Demanding Diversity

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Sara Lee Corp. General Counsel Roderick Palmore halts a second when asked to come up with a fresh anecdote, some new concrete example of why diversity matters in the legal profession.

He’s been making the business case for diversity for so long, these questions are irritating. So, switching gears, he answers with a story about an employee who dreamed up the innovative tagless T-shirt idea used by Sara Lee’s Hanes clothing brand.

Without her on the product development team, would Sara Lee have nixed the annoying tag? Palmore doesn’t know for sure.

“The suggestion to do away with the tag didn’t come out of racial experience or socioeconomic status, says Palmore, who works for Sara Lee in Chicago. “But the fact of the matter is that the idea came from a black woman.”

For Palmore and a growing number of corporate legal chiefs, including general counsel Catherine Lamboley, it also stands to reason that having a variety of perspectives on a legal team can open the door to innovative thinking, strategy and solutions, and differentiated thought that they might not get from a group of white, male lawyers who share the same suburban upbringing and socioeconomic background. (For more on Lamboley’s diversity efforts, See “Coming Out of Her Shell,” December 2004 ABA Journal, page 31.)

The fact is that diversity is no longer just the right thing to do. It’s an essential factor to compete in today’s business climate. So it should be no surprise that corporate clients will expect their outside counsel to share diversity as a core value.

John M. Esquivel, associate general counsel of Shell Oil in Houston, says Shell considers its outside counsel as an extension of the company. “When they’re in the courtroom, when they’re negotiating, they represent Shell,” he says. And because diversity is valuable to Shell, Esquivel says it’s one of four components Shell uses to evaluate outside law firms alongside quality, professionalism and cost-effectiveness.

That’s still easier said than done. Only about 4 percent of partners in the United States are lawyers of color, according to the National Association for Law Placement, a Washington, D.C., nonprofit group that offers research and education for legal career planning. Associate numbers are better, closer to 15 percent. But making it to partner isn’t getting any easier for minority lawyers.

The Latest Numbers

The ABA’s Commission on Racial and Ethnic Diversity in the Profession reported in November that since 1999, national minority representation in partnership increased by a mere 0.7 percent. The picture for minority women is even more bleak, with 75 percent of them leaving their law firms within the first five years, according to the commission’s report, “Miles to Go: Progress of Minorities in the Legal Profession.”

“There’s very, very slow movement,” says Veta Richardson, executive director of the Washington, D.C.-based Minority Corporate Counsel Association.

She notes that women are making bigger gains than lawyers of color. The number of women at large law firms rose from 14.4 percent in 1975 to 40.3 percent in 2002, according to a 2003 report from the U.S. Equal Employment Opportunity Commission. What’s exciting to Richardson is the “unprecedented number of firms” that care about diversity. “There was a time when I honestly spent most of my time explaining [to law firms] why they should have a diversity plan,” Richardson says. She now has the luxury to be selective. “I turn down people who ask us to convince them on the business case for diversity,” she says. “My time is better spent on what to get better at than how to get started.”

Law firms, too, are expected to be addressing diversity in a meaningful way. But the reality is that many firms are still scrambling.

For others, diversity is a No. 1 priority. In Detroit and Chicago, law firms are experimenting with co-counsel-type alliances between majority- and minority-owned law firms. And several firms have begun to tie compensation and bonuses to attention to diversity.

Holland & Hart diversity chairman Peter C. Houtsma of Denver says partners are finally catching on that management’s push for diversity isn’t a fad. In each two-year compensation cycle, partners are asked 10 questions about what they’ve done to improve the 300-member firm in the Rocky Mountain region. One of those questions is about diversity and how much a partner has done to mentor and recruit diverse lawyers. “It’s becoming more and more ingrained that [having a diverse law firm] is necessary to compete,” says Houtsma, who says that Holland & Hart’s minority partner levels fall below the national average.

“We have a number of clients who are telling us that it is important and they want diverse attorneys working on their cases,” Houtsma says.

