A reader has asked my opinion on "diversity," and while there’s not much new
or scintillating to say about its worthy objectives or general feel-good
quotient, my approach will be to examine it through the lens of firm performance:
Do more diverse firms perform better? Do they have higher job satisfaction,
more collegial work environments or, the ultimate question, superior financial
performance? Do diversity initiatives, in other words, have a positive
ROI?
First, let’s get some facts on the table. In this I am aided greatly
by the timely arrival (today) of Hildebrandt’s annual
recap of the highlights of 2006, which includes a section on diversity.
- According to The Minority Law Journal’s Diversity Scorecard ,
the overall percentage of ethnic minorities in the 240 largest US law firms
grew slightly to 11.4% in 2006, from 10.4% in 2005 and 10.2% in 2004. The
percentage of minority partners, however, is only 5%, compared with 4.7%
the year before. The individual law firm with the highest percentage
of minority attorneys (23%) was Paul Weiss Rifkind Wharton & Garrison. Wilson
Sonsini Goodrich & Rosati has the highest percentage of minority partners
(17.6%), and Greenberg Traurig reported the highest total number of minority
partners (57). - Five American corporations have undertaken an initiative to increase inclusion
of minority-owned law firms among the law firms that perform their legal
work. DuPont, General Motors, Sara Lee, Shell Oil, and Walmart made
a public pledge to place an aggregate of at least $16 million of business
with minority-owned law firms in 2006. - According to a new report, “Visible Invisibility: Women
of Color in Law Firms,” by the American Bar Association Commission on Women
in the Profession, women of color are leaving the legal profession at a high
rate. Among the findings are that 44% of women
lawyers of color working in large firms reported being passed over for desirable
assignments, compared to 39% of white women, 25% of men of color, and 2%
of white men.
And corporate America is putting increasing pressure on firms to ratchet up
their efforts to achieve meaningful diversity. For example, here’s a
story about Gibson Dunn and McKesson, and here’s one about WalMart, which includes this:
"Wal-Mart’s new policy signals a growing determination by corporate legal departments to pressure outside counsel. It is no longer enough, the general counsel at the symposium said, to raise the numbers of women and minority lawyers in a firm’s lower ranks if its upper echelons remain an exclusive club for white men. "
Other firms adopting similar policies include Cox Communications, Del Monte, Visa, and Pitney Bowes. Indeed, an entire organization, the American Institute for Managing Diversity, has been set up to aid these efforts.
On the other hand, last fall
Richard Sander, who is an economist and law professor at UCLA School of Law,
best known for his empirical work on racial preferences in legal education (Systemic Analysis of Affirmative Action in American Law Schools , 57 Stan L. Rev. 367 (2004), updated his research with. What’s his thesis? Essentially,
Sander’s articles posit that affirmative action in admission to law schools has substantial, negative, unintended consequences that harm the actual employment and career prospects of the aspiring minority lawyers-to-be who benefit from those policies. The following chart, taken directly from Sander, illustrates what he thinks the problem is ("BPS" refers to his Bar Passage Study):
| BPS (1994 era) |
2004 Era (my estimates) |
|||
| Whites | Blacks | Whites | Blacks | |
| % of entering law students who graduate |
92% | 81% | 90% | 78% |
| % of graduates who take the bar |
94% | 93% | 94% | 93% |
| % of bar takers who pass on first attempt |
91% | 61% | 78% | 47% |
| % of bar takers who ultimately pass |
96.5% | 78% | 90% | 65% |
| % of entering law students who graduate and pass bar on first attempt |
78.7% | 45.1% | 66% | 34% |
| % of entering law students who ultimately become lawyers |
82.7% | 57.1% | 76% | 47% |
The firestorm that utterly predictably resulted is traceable in many places online, but one of the more comprehensive starting points is from the Minority Corporate Counsel Association in their rebuttal.
But enough of the law. How about the economics of diversity?
