How US Companies Have Responded to Calls for Equality, Inclusion and How Law Firms Can Follow Suit

Many of our country’s largest industries have made significant changes as a result of this increased awareness and outspokenness in regard to the systemic issues that underlie the failures in diversity at the leadership levels.

By Harsh Arora | July 21, 2021

With the recent anniversary of the death of George Floyd and the conclusion of the trial and sentencing of Derek Chauvin that has dominated the national conversation, it is clear that the calls for racial equity and equality that have defined the past year will continue into the foreseeable future. Many of our country’s largest industries have made significant changes as a result of this increased awareness and outspokenness in regard to the systemic issues that underlie the failures in diversity at the leadership levels. Such organizations have responded by committing to both long term and immediate initiatives in order to rectify their own institutional biases.

While the lack of representation at the leadership and executive levels of our country’s largest and most recognizable companies is far from a novel issue, many companies have recently committed to diversity and inclusion efforts that have the potential to create real and lasting change due in large part to the increased pressure from shareholders and customers. Notably, these efforts go beyond previously broad responses; and instead, range from creating funds and investing in initiatives designed to expand opportunities and promote equality to disclosing previously private race, gender and ethnicity workforce data. It consequently has had a dual effect of helping identify underrepresented groups as well holding the reporting companies accountable.

Although these investments and increased transparency are significant steps, it is also important to point out that diversity at the executive level at our nation’s largest companies still presents a significant challenge. For example, only about 10% of directors at the 200 biggest S&P 500 companies are Black and the percentage of Black executives joining boards has recently stagnated.

There are many reasons for this lack of representation as there are systemic issues in relation to hiring practices and pools of candidates. While the investment initiatives in which many companies are engaging will increase the number of diverse applicants and help create more opportunities, many companies and their outside institutions are also taking more immediate steps in order to increase diversity. For example, since September 2020, at least 75 organizations have taken part in or have supported the Board Challenge to add a Black director within the next year and foster continued diversity efforts. Moreover, the NASDAQ recently filed a proposal with the SEC requiring any company with fewer than two diverse directors, including persons who self-identify as either an underrepresented minority or LGBTQ+, to provide a reasonable explanation as to why or risk being delisted. Even governments are getting involved as the State of California recently passed a law requiring publicly traded corporations headquartered in California to appoint directors from underrepresented communities to their boards.

Despite the pendency of the NASDAQ proposal and likelihood of challenge to the California diversity law, these initiatives represent how organizations are responding to the consumer push for immediate and recognizable results. Accordingly, based on a report by BoardProspects, Black board members accounted for 18.5% of all new board appointments to Russell 3000 companies following George Floyd’s death. Moreover, 62% of all Black director appointments between 2019 and 2020 occurred after he died.

As corporations and their related institutions pledge to do their part to promote diversity and racial equity, many companies and organizations have pressured the law firms that represent them to respond in kind. In general, the legal profession is often perceived as lagging behind other professions and industries in the area of diversity, particularly in leadership positions. This perception is backed by the most recent report from the National Association for Law Placement (NALP) which shows that while persons of color make up 25% of law firm associates, they make up less than 10% of partners. NALP described the progress toward diversity at law firms as steady and incremental but “so slow as to almost seem imperceptible.” Accordingly, more and more business owners and corporate executives are starting to notice that the lawyers and law firms hired to represent their interests do not resemble them demographically. This discrepancy, combined with the renewed commitment to addressing diversity issues, has led to increased and more comprehensive diversity requests from clients inquiring about how specifically law firms are supporting diverse attorneys.

In response to these demands and client pressure, law firms have similarly spent the past year creating and investing in initiatives in order to confront their diversity issues. These initiatives include considering diversity and inclusion-related work as billable hours that will count toward bonus thresholds, creating mentorship programs for new associates in order to help increase retention and internal promotion, and more generally, expanding and improving recruiting efforts to reach more diverse candidates.

In addition to the foregoing initiatives(much like the corporations they represent) law firms are being pushed by their clients for immediate actions and results. Accordingly, over 100 law firms have signed on to seek certification under the Mansfield Rule, which is overseen by the legal diversity organization, Diversity Lab and requires the consideration of at least 30% women, lawyers of color, LGBTQ+ lawyers, and lawyers with disabilities for leadership and governance roles, equity partner promotions, formal client pitch opportunities, and senior lateral positions.

While this general push by the legal community is encouraging, many corporate lawyers and outside counsel are held to even a higher standard due to the polices of the companies they represent. This higher standard includes requiring law firms to implement policies and hire associates at rates that are tied to national census data. The most publicized proponent of this effort has been Coca-Cola, which earlier this year announced a policy requiring at least 30% of billed associate and partner time be from diverse attorneys; and stated that if firms fail to meet diversity requirements for two consecutive quarters, that it will cut 30% from the firm’s fees for new matters and possibly lead to losing Coca-Cola as a client. Since the announcement of this policy; however, its status has come into question as GC, Bradley Gayton who spearheaded the initiative, has recently stepped down and his replacement, Monica Howard Douglas, has reportedly told the legal team the policy had been paused. While this change disrupts the momentum that was created when Coca-Cola’s diversity policy was first announced, it has not stopped the overall corporate pressures on law firms to meet diversity criteria as just recently Nokia launched an equality, inclusion and diversity scorecard program to assess whether their key law firms are implementing an effective equality, inclusion and diversity strategy. While Nokia’s policy and others like it are not as forceful as the in-flux CocaCola policy, they represent how companies are holding their law firms accountable and mandating actual improvement in the areas of diversity and equality.

Despite the foregoing, it is completely justifiable to be skeptical over the effectiveness of scorecards and surveys without the inclusion of concrete milestones and penalties; especially considering that this is not the first time corporations and general counsels have put pressure on law firms to increase diversity and inclusion efforts. In 2019, general counsels from more than 170 organizations similarly called on law firms to increase diversity and signed a letter that threatened to move on from outside counsel that do not try to hire and retain female and nonwhite attorneys. With diversity numbers at law firms in 2020 increasing slightly, but ultimately failing to signify significant improvement, the extent to which the GCs that signed the 2019 letter followed-up on their diversity demands is largely unknown.

The difference between 2019 and the current movement and why the apparent demise of Coca-Cola’s forceful diversity policy is not a troublesome indicator; however; is that companies are still being pressured by consumers to have diversity metrics and executive suites that match the make-up of our country. As such, it is no longer acceptable for law firms to hold themselves accountable, as after a year of racial reckoning, clients and customers have now assumed that responsibility.

This shift in accountability is already being felt in the legal community as the institutions that surround the legal industry are putting mechanisms in place to foster positive change. This is especially evident in Florida, with the diverse leadership within the Florida Bar business law section (BLS) and the recent initiatives of BLS. For the first time in its history, the BLS will have consecutive female chairs as Kacy Donlon was recently named chair-elect, following the current chair, Leyza Blanco (the first Hispanic chair of BLS).

As one of its initiatives, BLS set forth a new policy requiring a minimum number of diverse faculty at section sponsored continuing legal education programs. While the Florida Supreme Court ruled against this policy in April, it is yet another example of how the legal landscape, especially in connection with business law and corporate lawyers, is ready to be changed.

Harsh Arora a partner with Kelley Kronenberg, P.A., in Fort Lauderdale, Florida, and is the co-chair of firm’s diversity & inclusion committee. He focuses his practice on business litigation and serves as outside general counsel for public and privately held businesses. Contact him at harora@kklaw.com 

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