Wal-Mart’s Miguel Rivera Challenges the Law Firm Business Model
at Colorado’s Diversity Summit

Colorado Campaign for Inclusive Excellence, a new nonprofit organization in Denver supported by all sectors of the legal community and dedicated to increasing diversity in the legal profession by assisting legal organizations in creating cultures of inclusion, hosted a major legal diversity summit on March 19, 2008 at the University of Denver Sturm College of Law.  The 2008 Rocky Mountain Legal Diversity Summit featured Miguel Rivera, Associate General Counsel at Wal-Mart, as the luncheon keynote speaker.  In his remarks, Mr. Rivera challenged the very foundation of law firm practice and called upon those in private practice to change the paradigm underlying a failing business model.

Core Value of Diversity
As one of the strongest proponents of the Call to Action, Wal-Mart’s legal department has dramatically increased its own diversity over the past five years while moving approximately $60 million of its business to law firms with greater diversity.  Mr. Rivera began his remarks by emphasizing that diversity is a core value at Wal-Mart and, in accordance with that core value, Wal-Mart believes that all of its suppliers, including those that provide legal services, should be as diverse as its customers.  Mr. Rivera also emphasized that “diversity is about the search for excellence” and that “[e]xcellence is found in all races and genders.”  He then reviewed the statistics revealing extremely low numbers of minority attorneys that are partners in major U.S. law firms.  As of November 2007, minority men comprised only 3.74% of law firm partners and minority women made up only 1.65% of law firm partners.  These low numbers are consistent with the extremely high attrition rates for minority attorneys in private practice.

Increased Billable Hours Dictate Untenable and Archaic Family Model
Mr. Rivera blames the high attrition rates on law firm cultures where partners “continue to equate time worked with dedication and excellence.”  Mr. Rivera cited data gathered by the Project for Attorney Retention (PAR - http://www.pardc.org) on billable hours.  According to PAR, from 1963 to 2007, the number of billable hours required to be considered full-time rose from 1300 to over 2000 per year.  In order to bill 2200 hours a year, an attorney must work 12 hour days each weekday and a 7 hour day on three Saturdays each month.  Mr. Rivera pointed out that this business model dictates a certain lifestyle and family model, namely a two parent family where the attorney is the breadwinner and the spouse stays home to manage the household and children.  The PAR study found that 78% of male law firm partners enjoy this “traditional” family model; these same male law firm partners hold 87% of all partnerships, 84% of all equity partnerships, and 92% of all managing partner positions. 

Mr. Rivera reflected on these statistics by stating, “Is it any wonder that this business model and family model persists and it persists despite the fact that only 17% of U.S. households now have a husband in the workforce and a wife who stays home.”  He maintains that this model unfairly impacts women and especially women of color – 70% of whom are the primary breadwinner in their families – the opposite of the “traditional” family model.  Mr. Rivera maintains that the law firm business model and the law firm culture that have “dominated the legal industry since its inception must change if we are to include more women in the ranks of leadership in the profession.”

Law Firm Business Model Results in Financial Losses
Mr. Rivera also pointed out that this business model results in significant business losses to law firms, citing PAR which estimates that “it costs a law firm between $250,000 and $500,000 to replace a second or third year associate.”  In the past, law firms have passed these costs on to clients in the form of higher hourly rates.  Mr. Rivera, citing Wal-Mart’s recent cap on billing rates, stated that “the time for passing these kinds of costs on to clients is coming to an end and clearly, throwing more money at associates is not keeping them at the firm.”  He maintained that “law firm leadership will have no choice but to amend their business models and improve their law firm cultures” as “the only way to stem the tide of financial loss”:

“When law firms begin to realize the losses resulting from associate attrition, when partners experience significant reductions in their draws at the end of the year, when law firms realize they can no longer pass these losses on to their clients in the form of higher hourly rates, law firm leadership will have no choice but to amend their business models and improve their law firm cultures.  The only way to stem the tide of financial loss will be to reduce the cost of attrition and find creative ways to retain associates, women, and people of color.  Why?  Because the business case for diversity and the business case for reducing attrition combine to form a strong financial incentive to attract, recruit and retain women and people of color.  Doing so will mean that clients stay with the firm.  Doing so will eliminate the business losses that we have talked about.  Doing so will mean a happier and more productive workforce of associates, women and attorneys of color.”

