Minority Issues

5 Takeaways From McKinsey’s ‘Diversity Matters Report’ For The Legal Profession

Diversity isn't a buzzword, it's essential to running a successful business.

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“Live love life like you just don’t care / Five thousand leaders never scared / ‘Bring the noise,’ it’s the moment they feared / ‘Get up’ is still a beautiful idea.” — Chuck D, Public Enemy

Earlier this year, McKinsey & Company published their 24-page Diversity Matters Report, which examines proprietary data sets for 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States. In this research, McKinsey looks at metrics such as financial results and the composition of top management and board. The consulting firm’s findings were clear: when companies commit themselves to diverse leadership, they are more successful. Here are the top-five takeaways from McKinsey’s Diversity Matters Report for the legal profession:

1. Diversity has a positive impact on many key aspects of organizational performance

Throughout its report, McKinsey highlights how diversity helps to:

  • win the war for talent;
  • strengthen customer orientation;
  • increase employee satisfaction;
  • improve decision making; and
  • enhance the company’s image.

According to CEB, diverse and inclusive workforces demonstrate 12 percent more discretionary effort, 19 percent greater intent to stay, 57 percent more collaboration among teams, and 42 percent greater team commitment. For these reasons alone, it is worth it for a firm to begin its efforts on diversity and inclusion. But more importantly, it is time for the profession to be more racially tolerant. As Victor Hugo famously declared, “all the forces in the world are not so powerful as an idea whose time has come.”

2. Key steps for successful diversity programs

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How can companies become more diverse? If firms are serious about diversity and inclusion, McKinsey recommends the following key steps:

  • create a clear value proposition for having a diverse and inclusive culture and set a few clear targets (not quotas) that balance complexity with cohesiveness;
  • understand the current situation in terms of statistics and mindsets;
  • understand root causes and underlying mindsets;
  • differentiate initiatives by diversity group, for example, gender initiatives do not always resonate with other minorities. Lead from the top;
  • define the roll-out strategy for all initiatives, launch 1-2 highly visible flagship projects at the beginning of the effort and monitor rigorously; and
  • continuously address potential mindset barriers through systematic change management and link diversity to other change management efforts.

The Boston Consulting Group has also published an article on how to create a successful diversity program. Last week, I wrote about how this diversity report can be specifically applied to our profession.

3. Learn from behavioral economics and social psychology

McKinsey’s Diversity Matters Report cites recent developments in the fields of behavioral economics and social psychology to help to explain why diversity is lacking in organizations and what methods can be used to increase it. The most relevant behavioral economics and social psychology developments for diversity are:

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  • implicit stereotypes: the association of groups of people with certain traits or activities. . . Without our being aware of it, these associations can powerfully influence decisions such as which candidate to hire;
  • in-group favoritism: a preference for people who are like us, so that an individual might choose to work with someone of the same nationality, gender, and race; and
  • out-group homogenity bias: the tendency for an individual to think that the group of people they belong to (their “in-group”) is more diverse, while their “out-group” is more homogeneous, with members who appear alike or even interchangeable.

I believe implicit bias is the silent killer of diversity in the legal profession. As I have previously noted, implicit racial bias is a systemic issue in the recruiting process. Besides hampering the recruiting process, unconscious racial bias also severely affects a firm’s mentorship and culture, which have a direct impact on retention. In their presentation “Implicit Bias in the Legal Profession,” Janie Schulman and Stephanie Fong, employment attorneys at Morrison Foerster, point out that “[a]wareness of existence of disparities in treatment helps eliminate disparities in decision making.”

As referenced by Schulman and Fong, The Level Playing Field Institute — 2007 Corporate Leavers Survey states that “9.5% of people of color indicated unfairness was the only reason for voluntary departure” and “24.6% of people of color would have stayed at their jobs if they had a more respectful work environment.” They argue that a firm’s understanding of implicit bias can help protect it against attrition and reduce micro-inequities — “small events which are often ephemeral and hard-to-prove, often unintentional and unrecognized by the perpetrator.”

NALP’s 2005 report on attrition revealed “that 42% of male associates of color leave their law firms within 28 months. Within 55 months, 78% have left…. while minority female attorneys have the highest attrition rate, at 41% within 28 months and 81% within 55 months.” In other words, only one in five minority associates last five years at a law firm.

4. How to overcome bias

Perhaps the most important takeaway from the Diversity Matters Report are the concrete, tangible, and specific strategies it provides for its readers to promote diversity and overcome bias. The three main ways it recommends to increase diversity are:

  • by training and educating people to reduce personal biases;
  • by changing organizational processes to take bias out of decision making; and
  • by incorporating behavioral principles in the design of programs and communications to spur action.

To influence a firm’s culture, the report provides specific tips such as: i) highlighting the positive achievements of peers ii) priming people with images and words that discourage bias; and iii) making sure that diversity messages come from trusted opinion leaders. The authors do an excellent job of getting in the weeds in this section of the report. Proper training, transparency, and accountability are all critical elements in a firm’s diversity and inclusion initiative.

5. Diversity yields positive results

Lastly, as McKinsey states, “[w]e know intuitively that diversity matters. It’s also increasingly clear that it makes sense in purely business terms.” The findings are clear:

  • companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their respective national industry medians;
  • companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their respective national industry medians;
  • while certain industries perform better on gender diversity and other industries on ethnic and racial diversity, no industry or company is in the top quartile on both dimensions; and
  • the unequal performance of companies in the same industry and the same country implies that diversity is a competitive differentiator shifting market share toward more diverse companies.

According to the Boston Consulting Group, diverse companies outperform homogeneous ones. One study showed that a 1 percent increase in gender diversity correlates with a 3 percent gain in revenue, while a 1 percent increase in racial diversity correlates with a 9 percent gain in revenue. Diverse companies have better reputations — and by bringing together different points of view, they are also more innovative — than less diverse companies.

Award-winning casting-director Jennifer Euston recently told NPR’s Code Switch that she doesn’t think diversity on television is a trend. Euston believes it is evolutionary and, more importantly, it is successful. The same could be said of diversity in the legal profession. The case for diversity and inclusion in the legal profession is ripe. Simply put, it is time.

Renwei Chung is the Diversity Columnist at Above the Law. You can contact Renwei by email at [email protected], follow him on Twitter (@renweichung), or connect with him on LinkedIn. 

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