The Microsoft Diversity Gamble

Diversity Lawyers I’ve been to many diversity conferences over the years. I’ve even blogged about some of them. One common theme in these conferences is that we all want a more diverse legal profession and we all need to work hard to achieve that.

The other common theme? That this is the same story that we’ve said for the past twenty years. As Pat Milhizer, editor of the Chicago Lawyer writes in his magazine’s annual diversity edition:

“For the eight years I’ve covered and followed the legal community, the advancement of women and minorities hasn’t changed much. You could pull a headline from a [diversity] study done in 2006 and put it on a 2014 study, and it would work just fine.”

How Diverse Is The Legal Profession?

And the numbers agree. According to NALP’s 2014 law firm demographic survey, only 16.5 percent and 5.4 percent of equity partners are women and minorities, respectively, and, among associates, the African-American representation has actually declined every year since 2010. In Chicago, of the 108 law firms that reported their statistics to the Chicago Lawyer, women made up 46% of all associates, but only 32% of total lawyers, implying that women were not advancing to partner positions as often as men. Similarly, minority lawyers were 18% of all associates, but only 10% of all lawyers surveyed.

Last year, I blogged about the Institute for Inclusion in the Legal Profession’s Chicago program, The Ethics of Diversity and the Politics of Inclusion, where Barrington Lopez of Verizon Wireless raised the idea that one of the main reasons that law firm diversity hasn’t improved is because there is no penalty for failure. Law firms are client service organizations. If the client doesn’t penalize the law firm for failing at diversity initiatives, then what incentive would the law firm have to do it?

A few weeks ago, I heard a different approach, one that didn’t simply put the burden on the law firm’s for failing to meet diversity goals, but also on the very in-house counsel who hired the law firms.

I attended the NALP Diversity Summit again held right here in Chicago. Two of the many excellent speakers were Dennis Broderick, General Counsel for Macy’s, and Mary Snapp, Deputy General Counsel for Microsoft. They discussed diversity in their own companies and how diverse attorneys, both internal and external, led to better outcomes for their companies. Then Mary mentioned an approach that I had never heard before, one that had real results for improving diversity outcomes. I’ll call it “The Microsoft Diversity Gamble.”

 

What is The Microsoft Diversity Gamble?

In 2008, Microsoft launched a “pay for performance” approach for its Premier Preferred Provider (PPP) law firms, under the company’s new Law Firm Diversity Program. Through this approach, each PPP law firm could earn a two percent bonus for achieving one of two goals: a two percent increase in the hours worked by U.S.-based diverse attorneys on Microsoft matters or a 0.5 percent increase in the total number of the firm’s U.S.-based diverse attorneys. The bonus can also be achieved if a firm becomes more diverse than Microsoft’s legal department, of which 54 percent are women, minorities or LGBT. A firm’s rate is cut by one percent if they fail to meet at least one of those goals. Additionally, and here’s the crucial part, the Microsoft senior in-house counsel imposed a penalty on themselves: If less than 75 percent of the PPP firms met their goals, the Microsoft legal leaders would forego their five percent year-end merit bonus.

During the program’s first year, only 70 percent of the PPP firms hit their goals, and what would have been the Microsoft legal team’s bonuses became a diversity scholarship. However by 2013, Microsoft’s General Counsel Brad Smith reported that 46.5% of Microsoft matters at large firms were handled by diverse attorneys. That’s a 13% increase from 2008. In addition, through 2012, at least 80 percent of the PPP firms hit their goals each year.

However while Brad Smith praised the law firm’s efforts at increasing diversity staffing on Microsoft matters, he also criticized the stagnation of the number of total diverse lawyers at the law firms themselves. He pointed out that since 2008, the percentage of diverse lawyers at these firms has seen less growth (43.7 percent to 45.3 percent).

That said, the Microsoft diversity gamble has paid off. Those PPP law firms can say that they have met Microsoft’s own diversity goals, and Microsoft itself can say that those diversity goals are central to its business plan. And in a world where Silicon Valley tech companies are having their own diversity public relations crisis, that Microsoft is even doing programs like those shows the potential for diversity initiatives in all aspects of technology.

Even Illinois corporations have gotten in on the act. Exelon, headquartered in Chicago, completes a yearly diversity “report card” for its law firms and highlights the best firms on a public diversity “honor roll.” Illinois Tool Works has fired a law firm for failing to meet its diversity standards. Chicagoan and Perkins Coie’s Chief Diversity Officer, Theresa Cropper, has acknowledged that the corporate push often leads to a law firm’s response as “a part of client service.”

The Microsoft gamble shows a way that diversity initiatives may succeed. If more big clients made Microsoft-like incentives and penalties, law firms would have to hire and retain more diverse attorneys or risk spreading too thin the diverse attorneys they do have. Of course, law firms could and should make their own diversity goals, but a push like this by corporate clients may go even further toward prompting law firms to move forward on diversity initiatives. And who knows? If they succeed, maybe we can all look forward to seeing new diversity headlines five years from today.

 

John Edwards, our intern from Loyola Law School, contributed to this post.

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Michelle Silverthorn

Michelle Silverthorn

After spending seventeen years living in the Caribbean, Michelle undertook a number of around-the-world detours before ending up at the doorstep of the Commission, including four years as a general litigator in New York and Chicago. She remembers pretty much everyone she’s met in her travels but she would especially like to meet again the passengers on a January 2001 flight from Miami to JFK. At the pilot’s request, they donated enough money for Michelle, who had her wallet stolen, to get back to college safely. She would very much like to tell them all thanks.
Michelle Silverthorn

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