The classical ceiling of the law courts.

Do law firms trade off different types of diversity?

9 March 2023

The article at a glance

Law firms and diversity: clients should examine the fine print carefully as firms may substitute racial diversity or pro bono work for gender diversity.

Law firms and diversity: clients should examine the fine print carefully as firms may substitute racial diversity or pro bono work for gender diversity.

Lionel Paolella.
Dr Lionel Paolella

The push for workplace diversity has evolved over recent decades from societal pressure to commercial pressure, and especially in professional services such as lawyering, accounting and consulting. Clients and prospective clients – buyers of these expensive and high-profile services – seek providers whose values align with those of their own employees, suppliers and other stakeholders, or otherwise their selection of service provider risks reflecting badly on the buyer.

Yet a recent study into the top-grossing US law firms shows that such moves to diversity may not be as impressive or broad-based as advertised – so clients should be wary of the fine print. And while the study focuses on law firms, the findings hold implications far more broadly, including for other professional services and the buyer-seller relationship in general.

Gender diversity shows up in only lower tier of law firms

Specifically, the study published in Strategic Management Journal found that while law firms recruit more females owing to the gender diversity preference of prospective clients, this shows up only in the non-equity ranks of law firms that have a two-tier structure (with some partners holding equity in the firm and other partners holding no equity).

“This suggests that firms may bolster the lower rung of partnership tiers to send diversity signals to prospective clients, while still not disrupting the higher echelon of a firm that in fact lacks diversity,” says study co-author Lionel Paolella, Associate Professor in Strategy & Organisation at Cambridge Judge Business School.

Why firms act strategically when it comes to diversity

The study’s findings also suggest that law firms may substitute racial diversity for gender diversity when signalling value alignment with buyers of their services. This suggests firms act strategically regarding diversity management in ways that “emit diversity-conforming signals”.

“The study is entitled ‘A Rivalry-Based Theory of Gender Diversity’, so such diversity-confirming signals are consistent with behaviour that conforms to industry trends when there is an expected economic benefit from doing so in terms of competing with rival firms,” says Lionel, who is Chair of the Equality, Diversity and Inclusion (EDI) Committee at Cambridge Judge.

The study is based on an analysis of 167 top US law firms, around 1,400 buyers, and 1,506 firm-year observations over a 12-year period (2002 to 2014).

Do firms substitute pro bono activity and diversity, as both are costly?

The authors also examined the pro bono activities of law firms as a control factor, and found an inverse relationship between such free and altruistic activities (often on behalf of charities or others who could not normally afford a corporate law firm’s fees) and diversity. This suggests another substitution effect among 2 activities that can be costly to law firms: pro bono work (which means less fee-paying activity) and diversity efforts (which can add to recruitment costs).

The study clearly confirmed the connection between law firms’ presentation of their diversity drives and the preferences of prospective clients’ own values and how they present themselves to key stakeholders. As one law firm partner is quoted in the study: “If we are aware that diversity is a high priority for a particular client, for example, then it will be even more important than it normally is to put a diverse team in front of them.”

Why fielding an unrepresentatively diverse team can damage client relations

Yet even this assertion contains reason for managers of companies seeking legal services to look carefully. A highly select diverse team put in front of a client may not represent the law firm as a whole, and the presentation at such a meeting may mask some trade-offs in diversity and other pro-social activities that – if uncovered – could cast doubt that an alignment of values really exists between buyer and seller.

The study

The study in Strategic Management Journal“A rivalry-based theory of gender diversity” – is co-authored by John Kenneth Mawdsley of HEC Paris, Lionel Paolella of Cambridge Judge Business School, and Rodolphe Durand of HEC Paris.