Good Intentions: The Idea and Execution of Diversity Management
The pharmaceutical company Novartis expects their external legal counsels to take diversity management more seriously. That sounds like a good idea. But idea and execution are two different concepts. Susanne Reinemann and Markus Hartung have taken a close look at the policy from a German perspective.
The world is a very colorful and diverse place. More than 7.7 billion people live in around 200 states spread over seven continents. We Europeans account for only 10% of the world's population. The proportion of women and men in the world is about the same, or more precisely: at least as far as those are concerned who have been assigned a particular gender after birth. The same applies to Germany, where there are slightly more women than men.
Of course, there are other differences between people, beyond origin and gender, for example with regard to religion and sexual orientation. But it is sometimes difficult with the German language. We lack the ease with which "racial diversity" is addressed in the USA or England. Adding to that, there is obviously more statistical appreciation of diversity elsewhere: in addition to gender, one finds evaluations of faith/belief, race/ethnicity, sexual orientation, gender identity, disability and disability level.
The status quo at law firms
In the western world, diversity ends at the doors of (large) business law firms. Bar some country differences, on the whole more women than men study law and when it comes to starting a career, the proportion of female lawyers is often even greater than that of their male colleagues. Then, however, the proportion of women decreases over the years, until it is only just under 20 percent at partner level, in some countries even significantly less. This has also been known for a long time in Germany.
The exact reason for this is not known, at any rate there are hardly any empirical studies. We are dependent on assumptions and anecdotal evidence, all in the field of “empirical impressionism”. Maybe the rather traditional and male-dominated working atmosphere in law firms is unattractive for female employees per se and, moreover, the “dogma of permanent availability of lawyers” does not allow for the compatibility of family and career. For this reason, women often leave the law firm in the run-up to concrete family planning and prefer the judiciary and the state administration as employers, but also companies where, unlike in law firms, more modern, and at any rate, up-to-date personnel development methods are applied.
Apart from the gender issue, there are no other diversity issues in Germany, unlike in the USA or England – or rather not yet. After all, it is no longer just white German law students (with white German ancestors, in German: “Bio-Deutsche”) in Germany. Nevertheless, ethnic diversity does not play a role in the legal market.
The Novartis approach
Based on experience, law firms only change under pressure from clients. Against this background, a policy of Novartis, one of the large global pharmaceutical companies based in Switzerland, caused a stir. Because for the first time, a company adopted a numbers-based approach.
According to the policy announced in February 2020, Novartis has recognized the importance of the role of in-house legal departments in the (further) development of diversity and inclusion. At the same time, by selecting external law firms, the company wants to ensure that these values are also taken seriously there.
Novartis was well aware that mere appeals and voluntary commitments might not be enough, and with the policy they also introduced benchmarks that law firms would have to observe in the future. Novartis’ policy says:
"As part of the new program, Novartis preferred firms will make specific diverse staffing commitments for each engagement (and in any event commit that not less than 30% of billable associate time and 20% of partner time will be provided by females, racially/ethnically diverse professionals, or members of the LGBTQ+ community, with an expectation that such commitments will move to parity over the next several years). If a firm does not meet its agreed-upon diverse staffing commitment for a particular matter, Novartis will withhold 15% of the total amount billed over the life of that specific matter.“
In other words, no headcount based but a mandate- or project-based quota of at least 20% at partner level and 30% at associate level. The goal is to achieve parity over the next few years.
Diversity at Novartis itself
Novartis also takes diversity and inclusion (D&I) very seriously. On the company's homepage there is a wonderful statement:
"We want our employees to be themselves every day."
And a little later on:
"We are passionate about Diversity & Inclusion (D&I) because it fuels innovation, drives engagement and attracts talent. D&I is a fundamental part of our culture aspiration to be curious, inspired and unbossed.“
The pharmaceutical group has committed itself to achieving "pay equity & transparency" by 2023 at the latest and also supports the "UN Human Rights global LGBTI business standards" (LGBTI stands for "Lesbian, Gay, Bi, Trans, & Intersex"). These standards go far beyond mere acceptance by LGBTI people. Among other things, they oblige companies to respect human rights and thus ensure that there is no discrimination within the company.
Diversity at Novartis is also expressed in figures: The workforce, nearly 104,000 people in 2019, comes from 149 countries, and gender parity has been fully achieved in the workforce and largely achieved in management. On the Board of Directors, however, four of the 14 members are women, or around 28%.
The policy for panel firms
However, this is not reflected in the policy for
panel firms. Of course, a fee reduction of 15 percent is considerable. But otherwise? Novartis accepts panel firms that are predominantly white, male and heterosexual on the one hand. On the other hand, there is the "minority worth protecting": women, non-heteros, non-whites.