Shell Oil is one of those clients. In 2003, Shell’s legal department began to winnow down its outside counsel to a roster of strategic partners. Shell included diversity as a major consideration in choosing law firms, and the company reports that 22 percent of its outside counsel are minority- or women-owned firms.

As it created the program, Shell first looked at the women and lawyers of color assigned to do Shell’s outside legal work. The next year, Shell made comments to its outside counsel when it saw room for improvement on diversity issues. Now, Esquivel says, the legal department is insisting on seeing action plans.

“We are moving from commitment to action to results,” Esquivel says.

For about six years, Sara Lee’s Palmore has pioneered a “preferred partner” program of his own, with measurable success.

“Some law firms I didn’t expect to make changes actually made changes in significant part because of pressure we brought to bear on them,” he says, adding that when he began rating firms on diversity, it “kind of woke them up.”

“My primary interest is making sure with respect to Sara Lee that we have the most talented team that we can have, both inside and out,” Palmore says.

In-house, Palmore has more direct control over hiring. Outside firms are more challenging. That’s true even though corporate clients have indicated for years that they are ready to see results. More than 500 corporations have signed “Diversity in the Workplace: A Statement of Principle,” which Charles Morgan, then-BellSouth Corp. general counsel, began circulating in 1999.

Last year Palmore began circulating his own letter, a Morgan-type letter with bite. In Palmore’s “Call to Action,” he asks general counsel to pledge to give more business to diverse firms and freeze out the firms that aren’t making progress. As of late January, 73 companies had signed on.

Shell Oil is among them, and Esquivel expects the Call to Action’s impact will be substantial. “The signatories will be expecting more than just a commitment” from firms to diversify, he says. “I don’t know what the purchasing power will be. … I’m sure it will be in the billions of dollars.”

The Call to Action campaign is an extension of Palmore’s efforts at Sara Lee. Palmore tired early of complaining about the failures of law firms to diversify. Talking about it wasn’t resulting in progress, so in 1999 he devised a law firm selection program that ranks firms he considers “preferred partners.” Those top-ranked firms get more business from Sara Lee, while the lower-graded group is dropped after a year if Palmore doesn’t see improvement. Diversity is a key factor for firms wanting to be in the preferred partner category.

Palmore says he tells firms, “If you don’t end up in that top tier, you’ve left money on the table.”

Unique Alliance

The pressure is working. Exhibit A is Sonnenschein Nath & Rosenthal, where Palmore spent much of his career as a partner. After the Chicago-based firm lost its top-tier status, it announced last summer that it had formed a unique co-counsel-type alliance with a much smaller minority-owned Chicago firm–Pugh, Jones, Johnson & Quandt.

The idea is to offer clients diverse legal teams while both firms maintain separate identities. This is particularly valuable for Pugh Jones, which, with 22 lawyers practicing on a very local level, would have been swallowed by Sonnenschein Nath’s nearly 700 lawyers and national reach. The firms aren’t ruling out a merger down the line, but for now they are giving the alliance a shot.

Sonnenschein Nath and Pugh Jones took months outlining their alliance, with negotiations culminating in a memorandum of understanding. As part of the agreement, whichever firm brings a client to the alliance gets to choose the team leader.

The firms have ongoing meetings and strategy sessions to promote the alliance and work through details. An electronic billing system can be tailored to the specific needs of the clients and used to track the participation of diverse lawyers on legal work.

In just two months after the firms announced the alliance, they signed on business from two Fortune 500 companies, says Pugh Jones founding partner Stephen H. Pugh. He won’t name the companies but says they are clients he would not have been able to get alone.

“It’s one of the reasons why Pugh Jones got involved in the alliance,” Pugh says. “Many of the general counsels and their attorneys–really, when it comes to major litigation or transactional work–don’t want to give it to a smaller firm in case something happens. If the result is not good, they have to be accountable to their boards. With the alliance, we give them some of that protection.”

The first business coming into the alliance proved that point, Pugh says. “It was a type of business, the quantity and national scope, that we would not be a part of by ourselves,” he says.

Minority firm owner Richardo I. Kilpatrick had similar motives when he developed an alliance in 2003 with a majority-owned firm in the Detroit area.

