Unveiling the Economic Power of Diversity in Legal Practice

Article by Salma Khalif.

Reading time: seven minutes

Exploring the economic benefits of diversity in the legal field.

Background

Diversity and Inclusion (D&I) are crucial for providing equal opportunities to underrepresented groups like racial minorities, women, and people with disabilities, who have faced barriers in entering the legal profession. By fostering diversity, we enable these individuals to excel in law without being hindered by stereotypes or biases.

In addition to promoting Equality, Diversity, and Inclusion (EDI), there are various positive outcomes that highlight the importance of enhancing these aspects in the legal sector. One significant benefit is economic, as clear studies and research indicates; higher diversity levels can lead to increased revenue, market share, and reduced legal costs. These economic advantages underscore the value of D&I, which not only helps combat stereotypes and promote equality but also attracts legal practices seeking success and growth.

Economic Benefits

1. Increased Revenue

Firstly, there have been studies that highlight increased employee diversity is directly correlated with having higher revenues. A 2009 study by Cedric Herring highlights the first empirical examination of the impact of racial diversity on business performance. The study found that higher sales revenue is collected with higher levels of diversity within the workforce, therefore the higher the diversity in companies, the sales revenue increases.

Statistics highlight that low diversity mean revenue is $52.3 million, while medium diversity mean revenue is $323.9 million and high diversity mean revenue is $808.9 million. Comparing high and low revenue, the states’ high diversity has over 15 times the revenue of low diversity revenue, in terms of racial diversity.

This argument is further strengthened, as the study also found these findings stayed consistent when it comes to gender diversity, as lower gender diversity mean revenue is $45.2 million and higher gender diversity mean revenue is $639.7 million, which demonstrates that high levels of diversity is 14 times greater in terms of revenue compared to lower levels of diversity.

Overall, these statistics demonstrate that legal practices can benefit greatly in terms of their profits, e.g. client deals, when there is more diversity present.

2. Increase Market Share

Secondly, studies have shown increased diversity is correlated with increased market share. The study by the Center for Talent Innovation reveals that companies with diverse leadership, having both inherent and acquired diversity, are 70% more likely to capture new markets and over 45% more likely to experience market growth.

Also, employees under leaders with 2D diversity report a significant increase in the endorsement of their ideas (63% vs. 45%), empowerment to make decisions (82% vs. 40%), and feeling safe to introduce ideas (74% vs. 34%). These findings underscore the importance of diverse leadership in fostering environments leading to innovation and market success. Moreover, data shows that diversity not only contributes to market expansion but also aids in maintaining current market share through improved client retention. Studies highlight gender diversity, with a gender balance of 40% to 60% women, have an average client retention rate nine percentage points higher than other entities.

Additionally, research from the Center for Talent Innovation indicates that a team including a member who shares a client’s ethnicity is 152% more likely than another team to understand that client. This understanding enables lawyers to navigate cultural nuances, expectations, and conflict-resolution styles effectively. This helps to foster trust and confidence with diverse clients and implement more tailored legal strategies.

Consequently, firms that prioritise diversity efforts can both sustain and augment their market share, reflecting the stronger relationship between diversity and business success in the legal profession.

3. Mitigating Legal Costs

Companies with robust diversity policies can avoid or mitigate both direct and indirect litigation costs associated with discriminatory-based legal complaints, such as those related to race, sex, national origin, and religion, which are among the most common types of legal actions filed by employees.

The U.S. Equal Employment Opportunity Commission (EEOC) reports a surge in employment discrimination charges, with significant monetary benefits for out-of-court resolutions reaching $355.6 million from 1997 through 2017. This doesn’t include litigation resolutions or charges from state or local agencies. The costs of discrimination extend beyond monetary penalties, including damage to reputation, employee time away from primary roles during litigation, and the resources required for reputation repair, as demonstrated by Starbucks’ $16.7 million loss due to a half-day store closure for racial-bias education training following a public incident in 2018. Mitigating legal costs is also highlighted through anti-discrimination policies. For example, Wal-Mart class action case where the Supreme Court considered Wal-Mart’s anti-discrimination policy.

However, some argue that relying solely on organisational structures for legal compliance may weaken the impact of anti-discrimination laws. This suggests that organisations should implement measures in their diversity and inclusion programs to actively protect the interests of underrepresented groups.

Overall

The significance of D&I in the legal profession cannot be overstated, as it not only promotes equal opportunity but also allows for substantial economic benefits. By fostering diverse and inclusive environments, law firms and barristers chambers’ can enhance their revenue, market share, and client retention rates.

Moreover, robust diversity policies play a pivotal role in mitigating legal costs associated with discriminatory-based complaints, underscoring the imperative for organisations to prioritise D&I initiatives.

Ultimately, by embracing diversity, law firms and chambers cannot only strengthen their financial success but also uphold their commitment to fairness, equality, and societal progress.