Published: January 2023
Written by: 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 male-male 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 all-male 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 women-owned 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.