DIVERSITY CORNER
The Business Case for Diversity – What Does the Evidence Show ?
BRYAN ANDERSON
Does diversity benefit law offices in quantifiable ways ? Law offices -- including private firms , corporate , government , and not-for-profit law offices -- are service businesses . More profitability is better for firm owners . Better results serve clients and the firms . Firms want to meet clients ’ preferences to win business . What evidence is there whether law firm diversity supports these interests ?
Diverse law firms make higher profits
Statistical analysis of law firm data shows that more diverse firms earn more money .
Dr . Evan Parker specializes in statistical analyses for the legal market . His work has been cited in the American Lawyer , the ABA Journal , and the Canadian Lawyer . In a 2018 study controlling for a variety of factors , Dr . Parker concluded with a high degree of statistical confidence that diverse law firms make higher profits . Missing in Action : Data-Driven Approaches to Improve Diversity , Evan Parker ( 2018 ).
Dr . Parker ’ s analysis shows that having diverse legal teams was a significant characteristic factor for law firm profitability , ranked after law firm prestige , attorney leverage , geographic concentration , and whether a firm performs hedge fund / private equity work . Having diverse legal teams ranked ahead of practice area concentration , or having corporate , energy and environment , or merger and acquisition practices .
Dr . Parker concluded that partners take home significantly more money at American Lawyer 200 firms with high diversity . The median diversity “ dividend ” reflected in the difference between firms ’ partner distributions showed that the gap between low and high diversity firms approaches $ 180,000 per year per partner .
Diversity improves litigation settlement and trial results
Statistical analysis of real-world data shows that diverse female-male civil trial teams are more successful than malemale civil trial teams . Lack of diversity was associated with lower likelihood of success and worse trial outcomes .
Attorney , professor , and researcher Randall Kiser of the consulting firm DecisionSet conducted a study of 40-plus years of data comparing final settlement offers versus trial verdict and damage awards in both New York and California . Professor Kiser assessed whether trial team gender composition could predict win rates , decision error rates , and settlement positions .
Professor Kiser ’ s approach to assessing trial team successes and errors focuses on demands , offers , and awards in cases that did not settle . Cases that do not settle and are tried resulting in an award have three possible outcomes in his method of assessing results :
• Plaintiff error . The award is lower than the defendant ’ s offer .
• Defendant error . The award is higher than the plaintiff ’ s demand .
• No error . The award is somewhere between the final offer and the final demand .
Professor Kiser ’ s statistical analysis showed that female-male defense trial teams won 7 % more of their cases than allmale teams , had error rates that were 9 % lower , and underpriced their settlement offers far less frequently , amounting to an average savings of $ 2.6 million in defendant liability . His analysis showed similar benefits of mixed female-male trial teams for plaintiffs .
Professor Bill Henderson at Indiana University Maurer School of Law commented on Professor Kiser ’ s findings as showing that “[ s ] tated another away , lack of diversity is really expensive .”
Client demands for diversity
Diversity is a competitive advantage over other firms in obtaining significant business clients and matters .
Many companies set diversity requirements for outside counsel . For example , Facebook ’ s legal department requires that women and ethnic minorities account for at least 33 % of outside counsel . During 2021 , the Coca-Cola Company increased its target for minority and womenowned law firm legal spending from 1 % to 10 % of its outside counsel spending .
Beginning in 2019 , more than 200 company chief legal officers signed on to an open letter prioritizing spending on firms with strong diversity and inclusion programs , partnering with law firms to promote diverse talent at every stage of the pipeline , and hiring women and minority-owned firms .
Conclusion
Data shows that more diverse firms are more profitable and that diverse teams get better results . More diverse firms have a competitive advantage in obtaining work from clients who value and increasingly demand diverse teams .
Diversity in law offices is also considered desirable for qualitative reasons . These include accessing a wider and deeper attorney talent pool , growing a larger network of firm connections useful to clients and for firm business development , language capabilities , and the firm and its attorneys being more relatable to more diverse clients .
Perhaps these qualitative factors help account for the financial benefits of diversity discussed in this article . Research would be useful in assessing the quantitative dollars and cents effects of these benefits .
The bottom line is that law offices seeking improved financial performance and results should foster diversity in their offices because doing so is a good business decision as well as the right thing to do .
Bryan Anderson is a volunteer hearing officer for the School District of Palm Beach County and assists the Legal Aid Society on fair housing civil rights matters .
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