the Call to Action and review the list of corporate signatories. It can be found at http://www.clocalltoaction.com/. Call your clients and ask them what your law firm can do to meet the clients' diversity expectations.
• Assuming you already have a diversity plan in place, review it with your client and ask for feedback on how the plan can be improved. Make sure your firm is allocating appropriate resources to its diversity efforts.
• Reach out to the national ethnic and women bar associations and their local affiliates. These organizations provide tremendous networking and resource opportunities. Actively support, ie, pay for, your firm's women and minority attorneys' membership and participation in ethnic and women bar. Encourage participation in diversity events by all the attorneys at the firm. Encourage and facilitate community involvement by all members of the firm.
• Engage the white males. Engage the management/executive committee. A successful diversity effort must be completely inclusive and must be directed from the top down. Treat diversity with the same determination as you would any other business initiative of the firm. After all, under the new business case paradigm, we're talking about revenue.

Virtually everybody in the legal profession recognizes that the issue of diversity is a challenging one. However, we all know that clients expect their lawyers to produce results, even in the most challenging situations. Diversity is no exception.

In 1999, Charles Morgan, then executive vice president and general counsel of BellSouth Corporation, crafted and published a document commonly known as the Statement of Principle. The Statement was eventually signed by more than 500 general counsels and advocated the importance of diversity in the workplace both from a business perspective and because it is the right thing to do. The Statement also served as notice to the law firms representing the signatory corporations that diversity would be an important consideration in the selection of outside counsel. The operative language in Mr. Morgan's Statement of Principle as it relates to law firms reads as follows: 'We expect the law firms which represent our companies to work actively to promote diversity within their workplace. In making our respective decisions concerning selection of outside counsel, we will give significant weight to a firm's commitment and progress in this area.'

Harbinger of Change?

Assuming a customer/seller based paradigm, the Statement should have facilitated rapid and measurable improvement in the employment and advancement of women and minority attorneys in the country's leading law firms, ie, the law firms that were working for the over 500 signatory corporations. After all, the consumers of legal services (the signatory corporations) had clearly stated their expectations to the sellers of the services (the law firms). One would ordinarily expect a seller to be responsive to the demands of its customers, if for no other reason than fear of losing the customers' business to a competitor. This customer/seller-based concept seems to form the underlying premise of the much talked about 'business case for diversity.' Yet, despite this 'business case' motivation, in 2004 ethnic minorities comprised less than 5% of the partnership ranks at the nations largest law firms and women represented only about 17% of partners, according to statistics published by the National Association for Law Placement (NALP). These percentages reflected only marginal improvement over previous years and were not at all consistent with the rate at which women and ethnic minorities were graduating from law school each year. 2005-2006 NALP Directory of Legal Employers.

Considering the NALP research results, it would seem that, in spite of the well-intentioned efforts of Charles Morgan and the other general counsels who signed the Statement of Principle, the law firms were not responding as expected or desired. Why? One reason might be that the Statement of Principle did not contain sufficient accountability measures. The Statement clearly evidenced the signatories' commitment to diversity in the profession and desire that their outside counsel equally commit, but there was little suggestion of what consequences the law firms might experience if they failed to meet the signatories' expectations.

As a signatory to the Statement of Principal, Wal-Mart actively promotes diversity within its approximately 500 law firms. Following the Statement's approach, we have informed our law firms of the importance of diversity to our business and our desire that the attorneys representing the Company more closely reflect the customers and communities we serve. We have communicated to our firms that we expect them to promote a diverse workplace and have encouraged them to staff our files with more women and minority attorneys. Finally, we have told our firms that we would give significant consideration to a firm's demonstrated diversity commitment when selecting new counsel.

Unfortunately, a 2004 review of the diversity statistics of our law firms produced disappointing results. While some of our firms were doing quite well, collectively our firms fell at or below the (already low) national average for employment of women and minority attorneys in virtually every category. Most disappointing was the lack of women and minority partners.

From these results, we drew the unavoidable conclusion that our law firms were not listening to their customer. Despite our obvious interest in increasing the level of diversity in our law firms and our communication to our firms that we expected them to embrace and reflect our commitment, the majority of our firms were, for the most part, not making any meaningful progress. In short, we had not successfully made the 'business case' for diversity with our law firms.

A New Message

So in the Fall of 2004, we recognized that we needed to direct our firms' attention less on aspirational goals and more on results. Our law firms needed to understand that their diversity performance would impact their ongoing relationship with the Company; that a failure to demonstrate meaningful progress and an appreciation for our commitment to diversity could result in the termination of the law firm. Diversity would no longer be a footnote observation but would become one of the criteria by which the overall performance of the law firm would be evaluated. This new business case for diversity was first communicated to approximately 400 of our outside counsel at an outside counsel conference held in Bentonville in November 2004.