As it turns out, there’s a fairly sizable management literature on the financial and performance impact of increased diversity. While the financial results are slightly more tenuous and subject to the inevitable reservation that we can’t perform "double-blind" experiments with real people and real companies in the real world, the literature on diversity’s beneficent impacts on creativity, innovation, and agility is, to this reader, utterly compelling. (Small digression: "Double-blind" studies is perhaps technically inapt in this context, as it typically relates to clinical pharmaceutical trials where neither the doctor nor the patient knows who is getting a placebo and who is getting the compound being tested, but if I may be allowed a small degree of license, the analogy is to economics’ inability to clone, say, an AmLaw 25 firm and watch what would happen over a period of years if one copy of the firm pursued business-as-usual and the other mounted a serious and sustained diversity initiative.)
As far back as 1999, in Think Global, Hire Local, McKinsey addressed the challenge of multinationals’ ability to find appropriate local managerial talent in far-flung overseas locations. While it’s arguably not the identical problem as diversity in law firms, the conceptual analysis is, to my mind, identical, and here’s the money quote: "How can companies find so many suitable locals? Only by broadening the definition of "suitable" and investing heavily to train people who meet that broadened definition."
In other words, the definition of "desirable candidate" (for hiring, lateral recruitment, assignment to plum cases, or ultimate promotion to partner) needs to be "broadened" and your firm needs to "invest heavily [in] training" them. Now, how hard is th at?
Harvard Business School has two more recent pieces right on point. The first (2004) describes IBM’s efforts starting under CEO Lou Gerstner to comprehensively improve their diversity initiatives. It starts with a nice precis of what any significant "cultural change" of this magnitude requires—whether it’s diversity, compensation, strategic re-positioning of the firm, or anything else sufficiently ambitious:
"Any major corporate change will succeed only if a few key factors are in place: strong support from company leaders, an employee base that is fully engaged with the initiative, management practices that are integrated and aligned with the effort, and a strong and well-articulated business case for action. IBM’s diversity task forces benefited from all four."
Among other things, IBM appointed a "Chief Diversity Officer" who reported direclty to the CEO, and both Gerstner and his successor Sam Palmisano became role models for the effort themselves.
And here’s a fascinating exercise to ensure you stick with the diversity initiative: Incorporate a focus on it into your monthly (or other periodic) meetings of the executive committee. Gerstner says that during his entire tenure at IBM only two agenda items appeared invariably on each and every monthly meeting: The financial performance results, presented by the CFO, and the discussion of management changes, promotions, and transfers, presented by the head of HR. And diversity was always a key dimension of the second presentation.
Second, we have the even more pointed "Racial Diversity Pays Off," which begins with an HBS professor’s hypothesis that there are two competing views of what "diversity" can rain down on a firm:
"According to [Associate Professor Robin] Ely, there are two competing theories about the impact of cultural diversity on work group performance. The first, which she called Position A, is an optimistic point of view. It is the idea that cultural diversity in work groups increases the pool of available resources, such as social networks, skills, and insights, to enhance the group’s ability to be creative and solve problems.
"The second, Position B, is more pessimistic, she said. "According to this theory, what happens when you bring groups together is you get social comparisons, in-groups and out-groups, where people have a preference for their in-group members." Such preferences, the theory goes, can lead to miscommunication, stereotyping, polarization, and performance losses."
In turn,
there were three different ways organizations dealt with and "envisioned" diversity internally:
"1. Discrimination and fairness perspective. The work groups aspire to being color blind, so conversations around race are limited, she said. They believe there is no connection between race and the work, but racial bias can end up being destructive in the work group, said Ely.
"2. Access and legitimacy perspective. There is diversity only in certain parts of the organization. People are effectively shunted onto segregated career tracks and told, “This is what you’re good at.”
"3. Integration and learning perspective. Group members are encouraged to bring all relevant insights and perspectives to bear on their work. "
While these "states" of coping with and envisioning diversity are not static—the same firm can migrate from #1 to #2 to #3—only firms at the level of #3 found that the introductory friction inevitable in increasing diversity was far far more than overcome by the unanticipated fortuities, catalytic chemistry, and stained-glass-window serendipity of true diversity.
Do it for your bottom line? Do it because it’s the right thing? Do it for more variety and some more just plain interesting colleagues in the workplace? Pick your justification.
But Just Do It.