Why is that? When asked, the company said:
“Take for example data reported by National Association of Law Placement (NALP) and the Minority Corporate Counsel Association (MCCA), which shows that in 2018, only 33% of law school graduates belong to racial and ethnic minorities, while only 6% of law school graduates self-identify as LGBTQ+. And for areas like gender, where 50% of law school graduates are women, but only 21% of law firm equity partners are women, we need with urgency to understand the *why* behind this dramatic attrition (which may vary by law firm, practice area, and geography) and develop concrete action plans to address the gaps.“
So it seems to be the recognition of a necessity - the policy more or less reflects the status quo. It seems that Novartis can't find any other law firms to engage.
...but also well done?
Novartis is right about one thing: At the moment, parity does not work without a quota. The figures of the large commercial law firms speak for themselves. So far, law firms do not seem to be impressed by the fact that diverse teams are considered more successful, nor do they seem to be concerned about how to find young talent that meets their requirements.
Therefore, the fact that the pharmaceutical company is now setting guidelines for its panel law firms and thus setting an example is a good thing, to say the least.
However, well-intentioned is often the opposite of well done, as is the case here. At Novartis, women - after all, half the population and an equal number of successful law graduates - are to be found in a group with "other" minorities worthy of protection.
The status quo is thus perpetuated, and women are worse off than before, because the claim for parity is certainly not supported by the Novartis policy. If one assumes that it is the male law firm culture, because of which women in the western world do not (or do not want to) make a career in large economic consulting firms, then it is possible that the Novartis quota does not change this.
Low hurdle
And in general: a quota just reflecting the status quo is a low hurdle. If this is meant to be a step toward equal pay and transparency, which the company claims it wants to achieve, it surely is a step in the right direction. But will it motivate law firms to change anything? Probably not, as we all gather from our previous experience. As mentioned, law firms need hard figures and quotas to accept change. Therefore, further perspective guidelines are needed, such as in which period of time the quota will be increased.
Last but not least, at least in Germany, sexual orientation cannot be regulated by a quota. It is not only protected by data protection law, but is also simply not an employer's business. And a policy that in turn takes into account those who out themselves voluntarily is not a diversity policy.
If Novartis wants to ensure that its service providers are committed to human rights and do everything possible to avoid discrimination in the workplace, then in some cases this can be achieved through a number-based target, in other cases not. Last but not least, Novartis does not do this in its own company, despite their high standard of diversity.
Quotas are a good and a bad idea
So how can female lawyers and "other" minorities be attracted to join Big Law as associates and partners? Because that is what it is all about. This is not just a question of zeitgeist or doing good. It is in law firms' own interests, not only because diverse teams are considered to be more successful, but also because it will become increasingly difficult for these law firms to attract young professionals who meet their requirements.
Basically, a quota is a bad idea and a good idea: no doubt the world would be a nicer place if we didn't need quotas. But to achieve this paradise state of affairs, we need quotas. Operating with quotas requires a smart approach, not schematic thinking: quotas should differentiate between individual groups. As far as gender is concerned, it is simple: a corresponding target could be based on the proportion of women who have successfully completed law school.
As far as origin is concerned, it is more difficult. In Germany, a quota for this would be an arbitrary figure, because we do not know what the proportion of different ethnic groups among the graduates is, and furthermore, nobody knows whether and how many people are deterred from studying law because they fear that they will not have a chance on the labour market anyway. Social mobility in legal professions has long been a topic in the USA and England, but not (yet) in Germany. Hence a quota is not going to help.
And when it comes to sexual orientation, the matter is clear again: it is simply nobody's business, in particular not in a professional environment. A quota, or even a promotion due to voluntary disclosure of sexual orientation, would be inappropriate.
Other methods
In addition to policies, other methods are proving to be helpful in other countries: naming and shaming. After the New York Times heavily criticized the election of eleven white men and only one woman to the partner team of the US law firm Paul Weiss, a rethinking process began at the firm. It publicly committed itself to take diversity seriously and to take it into account in partner appointments. And after London’s Allen & Overy was heavily criticised by the government and parliament for failing to provide gender pay gap reports, the Magic Circle law firm has now become a role model in this respect. Easy, isn’t it?
The article was published in German language on Legal Tribune Online (www.lto.de) in April 2020.
About the Authors
Dr Susanne Reinemann is a lawyer and editor of the Neue Juristische Wochenschrift (a leading German legal periodical).
Markus Hartung is a lawyer and Senior Fellow at the Bucerius Center on the Legal Profession at Bucerius Law School.