D&I: putting your money where your mouth is

In mid-February, Novartis released its 2020 preferred panel of global and US law firms, all of which had agreed to strict staffing requirements aimed at improving diversity in the legal profession.

Each of the 22 firms will ensure that a minimum of 30% of billable associate time and 20% of partner time will be provided by women, or members of ethnic minority or LGBT communities. Firms that fail to meet these commitments for diverse staffing on a particular matter will see their fees cut, with Novartis withholding 15% of the total amount billed over the life of that specific matter.

Getting the message across

Novartis is the first client that Saul Morgenstern, partner at Arnold & Porter in the US, works with that has put formal requirements and incentives in place, although he adds that most of his clients value and encourage diversity.

“My experience with the group over the years has confirmed that Novartis has always welcomed, and encouraged, diversity among its outside counsel teams. This new initiative takes that longstanding commitment to a new level, by more formally driving diversity in Novartis’ outside firms,” says Morgenstern.

The current company-wide Novartis team at Arnold & Porter already meets or exceeds the targets set out in the initiative, and many individual matters (for Novartis and other clients) far exceed them, according to the partner.

“This new initiative takes that longstanding commitment to a new level, by more formally driving diversity in Novartis’ outside firms.” Saul Morgenstern, Arnold & Porter

Novartis’ initiative aligns with Kirkland & Ellis’ own diversity and inclusion (D&I) efforts, says Nicola Dagg, partner at the firm in the UK.

“D&I is very important to Kirkland, both within our organisation and throughout the legal community. We continually strive to build and maintain a culture that values and gathers strength from our differences. Consequently, we take Novartis’ new initiative very seriously,” she says.

Novartis is certainly not the first company to put the pressure on outside counsel. According to Dagg, clients are “increasingly asking that their outside legal teams look and be more like them and their clients and customers”.

For example, Facebook requires that women and ethnic minorities account for at least 33% of law firm teams working on its matters, while HP has threatened to withhold up to 10% of costs invoiced by law firms if they don’t meet minimum diversity requirements.

In November last year, Intel announced that it would “not retain or use outside law firms in the US that are average or below average on diversity”.

Must do better?

Not everyone is bowled over by the targets set by Novartis’ scheme.

“I always say that something is better than nothing, and it is great to see another major company demanding more diversity in their preferred outside counsel firms,” says Jean Lee, president and CEO of Minority Corporate Counsel Association in the US.

For a non-US company to make these demands in Europe would be bold, says Lee. “But, if we are talking about only the US, as most are US-based global firms, I think Novartis can do more if it wants to see impact,” she adds.

Currently in the US, approximately 59% of the associates have diverse characteristics (23% ethnic minorities, 32% white women, and 4% LGBTQ+—they are not double-counted) and if you include multi-ethnic and lawyers with disabilities, the percentage of associates goes up to 63%, says Lee.

She explains: “Therefore, to require a firm three years from now to have 30% associate billable hours from those groups would not be promoting diversity in the US. The same is true for partners in the US for those preferred firms, where approximately 33% are from those groups.”

Lee notes that if you add multi-ethnic and lawyers with a disability, which Novartis did not list as part of the 20% billable requirement, it seems “less than inspirational” in the US where, as of 2018, 33% of lawyers have one or both of these characteristics.

Glacial pace of change

Are these initiatives working as intended? Some don’t think so.

The news of Novartis’ programme also comes one year after the latest iteration of an open letter from in-house counsel to law firms, urgently demanding more focus on diversity.

Don Prophete, a partner at Constangy, Brooks, Smith & Prophete, wrote a scathing response to the open letters for Law.com, claiming that despite a series of letters over the past 20 years or so, law firm racial diversity has either remained stagnant or has decreased significantly.

Starting from the bottom: law school enrolment in the US rose 2% in 2019, but the percentage of minority students enrolling has fallen slightly, according to statistics from the American Bar Association.

Of the more than 38,000 people enrolling for their first year of law school in autumn 2019, nearly 17,500 were men; 20,700 were women and 134 were classed as “other”. While the gender aspect may present a slightly cheerier picture, as you move further up the chain, it becomes bleaker.

A National Association for Law Placement (NALP) report, published in December last year, concluded that only one in four partners in US law firms are women and less than 10% are people of colour.

At partnership level, women and people of colour all made small improvements in representation at the partner level in 2019, but women of colour remain the most underrepresented of all, with Asian women making up 1.46% of law firm partners, Latin American women making up 0.80% of law firm partners, and black or African-American women making up just 0.75% of law firm partners.

At the time NALP executive director James Leipold said: “The overall arc of the storyline for large law firm diversity remains the same—it is one of slow incremental gains for women and people of colour in both the associate and partnership ranks, interrupted by some recession-era setbacks, but at a rate so slow as to seem almost imperceptible at times.”