As an alumnus of Harvard and the University of Michigan Law School who first graduated from Miami’s inner city schools, Kilpatrick can talk firsthand about the challenges facing minorities in school, in large firms and in private practice. He knows diverse law firms are important from a moral standpoint. When he is asked why diversity matters, his first response is that it’s the right thing to do.

But for him, aligning his Auburn Hills, Mich.-based Kilpatrick & Associates with the 85-member Detroit-based firm Jaffe, Raitt, Heuer & Weiss was an idea borne out of necessity.

Kilpatrick, a past president of the American Bankruptcy Institute, already had developed a national reputation for insolvency and creditor rights work. His clients included Sears Roebuck and Co. and Ford Motor Credit Co. But when his fledgling practice began taking on more business and feeling some growing pains in 2002, he had some tough choices to make. He could hire more lawyers or turn down the work. Neither option seemed palatable.

“I wanted planned growth over a period of time,” Kilpatrick says, so hiring associates for a single project was out of the question. But there was no way he was going to turn down good clients. So he approached Jaffe Raitt with the alliance proposal. The two firms already had been handling some insolvency cases together, so Kilpatrick’s idea made sense to Jaffe Raitt CEO Rick Zussman.

“Richardo, with his minority status and a national reputation, is able to get us in the door to bid on work that we probably wouldn’t get in the door otherwise,” Zussman says. At the same time, Zussman says Kilpatrick is “able to bid on the work because he has the backup from our firm.”

Financially, the alliance hasn’t resulted in a windfall. Yet Zussman remains optimistic. “The strategy is good,” he says, but the alliance will take work to get it off the ground. “We’re all so busy with our own clients and our own needs that we haven’t taken as full advantage [of the alliance] as we could,” Zussman says. “It’s taken us a year to figure out what each other does.”

Only now have some of the joint marketing efforts with prospective new clients come to fruition, he says. “I think the next 12 months will be much more telling.”

That’s because Zussman says the alliance is now at the top of the firms’ list, rather than at the bottom.

Diversity is at the top of Sonnenschein Nath’s list, so it paid more attention earlier to its alliance with Pugh Jones. “We organized in teams. We have ongoing meetings and strategy sessions,” Pugh says. “You have to really want to do this.”

Pugh is doing his part to educate Sonnenschein Nath’s home office in Chicago and its regional offices throughout the country. The alliance already is working with offices in Kansas City, Mo., St. Louis and Washington, D.C.

James A. Klenk, managing partner of Sonnenschein Nath’s Chicago office, says the alliance is only part of the firm’s diversity efforts, which include lateral recruiting of minorities who are partners at other firms. “I know that the firms must try something different,” Klenk says. “What they’ve done in the past has not been adequate.”

Beyond Talk

Reaction to the alliances has so far been fairly positive. Both the Minority Corporate Counsel Association’s Richardson and the president of the Association of Corporate Counsel in Washington, D.C., have praised the alliance of Chicago firms.

ACC President Fred Krebs says the alliance shows the firms are beyond talking about diversity and are looking at a number of ways to improve their racial and ethnic makeup. Until recently, firms have focused with varying degrees of success on hiring or mergers with minority-owned firms. “Now they’re looking at other ways to develop relationships and to provide a diverse team to corporate clients,” Krebs says, adding that he believes the move will be well-received.

So does Richardson, as long as alliances are only part of an overall diversity plan. “I did have some concerns about whether some organizations that have less of a diversity commitment might use this as a stepchild effort” and avoid diversifying the full firm, she says.

Otherwise, she favors the partnering idea. “It’s a good way to enhance [a firm’s] perspectives and access,” she says.

New York Law School professor Elizabeth Chambliss, who wrote the “Miles to Go” report for the ABA Commission on Racial and Ethnic Diversity in the Profession, shares some of Richardson’s reservations. “I wonder to what extent the alliances are anything more than a way for majority firms to get certain kinds of business,” she says.

Chambliss sees these alliances as a response to corporate pressure and a revival of similar arrangements between majority and minority firms in the late 1980s and early 1990s. She can see the allure and some positives from alliances, especially the development of networks that cross racial boundaries and the likely boost to recruiting efforts.

