Women in the boardroom: Diversity matters

02-05-2019

Women in the boardroom: Diversity matters

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To understand the current landscape, World IP Review undertook a global survey of law firm staffers and partners, asking about their experiences in their current organisations on diversity and inclusion, and what more the legal profession can do. Here are the results of the survey.

The principle is simple—diversity matters to business. But despite the focus on gender diversity and inclusion, efforts promoting them have had limited success, and diversity improvements remain incremental.

Numerous academic studies have declared that groups with more diverse compositions tend to be more innovative and make better decisions.

And, according to research provider MSCI, having at least three women on the board seems to be the magic number, being a “tipping point” reflected in financial performance. In 2016, MSCI analysed US companies over a five year period.

Companies that began the period with at least three women on the board experienced median gains in return on equity (ROE) of 10 percentage points and earnings per share (EPS) of 37%.

In contrast, companies that began the period without any female directors experienced median changes of -1 percentage point in ROE and -8% in EPS over the study period.

“Such superior performance from companies with at least three female board members may derive from better decision-making by a more diverse group of directors, as some studies hypothesise. But outperformance may also be tied to greater gender diversity among senior leadership and the rest of the workforce, which has been correlated with reduced turnover and higher employee engagement,” says the report.

"Law schools, in-house legal departments and law firms must come together to implement practical solutions to attack the problem from multiple angles." - Survery respondent

The previous year, MSCI found that companies lacking board diversity suffered more governance related controversies than average, despite not finding strong evidence that having more women in board positions indicates greater risk-aversion.

Aside from the financial benefits, it’s clear that executives think diversity is a good thing.

According to a recent study by consultancy and recruitment firm Egon Zehnder, 87% of 2,500 executives across seven countries believe that having a diverse workplace was important to the success of their organization.

Charlie Beasley, a consultant at Egon Zehnder, adds: “Law firms cannot sit on the sidelines in the discussion around diversity and inclusion—in an increasingly disruptive and competitive legal market, clients are looking to partner with law firms that can bring the different perspectives and innovative solutions that diverse and inclusive teams are bestplaced to deliver.”

Increasingly, big brands are stipulating diversity criteria for law firms they partner with. Social media company Facebook requires that women and ethnic minorities account for at least 33% of law firm teams working on its matters, while US technology company HP has threatened to withhold up to 10% of costs invoiced by law firms if they do not meet minimum diversity requirements.

Egon Zehnder’s “2018 Global Board Diversity Tracker” found that in 19 of the 44 countries, all the major publicly traded companies with market capitalisation of €7 billion ($7.9 billion)-plus have at least one female director, up from 15 countries in 2016 and just eight in 2012.

Nine of these countries have instituted a quota. On the other side, 25 countries (including China, Brazil and Germany) are home to large companies with no women on their boards at all. Only one-fifth of board seats of the largest companies globally are now held by women, although this is an increase from 18.5% in 2016.

“Diversity and inclusion matter for the simple reason that they drive better business performance, support innovative and agile thinking and enable companies to attract and retain the very best talent in the market,” says Beasley.

"Law firms cannot sit on the sidelines in the discussion around diversity and inclusion." - Charlie Beasley, Egon Zehnder

To understand the current landscape, World IP Review undertook a global survey. We wanted to find out about your experiences in your current organisation regarding gender equality, as well as find out what more the legal profession can do.

Perhaps unsurprisingly, the overwhelming majority of our respondents were women. Most respondents came from private practice and in-house, and more than half had been at their present company for more than five years.

The service provider category includes IP service providers, along with IP offices and insurers offering IP coverage. The following pages will provide an in-depth look at the answers provided by nearly 300 women and men across the globe.

A snapshot

In the US, 85% of all lawyers in America are white, and 65% are men, according to the American Bar Association. The number of women increased nearly 5% between 2008 and 2018, but is this good enough?

In the IP field, 2017 data from the American Intellectual Property Law Association (AIPLA) suggests that diversity is particularly lagging, with 70% of IP attorneys in law firms being men.

The case is much the same in the UK. Women make up 48% of all lawyers in law firms, little change since 2014. Looking at seniority, in 2017, women made up 59% of non-partner solicitors compared with just 33% of partners (an increase of 2% in 2014).

Large firms with more than 50 partners represent the greatest divide, with only 29% of partners being women—but the proportion has grown from 24% in 2014, suggesting small signs of progress.

Looking more widely, statistics from a JURI committee of the European parliament 2017 report suggest that professional judge positions are quite evenly distributed between men and women in the EU, although women are in a slight majority.

This masks variations, such as a constant majority (more than 60%) of men occupying professional judge posts in common law countries, and the decrease in the proportion of women as the level of court and seniority of the post increases.

There’s a female majority among judges and prosecutors at first instance courts, but this is reversed at higher court levels. At supreme courts, the average gender distribution is consistently two-thirds men and one-third women.

