HP to withhold fees from law firms that do not meet diversity requirements

Rivera-Kim

In-house legal departments regularly encourage, and in some cases require, that outside firms have some level of diversity in staffing legal work. HP has taken this mandate a step further – saying the company will withhold invoiced fees from firms that do not meet diversity requirements.

Kim Rivera, HP’s chief legal officer and general counsel, announced the Palo Alto-based company’s policy in a letter to partner law firms on 8 February. HP implemented its directive, Rivera wrote, to “emphasise the business imperative to make meaningful strides in diversity” at partner firms.

“With this we can withhold up to 10% of all amounts invoiced by law firms that do not meet or exceed our minimal diverse staffing requirements,” wrote Rivera, HP’s general counsel since November 2015.

The new policy will apply to all US-based law firms – with 10 or more attorneys – that HP hires. To avoid a potential fee cut, firms must field “at least one diverse firm relationship partner, regularly engaged with HP on billing and staffing issues” or “at least one woman and one racially/ethnically diverse attorney, each performing or managing at least 10% of the billable hours worked on HP matters”.

The holdback will not go into effect until the second year of HP’s engagement with a firm, giving firms time to comply and HP time to test the programme.

Companies have increasingly placed emphasis on diversity and inclusion in outside firms – Microsoft offers annual bonuses to firms to increase diversity in partnership and leadership – but HP’s mandate is novel, said Gary Sasso, president and chief executive of Carlton Fields Jorden Burt and vice-chairman of talent development for the Leadership Council on Legal Diversity.

“Some general counsel have talked about favouring law firms that are more successful in diversity and inclusion and, in extreme cases, deciding to work less with law firms that were less aggressive [on diversity],” Sasso said. “But I haven’t seen anything like this.”

Hassia Diolombi, a partner in Shook Hardy & Bacon’s Miami office, said that although companies do incentivise outside firms to use diverse teams, “punishments seem new”.

Diolombi said some firms may not be supportive at the outset of HP’s new policy. “But you have to make your clients happy if you want to keep them…so I think people are going to do this and just eventually see it as another cost of doing business,” she said.

For firms committed to promoting diversity, HP’s holdback mandate will not be a huge ask, Diolombi said. “I think firms that are dedicated to diversity and inclusion, that have programmes in place and are implementing their own inclusion efforts, won’t have a problem with this,” she said. “It’ll just be an extension of those programmes.”

Rivera, who spoke at an American Bar Association event in August about HP’s drive to create opportunities for diversity, said in the letter that she is looking to the “courage and vision” of outside firms to support the holdback policy. “I count on you, as our partners, to help make a positive impact on the profession,” she said.

HP’s new holdback mandate could help ensure firms follow through on what they say about promoting diversity in the law, said Susan Hackett, founder of Legal Executive Leadership, a legal consultancy for corporate law departments.

“They are putting teeth in diversity policies, which for many companies and many firms end up being more about words than actions,” said Hackett, a former general counsel to the Association of Corporate Counsel.

As to whether other legal departments will follow HP’s lead on holding back fees, Hackett said she believes the company’s mandate could become more common. But it is likely to start with “large companies first and then it will trickle through the profession over time”.