Alliances may indeed be catching on. They’re certainly the focus of the Milwaukee-based National Association of Minority and Women Owned Law Firms, which developed a prescreening network to boost the profile of minority- and women-owned firms capable of handling legal matters for big business.

NAMWOLF ensures that its member firms, about 18 so far, are minority- and women-owned, and that they have a strong track record of representing corporate clients. The organization, established in 2001, also created a Corporate and Public Entities Partnering Program, which encourages corporations to use more minority- and women-owned law firms.

The association’s partner list is impressive, with more than 85 companies signed on (as of late January), including ConAgra Foods Inc., Aon Corp., Domino’s Pizza, Volkswagen of America and Waffle House Inc. NAMWOLF’s goal is to get these companies to eventually agree to direct 5 percent of their outside counsel budget to minority- and women-owned law firms.

This all comes as the Minority Corporate Counsel Association is stepping up the pressure on outside counsel. In November, the MCCA, teaming up with the career management Web site Vault.com, released its first diversity survey of law firms for use by corporate law departments.

The idea is to make law firms and their diversity efforts more transparent, says Jim Diggs, general counsel at PPG Industries in Pittsburgh. Diggs has been working on developing diverse legal teams, especially with outside counsel. But he’s had trouble getting his hands on “real data.” This survey will allow in-house counsel to more easily read the data and make comparisons.

The next step, Diggs says, is to identify best practices, especially of “those firms that we think are clearly moving in the right direction and others that are started along the way.” Still, even best practices haven’t dented the persistent problem of achieving and maintaining adequate diversity.

“The numbers have increased so slowly at the upper levels, it’s hard not to suspect that deeper changes are needed,” New York Law School’s Chambliss says.

Trouble in the Middle

A main culprit is credentialism, according to Chambliss. The emphasis on numerical criteria–LSAT scores and the linear ranking of law schools by U.S. News and World Report–continues in the hiring and promotion of law firm associates and partners. This system often excludes those in the middle.

“Credentialism doesn’t hurt the superstars, but average graduates have a hard time breaking in,” she says, observing that there is increasing evidence that the most successful partners at law firms don’t have the most elite credentials.

Targeting the middle is difficult. It would mean more investment in personal interviewing, training and monitoring to see who is good, Chambliss says. The commitment to do this would also have to be long-term.

“It’s not in the individual partner’s best interest to devote to training and monitoring,” Chambliss says. “It’s sort of a collective action problem.”

Tying diversity to compensation, like at Holland & Hart, also is an option. “What’s valued is measured,” says the MCCA’s Richardson.

Head count can’t be the only way to measure, Richardson adds. She says creative management teams have found ways to credit partners for serving on diversity committees and working on outreach initiatives, including giving them billing credit for their time.

Houtsma says it’s too soon to tell how the emphasis on diversity in determining compensation is affecting Holland & Hart. But he says that just asking the question serves a purpose. “It says to partners this is an important area that we’re looking into,” Houtsma says. “It requires not only reflection, but I think it has resulted in more people trying to take action, more so on the mentoring front.”

Chambliss points out that achieving diversity is a reachable goal. Just ask what Chambliss calls the “MoFo Rainbow” of partners at San Francisco’s Morrison & Foerster, where diversity has been a priority for years.

When Arturo J. Gonzalez started at the firm 19 years ago, he was one of five lawyers of color. Now he is one of nearly 230. Morrison & Foerster consistently gets high marks on diversity from outside groups such as American Lawyer Media’s Minority Law Journal and Vault.com, which last year ranked the firm No. 1 in its “Best 20 Law Firms for Diversity.”

“We have made significant progress in large part because the management of this firm sees diversity as an important issue moving forward,” says Gonzalez, who chair’s the firm’s diversity committee. “Can we do more? Certainly. Are we satisfied with our progress? No. Are we making a legitimate effort to diversify? Absolutely.”

Molly McDonough is a legal affairs writer for the ABA Journal.

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