"The biggest barrier in my organisation is male senior managers and a lack of diversity among the client base—like breeds like." - Survey respondent

Again, when it comes to lawyers, there’s been a gradual increase overall in the proportion of women lawyers over the past decade, rising from 35% in 2004 to 43% in 2015. But the number of women progressing to partnership is still very small.

“There still seems to be largely insufficient commitment to diversity at all level in firms. Only very few law firms address the issue as one concerning women and men and therefore see the need to address the general attitude of all members of the firm and their culture,” warns the report.

More bad news

In the UK, companies with more than 250 employees were required to publish figures on their gender pay gap by April 2018. While many had suspected a disparity, it was perhaps not to the extent that was ultimately reported.

The top 25 UK law firms reported an average 20% pay gap between men and women in 2017, but the firms faced criticism for not including partners in these numbers (all pay gap statistics are reported on a mean basis).

In June 2018, the parliamentary committee investigating the effectiveness of the reporting requirements compelled the five ‘magic circle’ firms to publicly reveal the full details of their gender pay gap.

Clifford Chance had already broken ranks and included partners in its reporting in March. The pay gap soared with the inclusion of partners into the numbers—Clifford Chance reported that men at the firm are paid on average 66% more than women.

While Linklaters had previously submitted its gender pay report without partners (and reported a 23% pay gap), it soon revised figures. With the inclusion of the upper echelons, the statistics reported that men were paid 60% more than the average female employee.

Following the parliamentary committee’s order, the three other firms disclosed their pay gaps. Including partners, the pay gap stood at nearly 62% for Slaughter and May and 60% for Freshfields for their whole staff.

Allen & Overy, which was accused of dragging its feet over the partner pay figures by the chair of a parliamentary select committee, published updated statistics in September 2018, reporting a 65% pay gap for 2017.

At the time of writing, the 2018 reports continue to trickle in, with a looming deadline of April 4. This year, Clifford Chance reported a pay gap of nearly 69%, up on its 2017 figure of 66%.

According to the firm, there were two main reasons for this: the proportion of women in the UK partnership make up 21% of the total, and the high proportion of women in administrative roles who make up a large part of its lower quartile population.

To further promote transparency, the law firm disclosed its ethnicity, sexuality and disability pay gaps of 52%, nearly 36% and nearly 62% respectively, adding that these gaps are “impacted by the relatively small populations in each of these categories which can have a disproportionate and significant impact on our pay gap figures”.

“The data we have reported is another indication that our partners do not reflect the diversity we aim to achieve. Diversity in ethnicity, sexuality and disability will remain a key area,” said the report.

"Over the last few decades, women have leaned into the table and made waves." - Mahua Roy Chowdhury, Royzz & Co

Our headline sponsor, Kirkland & Ellis, recently reported that its employee-only (which excludes partners) hourly pay gap was 26% in 2018, a fall from the 33% in 2017. Female share partners at the firm earn more than a third less (36.5%) than male partners, while the pay gap between non-share partners is 2.7%.

Kirkland & Ellis puts forward a similar reasoning to Clifford Chance: “The reporting of gender gap percentages on a blended basis is impacted significantly by the positions filled primarily by one gender. “For example, in the London office, all our secretaries are women—as such, the median pay and bonus gap percentages result from comparing the pay and bonus of a secretary to that of a lawyer.”

While there could be many reasons behind the disparity, one reason certainly plays a leading role— the simple fact that there are fewer female partners than male ones across the industry as a whole.

Welcome progress

What are law firms doing to bridge this gap and promote diversity? A range of initiatives have been undertaken by law firms, including diversity and inclusion policies, committees, flexible working policies and quotas.

Below, some (although definitely not all) of these policies are highlighted. Nearly 65% of respondents in our survey said that their firms have a diversity and inclusion policy, while 18% said their companies didn’t. A further 18% weren’t sure.

According to Beasley, while firms are increasingly taking a positive stance promoting diversity and inclusion, progress remains slow.

"Corporations that engage in mitigation through recognition, transparency and accountability can help to lessen and ultimately remove this bias in the workplace." - Ai-Leen Lim, AWA Asia

He adds: “Women continue to be underrepresented at partnership level with many women at senior levels opting out of private practice in the years before partner election.”

Tackling diversity begins at the recruitment level, according to many of respondents, who noted that their firms had implemented wide-reaching recruitment processes.

“In the recruitment process, all applications are entirely anonymised which means they are each judged fairly,” said one respondent to our survey. Another added that their company asks recruiters to seek out female candidates where possible.

Only 22% of our survey participants believe their organisation has set targets for gender diversity, compared with 41% who say their organisation doesn’t have targets, and 37% who are unsure.