Also in 2004, Rick Palmore, the general counsel of Sara Lee Corporation, drafted and circulated the Call to Action. This document specifically references the Statement of Principle and, like the Statement, acknowledges the importance of diversity to the business interests of corporate clients and calls for greater diversity among outside counsel. However, unlike the Statement of Principle, the Call to Action describes the consequences of both meeting the signatories' expectations and failing to do so.

The signatories to the Call pledge to take 'action consistent with the ' Statement.' The signatories further commit to 'look for opportunities for firms we regularly use which positively distinguish themselves' in the area of diversity and to 'end or limit our relationships with firms whose performance consistently evidences a lack of meaningful interest in being diverse.' (See, http://www.clocalltoaction.com/ for complete text.) In other words, firms that 'positively distinguish' themselves in the area of diversity stand to be rewarded with more work. Firms that fail to perform in the area of diversity stand to find their work with the signatory client substantially reduced or eliminated altogether. Wal-Mart is a signatory to the Call to Action, along with approximately 100 other major corporations.

While each of the signatory corporations will carry out the commitments in the Call to Action in its own way and according to its own timetable, there seems to be one inescapable conclusion to be drawn from the fact so many corporations have already signed on to the Call. Corporate law departments have grown impatient with the diversity by erosion that seems to be occurring in our nation's top law firms and the legal profession generally. As for Wal-Mart, we view the Call as the perfect vehicle for advancing the new business case for diversity.

The new business case is premised on the fact that the customer has a choice in its selection of legal service providers. Under the new business case for diversity, the customer will choose to retain and utilize law firms that distinguish themselves in the area of diversity. Likewise, the customer will terminate law firms that fail to meet its diversity expectations and replace those failing firms with firms that are able to develop and execute a meaningful diversity strategy. Under the new business case for diversity, law firms will either meet their clients' diversity expectations or they will have no clients.

Under the new business case, law firms that embrace diversity and demonstrate the ability to execute an effective diversity plan will have a significant competitive advantage over firms that don't. Firms will have to decide as a matter of business strategy whether they will respond to ' or ignore ' the expectations of their best clients. Diversity will be the most effective way for a firm to develop a brand image and distinguish itself from its competitors. This is especially true among those firms seeking to obtain and keep the legal business of the corporations who have signed on to the Call to Action.

Skeptics reading this article are probably shaking their heads saying, 'Yeah, we've heard this rhetoric before, but we all know corporations have their preferred law firms, and they will keep those law firms regardless of how poorly they perform in the area of diversity.' In some instances, those skeptics are likely referring to their own law firms that have not made any meaningful improvements or progress in retaining and promoting women and minorities yet continue to receive substantial business from the very clients that publicly demand diversity of their law firms. For those of you who think that will continue, you do so at your own (or your law firm's) risk.

Under the new business case paradigm, Wal-Mart has terminated law firms based solely on their unwillingness to embrace and appreciate our diversity commitment. Other law firms have been given warnings and are currently at risk of being terminated if they do not quickly demonstrate dramatic improvement. Additionally, when a firm is terminated, for any reason, we give priority to firms with proven diversity track records when we reallocate the work from the terminated firm.

More importantly, though, Wal-Mart isn't the only corporation that is taking this approach and embracing the new business case paradigm. I have personally spoken to other corporate counsel throughout the country who report that they have terminated law firms solely on the basis of the firm's poor diversity performance. Though other corporations might not characterize the termination of a firm for poor diversity performance an adoption of the new business case paradigm, the effect is nonetheless the same.

The impact of the Call to Action on law firms across the country should be self-evident. Law firms who do not demonstrate meaningful improvement and execution in hiring, retaining and promoting diverse attorneys will experience a direct reduction in the amount of legal work they will be called upon to perform for many of the nation's major corporations. In some instances, the firms will be terminated outright and the work sent to a competitor. Whether the firm is terminated from existing work or simply not called upon for future assignments, the effect will be the same; there will be a noticeable negative effect on the firm's revenue.

How Firms Should React

So how should a law firm respond to the Call?

• Read the Call to Action and review the list of corporate signatories. It can be found at http://www.clocalltoaction.com/. Call your clients and ask them what your law firm can do to meet the clients' diversity expectations.
• Assuming you already have a diversity plan in place, review it with your client and ask for feedback on how the plan can be improved. Make sure your firm is allocating appropriate resources to its diversity efforts.
• Reach out to the national ethnic and women bar associations and their local affiliates. These organizations provide tremendous networking and resource opportunities. Actively support, ie, pay for, your firm's women and minority attorneys' membership and participation in ethnic and women bar. Encourage participation in diversity events by all the attorneys at the firm. Encourage and facilitate community involvement by all members of the firm.
• Engage the white males. Engage the management/executive committee. A successful diversity effort must be completely inclusive and must be directed from the top down. Treat diversity with the same determination as you would any other business initiative of the firm. After all, under the new business case paradigm, we're talking about revenue.

Virtually everybody in the legal profession recognizes that the issue of diversity is a challenging one. However, we all know that clients expect their lawyers to produce results, even in the most challenging situations. Diversity is no exception.