Paradigm Shift Required
Mr. Rivera went on to ask:  “What must law firms do?  Well, the time for convincing is over.  If you’re not convinced by the business case for diversity, and the statistics on attrition that have been discussed here this afternoon, you will not be convinced that change must occur.  The challenge facing law firms in corporate legal departments is how to make a paradigm shift – a shift that moves the legal industry to a value-based paradigm and that changes law firm culture to meet the challenges of attrition. 

Law firms must move away from a paradigm that measures an associate’s dedication to the profession and value to the firm by the number of hours that she works into a paradigm that measures her value and worth by the value she adds to the client. 

Law firms must stop measuring their own excellence and prestige as firms by comparing themselves to each other in a competition to offer the highest associate starting salaries and bonuses.  Partners must stop measuring their worth and value as partners by comparing themselves to each other in a race to ever-higher hourly rates in a vain, glorious attempt to become “G-men” – billing a thousand dollars an hour or more.

The value paradigm that I am proposing fits under our performance metric at Wal-Mart.  Again, we measure outside counsel on three broad criteria – performance, cost-effectiveness, and diversity.  The value paradigm requires a multi-faceted analysis of the attorney’s performance along seven criteria:  integrity, results, good judgment, knowing the client’s business, fitting the client’s culture, client confidence, and service.

We believe this paradigm is lived by our best attorneys – both in-house and outside.  This value paradigm shifts a firm’s focus from evaluating its performance based on how it compares to other firms regarding its associates’ salaries and partner rates to a new focus that requires the firm to measure itself based on how it performs fro the client’s perspective.

The business case for diversity and the business case for reducing attrition combine to require a culture that promotes a healthy work-life balance and that evens the playing field for women and, especially, for women of color.  Law firms must adopt formal balanced hour programs that allow attorneys to work individually-tailored reduced schedules that are designed to meet both the firm’s business needs and maintain the attorney’s ability to work and to develop professionally without stigma.”

Successful Work-Life Balance Programs
Citing the PAR study once again, Mr. Rivera explained that “successful balanced hours programs involve the active management of workloads in proportion to reduced hours, emphasize client service, and promote the value of the firm.  Key features of a successful program include balanced hours programs that are business-based and universally available to all attorneys – not just ‘mommy-track’ or maternity leave.  Salaries for attorneys engaged in balanced hour programs must ensure proportional pay for the hours worked.  Providing less than proportional pay, benefits, bonuses, billable hour requirements, assignments, and advancement penalizes attorneys engaged in balanced hour programs and quickly undermines the credibility of the program.   Schedules must be managed so that full-time hours don’t begin to creep back into the attorney’s schedule while pay and bonus structures stay the same.”

Change is Required
Mr. Rivera concluded as follows:  “If law firms are serious about reducing attrition, they will stop throwing money at the problem in the form of ridiculous associate starting salaries and bonuses and develop and implement balanced hour programs that improve associates’ work-life balance and have the wonderful consequences of attracting and retaining women and people of color.

The legal profession is a rewarding career that presents professional and intellectual challenge and rewards.  This career offers wonderful experiences helping clients in finding solutions to real-world problems while working with creative and intelligent people.  It is why many of us have joined the profession and continue to work to improve it.  But the old business paradigms and outdated law firm culture is why many of us – especially women and people of color – are leaving the profession.  The cost to the profession in terms of loss of creativity, loss of perspective and energy, and the cost to law firms and clients in training, development, and replacement costs means that we must change the paradigm and modify law firm culture.  It’s the right thing to do and it makes business sense.”

Colorado’s Legal Community Comes Together to Meet the Diversity Challenge
Changing law firm culture is precisely what the Colorado Campaign for Inclusive Excellence, a new nonprofit organization based in Denver, was formed to address.  The Campaign, supported by all sectors of the legal community has developed a step-by-step program to assist legal organizations in creating inclusive cultures that support better recruiting and retention of all attorneys, including women and attorneys of color.  For more information, see the related article.

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