When All Else Fails…How About a Bribe?
Microsoft General Counsel Brad Smith announced that the company has launched a new "Law Firm Diversity Program" that uses a “pay for performance” approach to enhance diversity in the legal profession.Firms can choose from two alternative diversity goals. The first is a 2% increase in the hours worked by U.S.-based diverse attorneys as a percentage of total hours worked on Microsoft matters, compared with the same time period last year. The second goal is a 0.5 percent increase in the total number of U.S.-based diverse attorneys employed by the firm.
In other words, the first goal focuses on diverse representation for Microsoft, while the second focuses on diverse representation in the firm’s U.S. offices overall. Microsoft practices what it preaches; 44% of its senior counsels are women or minorities, and 50% its junior level attorneys are women or minorities.
Microsoft’s efforts to increase diversity within its outside counsel are noble, but the solution it offers is questionable. Providing “bonuses” for law firms to do what they should be required to do ethically, morally, and professionally in the first place, is a sad commentary on the state of our legal industry.
It is easy to understand Microsoft’s effort to try something new. Four year since the "Call to Action" was launched, little has changed in terms of law firm diversity. Yet, the solution it offers leaves much to be desired. Are incentives without sanctions little less than a bribe? And more importantly, is this an effective solution?
Throwing money at a problem has seldom yielded correct solutions. This is especially true when one considers the types of revenues generated by big U.S law firms. As reported by The Lawyer (March 24, 2008), U.S. firms had their best year ever in 2007, with the top 50 firms generating collective revenues of $46.8 billion!
Will a 2% bonus on hours already worked, as proposed by Microsoft make a difference one way or the other? That’s unlikely for big firms who are already guaranteed to make $150M in fees.
Is it the solution itself that is problematic, or the fact that it lacks teeth to be effective? It’s probably a little bit of both. It is difficult to get over the unpleasant taste of companies giving bonuses, in what essentially mounts to “bribes” to law firms to do what they should be doing in the first place. Perhaps it is part of the solution. While it is evident that in order to effect tangible change, companies need to tie their demands to the purse strings of law firms, spending more money on a broken system will not alone fix the problem.
What we need is accountability from law firms. Law firms need to develop business plans and strategies that fundamentally incorporate diversity as part of their structure and organization, together with measurable benchmarks and goals. In order to obtain this, companies should implement a combination of sanctions and incentives that have measurable impacts on the revenues of big law firms.
If Microsoft had in addition to its "Law Firm Diversity Program" implemented a measure whereby it committed to only engage law firms that either increased the hours worked by its U.S.-based minority attorneys by 2%, or increase the total number of their U.S.-based minority attorneys by 0.5% - then the policy would have had the kind of teeth to effect real change. Threatening $150M in revenues has a lot more of an impact than potentially adding another $30M to the pot.
Many corporate clients already reward diversity in their outside counsel (not in terms of bonuses per se, but by giving these firms more work, preferred provider status, or by hiring them in the first place)—yet, the numbers of women and lawyers of color at those firms have not changed much. Obviously, rewards alone, whether monetary or otherwise, are not sufficient to effect change in this situation.
The Call To Action pledged that corporations would end relationships with law firms that hadn't made significant progress in becoming more diverse. Yet, few companies have committed to this pledge. If they had, the legal landscape might look quite different.
Susan Hackett, senior vice president and general counsel of the Association of Corporate Counsel, who has been involved in Call To Action, stated in a recent (May 2008) National Law Journal article that companies were not ready to make this kind of sacrifice.
"While they may be committing to diversity principles, that's a difficult decision when talking about firms that have done good work for you," Hackett stated. Also, general counsel executives could feel hypocritical judging the diversity of the law firms they use if they haven't made substantial progress in their own law departments, she said.
If this is the case, then how can companies ask law firms to increase diversity within their ranks when they are not committed to doing the same within their own legal departments, or are unwilling to make the necessary sacrifices themselves? Most probably can't. On the other hand, a company like Microsoft, that has made a genuine commitment to diversity, had an opportunity to take a stance and initiate real change. Instead, it stopped one step short…and so will its law firms.
