There has been a dramatic increase in the number of company headquarters opening in Texas in recent years, with Big Tech heavyweights such as Oracle, Tesla, Apple and Hewlett Packard Enterprise among the companies that have chosen to relocate or expand in Austin, Dallas and Houston.
The influx of large multinational corporations in the state has naturally led to new opportunities for the law firms that serve them. Law firms are recruiting local talent and expanding energy, technology and intellectual property practices, among others.
The market boom for Texas and its law firms is also an opportunity for companies to use their legal spend to promote diversity in the business of law. General counsel (GCs) and in-house legal teams based in Texas have an opportunity to provide economic incentives to ensure that as law firms look to cultivate local talent, they are putting forward female and diverse attorneys.
Few would disagree that representation and diversity are important in all aspects of business. However, the lack of diversity in the business of law is a well-documented problem. The State Bar of Texas reports that just 37% of all registered attorneys are women and 21.6% are racially diverse, including 5.7% who are Black/African American and 9.8% who are Hispanic/Latino.
Clients don’t ask about origination credit, and law firms don’t tell
How can clients in Texas promote diversity? As a starting point, they can ask about origination credit. “Origination credit” typically means that the person who brings a client to a firm gets credit for any revenue generated by that client. Origination credit is usually given to an attorney in perpetuity—over the life of an entire client relationship—and can be inherited by other attorneys as senior partners retire. In Big Law, bringing in new business is imperative for long-term success, career advancement and higher levels of remuneration. However, female and racially diverse lawyers inherit considerably fewer law firm client relationships and opportunities than their white male counterparts. Sixty-seven percent of senior female lawyers reported that they experienced a lack of access to business development opportunities due to gender.
Translation: White male lawyers who benefited from inherited clients, even years later, stand to receive credit for new matters that they may not be involved in, and for client contacts that they may not have met. This can place them at a significant advantage over their female and racially diverse counterparts in terms of key, career-defining metrics.
The people in the best position to disrupt this broken system are the consumers of legal services: the clients. GCs and other corporate influencers can use their power of the purse simply by talking to their law firms about how origination credit is awarded, and what steps are being taken to ensure origination opportunity for diverse law partners. Based on interviews conducted with 75 GCs and senior in-house lawyers in 2020, most said that they don’t regularly ask about origination credit. Over half of the lawyers surveyed said they were entirely unaware of how origination credit is awarded at the law firms they work with. As one GC put it, they “want the proper lawyers to receive credit, but we don’t ask. We want to avoid stepping on the partners to interfering with the firm’s operations.” But companies committed to supplier diversity must consider third-party professionals with the same lens as any other service procured. Legal departments committed to diversity in the profession can be a powerful agent for change just by asking the questions that are in line with their corporate values.
Companies need economic levers to increase diversity in their panel law firms
Law firm clients are ideally placed to help address the specific problem of origination credit and provide opportunities for diverse attorneys by exercising economic incentives. In January 2019, 170 GCs penned a letter to the law firms that represent them communicating that they must do more to address the diversity problem in law or risk losing business. As the clients of law firms, companies have the buying power to impact change and increase diversity in their counsel law firms.
Some companies are leaders in using their legal spend to promote diversity among the firms they hire. Telecommunications giant Nokia’s Equity, Inclusion and Diversity (EID) Scorecard evaluates on a quarterly basis its panel law firms’ progress toward diversity and inclusion goals.
Legal leaders looking for tools to augment their existing diversity initiatives or to get them started can use The Equity Project to help promote female and racially diverse representation. The Equity Project is a ground-breaking initiative launched by Burford Capital to improve gender and racial diversity in the business of law through a $100 million capital pool earmarked for financing commercial litigation matters led by female and racially diverse lawyers. Burford previously earmarked $50 million to back commercial litigation and arbitration led by women— and had committed well in excess of this amount as of Dec. 31, 2020. With its latest fund, Burford has pledged to share a portion of its profits from successful matters with organizations focused on promoting underrepresented lawyers.
Legal departments committed to diversity can use Equity Project funding to further incentivize their firms to appoint diverse teams to represent them, and law firms and companies alike can use The Equity Project as part of their ongoing DEI and ESG efforts. In-house lawyers may use this capital for matters they award to law firms on the proviso that a female or racially diverse lawyer is receiving origination credit or leading the case, or both. This presents an incentive to law firms to promote female and racially diverse lawyers and to ensure that the lawyers working on their matters are being adequately compensated for bringing in new business.
We know that diversity leads to better business outcomes. Diverse attorneys bring different perspectives, experiences and opinions to identifying, addressing and resolving legal issues—all of which is critical in high-stakes commercial litigation. By giving female and racially diverse lawyers the opportunity to gain experience, as well as origination credit, on high-profile matters, it ensures that they have the tools they need to advance in law firms to ultimately become the decision-makers regarding future leadership as well.
As economic growth offers new opportunities for corporate legal practices in Texas, companies should ensure that they use economic incentives to encourage law firms to put forth diverse lawyers and showcase their talents—and ultimately to progress to equity partnerships and leadership positions within their firms.
This article was originally published in the Texas Lawyer and can be found here.
Reprinted with permission from the March 4, 2022 issue of The Texas Lawyer. © 2022 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.