Broken down, however, it’s not all bad news—some of the respondents said that while they don’t have diversity targets at their firm, there are concerted efforts to seek out female candidates and increase the number of women lawyers.

“We aim to maximise the potential of every member of the team, promoting mutual respect and ensuring that our people are seen as individuals first and foremost. They are supported and empowered to achieve, regardless of their gender, ethnic origin, nationality, marital or civil partner status, sexual orientation, religion or belief, age, disability or socioeconomic background,” said one respondent.

Others note that they don’t need a target because “gender has never been an issue”, since the leadership has always been evenly split or dominated by women.

Mahua Roy Chowdhury, founder and principal partner of India-based Royzz & Co, explains that her firm now has more women than men, a decision that the company has not had to make consciously.

“It has been an organic transition as more talented women are joining the workforce,” she says. “Over the last few decades, women have leaned into the table and made waves.

“A workforce without women cannot be envisioned anymore. Women bring a certain understanding of business and organisational working that is priceless to the system.”

In much the same way, India-based Fidus Law Chambers, women already outnumber men in a 3:1 ratio. Shwetasree Majumder, principal at Fidus Law, attributes this to a few factors.

First, the firm provides late night transportation for women (keeping in mind safety considerations), a work from home policy, a codified diversity policy and a gender-neutral zero tolerance policy to sexual harassment.

However, putting recruitment policies in place is unlikely to entirely solve the gender gap. Postemployment, a variety of visible and invisible barriers emerge for women.

Throughout this publication, we have cited the importance of role models.

Victoria McLean, founder and CEO of recruiter CityCV.co.uk, agrees. “We need visible role models— senior women as partners or in other management roles, leading deals or leading firms. Structured mentoring programmes and sponsoring of talented junior women also helps them progress up the ladder,” McLean says.

Mentoring, championing and leadership development programmes are just some of the initiatives our respondents highlighted.

“Champion women by actively looking for reasons each year to promote them rather than wait for them to come forward to ask for a promotion (which few ever will),” claims one respondent to our survey.

They went on to advise: “Another important action would be to take away decision-making powers regarding promotion from those women in senior roles who like to ‘talk the talk’ about promoting women, but who certainly don’t ‘walk the walk’.”

Another respondent issued a stark warning. “My previous employer did nothing other than to form a diversity and inclusion committee that did nothing to advance the cause,” she said.

“The employer did, however, issue an annual gender diversity report, but it masked the problem in that the reports always appeared balanced in terms of the number of male and female employees, but most of the women (>90%) included in the count were not in decision-making senior roles, whereas many of the men (>70%) were in decision-making senior roles.”

Ai-Leen Lim, CEO and principal counsel at AWA Asia, adds: “Another tool in aiding diversity is the recognition and mitigation of unconscious bias. Such bias in the workplace remains a barrier to career advancement/progression for women.

“Corporations that engage in mitigation through recognition, transparency and accountability can help to lessen and ultimately remove this bias in the workplace.”

Finally, since parental leave and flexible working have such a significant effect on the working lives of parents, and others, those are covered separately.

Targets and quotas are also addressed below.

Whose responsibility is it, anyway?

One thing is clear: law firms need to fully embrace diversity to reap the benefits.

“An organisation that understands at its core that flexibility is not a concession but a simple adjustment to the known way of doing things is the kind of organisation that will be able to create radically diverse policies because they recognise that there is more than one way to be productive,” says Chowdhury.

The culture must be promoted from the top and, as it makes its way down the hierarchy, it should be reinforced at every turn.

Majumder adds: “Not only is the culture something that needs to be promoted from the top, it must in particular be embraced and welcomed by the senior male members of an organisation. If men in positions of influence and leadership can be allies and champions for diversity and inclusion then the cause is significantly strengthened.”

Respondents agree, with a number suggesting that partners need to show a serious commitment. One respondent claims that while their firm has a strong formal diversity stance, “informally however there are a number of male and female partners who openly scoff at gender initiatives”.

Another adds: “Gender diversity and equality is more than writing policies and organising events. I think there needs to be constant reinforcement that is positive, as well as education.”

Beasley believes that the challenge for law firms, many of which are partnerships, is that it’s not enough for the managing partner or members of the executive committee to take a leadership position on diversity and inclusion or to rely solely on programmes and initiatives.

For law firms to truly make progress, says Beasley, “individual partners need to understand the important role they play in creating a more diverse and inclusive culture both for their direct teams and for the organisation as a whole”.

“They then need to take action on a daily basis— spotting and tackling unconscious bias, being aware of the different leadership styles they can use to motivate and lead and, at a practical level, being supportive of agile and more flexible ways of working to retain and develop talented team members through different life-stages,” he concludes.

legal firms, gender diversity, academic studies, Facebook, ethnic minorities, IP service providers, AIPLA, EU Parliament, pay gap, disability, hirearchy

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