Under Scrutiny:Aggressive Federal Probes Put GCs in Jeopardy
In the past five years, at least 34 in-house attorneys have been convicted of, pleaded guilty to or settled civil or criminal charges brought by the SEC or the DOJ, and another 12 have been charged and have cases pending. While there is a concentration in the high-tech sector, which served as center stage to the options backdating scandal, the defendants represent a wide range of industries and company sizes. Take a look at the Inside Counsel article for the full story.Found Guilty
- Robert Graham; Assistant GC, General Re Corp; Securities fraud
- Michael J. Pietrzak; GC and CFO, Hexagon Consolidated Cos. of America; Securities fraud
- Peter Atkinson; EVP, GC, Hollinger Inc.; Mail and tax fraud
- Mark Kipnis; Chief corporate counsel, Hollinger Inc.; Mail fraud
- Bruce Hill; GC, Inso Corp.; Perjury (jury deadlock on securities and wire fraud)
- Chris Gunderson; GC, Universal Express Inc.; Securities fraud
- Anne Hovis; GC, Phlo Corp.; Aiding/abetting SEC violations
- Mitchell Drucker; Associate GC, NBTY Inc.; Insider trading
- Kevin Heron; GC, Amkor Technology; Insider trading
- Charles Spadoni; GC, Triumph Capital Group; Racketeering, theft/bribery
Settled or Pleaded Guilty
- Scott Lodin; GC, Andrx Corp.; SEC violations
- Thomas Bucknum; GC, Biogen Idec Inc.; Insider trading
- Jane Kober; GC, Biopure Corp.; Securities fraud
- Jon Bloodworth; GC, Busybox.com; IPO fraud
- Steven Woghin; GC, Computer Associates International; Conspiracy/securities fraud, obstruction of justice
- William Sorin; GC, Comverse Technology, Inc.; Conspiracy/securities, mail, wire fraud
- John Isselmann Jr.; GC, Electro Scientific Industries Inc.; SEC violations
- Craig Scott; CFO and GC, FFP Marketing Company Inc.; Securities fraud
- Jonathan Orlick; GC, Gemstar-TV Guide International; Securities fraud
- David Drummond; GC, Google, Inc.; SEC violations
- Kevin Hunsaker; Senior Counsel/Chief Ethics Officer, Hewlett-Packard Co.; Fraudulent wire communications
- James Moen; GC, Katun Corp.; Wire fraud/computer-related fraud
- Myron Olesnyckyj; GC, Monster Worldwide; Options backdating
- Randi Collotta; Associate, Global Compliance Division, Morgan Stanley; Conspiracy/securities fraud (insider trading)
- Steven Hunt; President/GC, Southmark Advisory Inc.; SEC violations
- Leonard Goldner; EVP/GC, Symbol Technologies, Inc.; Conspiring to obstruct the IRS, securities fraud
- Kenneth Selterman; GC, Take-Two Interactive Software Inc.; Options backdating
- Howard Udell; CLO, The Purdue Frederick Company, Inc.; Misbranding a drug
- Stanley Silverstein; GC, The Warnaco Group, Inc.; SEC violations
- David Klarman; GC, U.S. Wireless Corp.; Mail fraud, money laundering, SEC violations
- Andrew Marks; Chief Patent Counsel, Vertex Pharmaceuticals, Inc.; Insider trading
- Fred Stone; GC, Millennium Management; Fraudulent market timing
- Herbert Getz; GC, Waste Management Inc.; Securities fraud
Acquitted or Charges Dismissed
- Scott Monson; GC, JB Oxford Holdings, Inc.; Late trading
- Scott Wiegand; GC, PurchasePro.com; Conspiracy, Securities fraud
- Mark Belnick; Chief Corporate Counsel, Tyco International; Fraud
- Jay Lapine; GC, HBO & Co.; Acquitted on one charge of securities fraud, mistrial declared on six other counts.
- Daniel Adkins; GC, Xpress Pharmacy Direct; Various charges related to running an illegal Internet pharmacy
Indicted or Charged; Cases Pending
- Nancy Heinen; GC, Apple Inc.; Options backdating
- Jilaine Bauer; GC, Heartland Advisers Inc.; Insider trading
- Lisa C. Berry; GC, Juniper Networks Inc.; Options backdating
- Kent Roberts; GC, McAfee Inc.; Options backdating
- Susan Skaer; GC, Mercury Interactive; Options backdating
- Eric Deller; GC, Peregrine Systems Inc.; Aiding/abetting fraud
- Richard T. Nelson; GC, Peregrine Systems Inc.; Securities fraud
- W. Roderick Johnson Sr.; GC, Rocky Mountain Energy Corp.; Securities fraud
- Christi Sulzbach; GC, Tenet Healthcare Corp.; Securities fraud
- Eric Jaeger; EVP-Corporate Affairs; GC, Cabletron Systems Inc.; Securities fraud
- Jordan Mintz; GC, Enron Corp.’s Global Finance Group; Securities fraud
- Rex Rogers; Associate GC, Enron Corp.; Securities fraud
- David Dull; GC, Broadcom Corp.; Options backdating
Source: American Bar Association Section Committee on Corporate Counsel, October 2007; updated with information from the SEC and DOJ.
In a follow-up story, Corporate Counsel looked at where the General Counsels of the stock option backdating in Silicon Valley have gone. Only three still have the same general counsel job, according to research by The Recorder, a sibling publication of Corporate Counsel. (Nine companies did not have a GC at the time, and one had two.) The biggest portion apparently are not practicing law anymore, or have retired. The Recorder made this determination based on multiple factors: Sources indicated that they were not practicing; some of these individuals are listed as inactive in their bar entries; their entries feature home phone numbers; they could not be found in recently filed publicly available information; and they did not return repeated requests for comment.
Still GC's at Same Company: 3
- Charles Rigg, the GC of Maxim Integrated Products, remains in the position
Same Company, Reassigned: 4
- Robert Donohue, the former GC of BEA, is now VP-legal
New GC Job: 7
- Stuart Nichols, the former GC of KLA-Tencor, is now general counsel of MIPS
Business/Consulting: 3
- Susan Skaer, the former GC of Mercury Interactive, now sells real estate
Apparently not Practicing/Retired: 12
- Nancy Heinen, the former GC of Apple, is now fighting SEC charges
Unclear: 2 (no information was found about these GCs)
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