US firm HP caused a stir last year when it announced that it would withhold up to ten per cent of costs invoiced by their external law firms if they do not meet minimum diversity requirements. While we haven’t seen anything so drastic over here yet, Diana Bentley explores how in-house teams are raising their expectations of their law firms and driving through real change.

The relationship between law firms and in-house legal departments has altered dramatically over time. Today, the change could not be better exemplified than by the stance in-house teams are taking on how their law firms are approaching and achieving diversity and inclusion (D&I) within the workplace. While the interest of in-house in the issue is not new, their expectations and the pressure they are applying on law firms have notably intensified.

The policies of several high-profile multinationals provide arresting examples.

Leading the way: Microsoft and HP

Microsoft introduced its Law Firm Diversity Program (LFDP) in 2008 to encourage diverse representation on external legal teams handling Microsoft matters. And, since 2015, its law firms can earn annual bonuses of up to two per cent of the legal fees billed, based on their performance in increasing diversity in Microsoft’s three ‘strands’ of leadership: those leading the firm; its relationship with Microsoft; and Microsoft’s legal matters.

Meanwhile, in February 2016, HP Inc’s legal department launched a ‘diversity holdback’ requirement that will apply to HP’s panel of law firms in the US. The scheme will allow HP to withhold up to ten per cent of all amounts invoiced by its law firms, subject to certain exceptions, for so long as the firm fails to maintain diverse minimal staffing on its legal matters. The goal, HP states, is to help drive the diversity of law firms and the legal profession in a ‘meaningful way’.

Rising expectations

Not all in-house departments take such a fixed approach, but many are nonetheless factoring their expectations around D&I into their relationships with their adviser firms. ‘D&I is taken very seriously here, and we go through a rigorous procurement process to select our law firms,’ says Funke Abimbola, GC & head of financial compliance, Roche Products Limited.

‘In our request for proposal (RFP), we ask law firms about their commitment to D&I. These questions explore everything from the diversity data available at various levels within their organisations (across multiple diversity strands), to what positive actions they’ve taken to improve D&I,’ Abimbola reports.

‘This element of our RFP carries significant weighting and has resulted in some firms – market leaders in purely technical terms – not being shortlisted to present to us.’ Abimbola looks for continuous evidence of her panel firms’ commitment to D&I on an ongoing basis.

Similarly, Kristin McFetridge, chief counsel, Portfolio Products & Standards, BT Legal, which is one of the original authors of the Law Society’s Protocol on D&I, says that while her organisation does not impose any mandates on its law firms, their commitment to the cause is made clear. ‘When we went to tender for our panel, we wanted to know what the firms’ views were on D&I and how they are linked to their practices on recruiting and promotion,’ she says. Such enquiries were taken further in interviews. ‘Unconscious signals can be powerful too, and with many, or, in some cases, all of the lawyers on our interviewing panel being women, we’re sending a clear message about what is important to us.’

Jane McDonald, head of D&I at the Law Society, reports that members are attesting to the focus on D&I in the panel selection process, particularly in the case of larger organisations where such D&I requirements are being driven by the procurement facility, which requires suppliers to adhere to their organisation’s corporate values. ‘Firms are very aware they should be fielding a diverse panel in selection interviews. But they’ve told us that in-house clients don’t stop there, and want to see timesheets to check that the people who came to the interview are the ones actually doing the job (or are similarly diverse),’ she remarks.

In-house clients are also commenting on how firms have performed in benchmarking exercises, such as the Law Society’s D&I Charter (launched in 2009) and the Stonewall Workplace Equality Index.

New approaches

Some legal departments have yet to introduce D&I requirements into their firm selection process, but are reappraising their approach. Matthew Gingell, GC of Oxygen House, who heads a team that was highly recommended at the 2017 Law Society Excellence Awards, says that such a stance is presently being formulated by his organisation. Any such policy is likely to follow the principle his department has adopted in relation to sustainability.

‘We’ve rewarded firms for their proactive sustainability programmes even if they weren’t the cheapest, and I think this has influenced the firms’ bidding. Now we’re looking for much more impact from our legal spend, so we can align that spend with our group’s environmental objectives and to deliver a wider impact,’ Gingell says.

More recently, the firm that handles Oxygen House’s real estate and construction work signed a memorandum of understanding to deliver the company’s projects in the most sustainable way; to improve its own sustainability; and to devise and promote contractual changes to their precedents to encourage their other clients to work towards sustainability.

‘It’s impact three that has the ability to effect real change, and is something that could equally be applied to driving diversity,’ Gingell suggests. ‘There are lots of great law firms in the UK providing an excellent service, but committing to this kind of partnership and to change distinguishes them from the rest.’

Mutual learning

While their organisations have not yet adopted the sort of positions taken by HP and Microsoft on D&I, Abimbola, McFetridge and Gingell all applaud their initiatives. ‘These efforts are commendable examples of action that can be taken to prompt much needed progress,’ says Abimbola. ‘Some firms will have no incentive to drive change unless their lack of diversity negatively impacts their bottom line. But I’ve seen a tangible shift amongst law firms in terms of increased commitment to improving D&I. I’ve partnered with the Law Society, Aspiring Solicitors and other organisations to drive more positive change. Our collective efforts do seem to be bearing fruit.’

American by birth, McFetridge sees the HP and Microsoft initiatives as a reflection of both American culture and the history of affirmative action in the US. Whether BT will follow such examples is currently under consideration. ‘But it’s also important to focus our attention on the bottom of organisations and develop young people from diverse backgrounds, and not just focus on those at the top.’

McFetridge also believes that organisations and their external lawyers can learn from each other. ‘We see D&I as part of a two-way process and an ongoing dialogue we have with our law firms. We’re all learning how to do more to make the profession a better place in which to work.’ Several years ago, BT followed the example of one of its panel firms in promoting its newly formed allies programme for the LGBT community, using a large ‘allies board’ where individuals could sign their name to show support and solidarity. With the advice and support of one of its panel firms, BT also created its own work experience programme, where it works with the Sutton Trust’s social mobility programme, Pathways to Law, to give students from different backgrounds work experience and mentoring.

Good avenues for support for firms are clearly available. Jane McDonald explains that the Law Society’s new work programme to support members on D&I is being delivered through a range of events, active learning opportunities, conferences and digital campaigns. Sophie Gould, head of Lexis PSL In-House, explains how LexisNexis is focusing on promoting D&I in the profession. ‘We develop and make available within LexisPSL guidance and tools such as D&I training guides and checklists to monitor diversity, to help support lawyers in their D&I initiatives.’

LexisNexis also promotes best practice through its participation in various initiatives; it is a founding member of Aspiring Solicitors, and has partnered with the First 100 Years charity, which promotes women in the profession.

The future

Matthew Gingell envisages that more legal departments will look to influence the law firms they work with on D&I and other issues. ‘They’ll be using their legal spend to deliver wider change which accords with their objectives,’ he says. ‘That will also highlight where improvements and thought leadership are required. Ultimately, law firms will be able to use sustainability and D&I as a market differentiator. This will drive the profession to achieve more together.’

Funke Abimbola, too, anticipates that more in-house legal teams will be making D&I a core part of their tendering process. ‘I also see increasing collaboration between the many organisations that are committed to driving measurable change in this area.’

Jane McDonald expects to see in-house departments becoming more demanding with their law firms on the subject, as those departments (and their organisations generally) refine their own policies. Meanwhile, she is hoping that more in-house departments will sign up to the Law Society’s D&I Charter. ‘We want to engage more fully with the in-house community through the newly established regional D&I forums and increased digital and social media activity and campaigns,’ she says.