Law departments play a critical role in supplier diversity programs

The year 2020 was a blatant reminder of the importance of diversity, equity, and inclusion (DEI) in our society. Businesses are taking notice and elevating DEI to the top of the corporate agenda. It’s well documented that diverse businesses benefit our economy and that investing in supplier diversity delivers measurable benefits throughout the business; many are getting creative in how they approach meeting their supplier diversity goals.

Earlier this year, McDonald's announced they have tied executive bonuses to its diversity goals. "Our size and scale is an asset in driving societal change and bringing others along," it said in an internal message. For some businesses — like McDonald’s — it’s a lighter lift in polishing and refining existing policies. Others are starting from scratch, trying to balance stakeholder demands with business objectives. For all, the corporate legal department plays a critical role in the vendor diversity journey. 

Establishing a vendor diversity program

As the in-house counsel tasked with guiding your business through the journey of establishing a vendor diversity program, you face varying priorities among key stakeholders — including other business leaders representing customers, investors, existing vendors, and your staff. Knowing this, it’s important that you actively pursue relationships through open dialog with other business leaders to align policy criteria and enforcement with known organizational goals.

General counsel is in the unique position to be the intermediary among competing priorities and can align stakeholder input with measurable criteria and governance mandates. As you navigate this journey of developing a new or refining an existing vendor diversity program with your colleagues, consider the following.

Crafting a supplier diversity statement

Supplier diversity statements don't follow a specific formula. Some are short and aim to articulate an ethical commitment and leadership aspirations, while others go into greater detail about how it will carry out DEI initiatives throughout the vendor program.

As you work to craft your supplier diversity statement that headlines your program, you’ll want to take the following items into consideration:

• Expanding your policy throughout the supply chain (see Practical Law Practice Note, Corporate Social Responsibility and the Supply Chain)
• How you will manage, measure, and report on your program efforts
• Supplier onboarding and development
• Recruiting and evaluating vendors
• Implications for global businesses

Announcing your public commitment toward advancing DEI throughout your vendor network carries a greater responsibility than in years past. Your stakeholders will hold your business accountable and won’t hesitate to make their observations public when they perceive you’ve broken your promises. General counsel is a critical resource in policy development to elevate policy priorities while protecting the business against known and imagined risks.

Partnering with outside counsel to increase diversity

It’s imperative that the vendors you contract with share in your commitment to improving DEI in their own organizations. For example, when considering outside counsel’s commitment to diversity, law departments should:

• Communicate their diversity policy to outside counsel and their expectations concerning diversity
• Periodically assess outside counsel's diversity efforts and hold them accountable if they do not meet the company's expectations. For example, some law departments require their outside counsel to provide diversity information annually.
• Ask outside counsel to provide the law department with CLE programs featuring diverse speakers, either at the company or the law firm
• Engage minority-owned and women-owned law firms
• Include diversity requirements in guidelines and requests for proposal

Falling short of your own company’s policy isn’t an immediate cause for concern — you’ll need to determine if allowing vendors a transition period or a planned partnership to help bring them up to your company's required standards.

The Practical Law resource Increasing Law Department Diversity offers an overview of key initiatives companies can take, including partnering with outside counsel, to increase diversity of their law departments.

Evaluating supplier diversity program performance

As mentioned, measuring performance is critical toward understanding your program’s success. Law departments can oversee reporting initiatives to demonstrate that the company’s commitment toward real progress is sincere.

The unfortunate reality is that many supplier diversity programs aren’t crafted with an effective measurement strategy to ensure goals are being met and progress is happening. As the law department guides the business in developing a vendor diversity program that succeeds to advance DEI, consider the following opportunities for vendor evaluation and management.

Create a centralized database of performance information. This helps more easily identify the highest-performing business units or third-party firms (this could include law firms and individual attorneys in different practice areas and geographic locations). The data can also be used to identify business units that need extra support or third-party suppliers that should be removed from consideration for future work.

The good news is that the pool of diverse firms is increasing and diversity and inclusion roles within law firms saw the biggest growth in investment in 2020, according to data from Thomson Reuters Peer Monitor’s annual Staffing Ratio Survey.

Prepare an overview scorecard for each business unit or outside firm. The scorecard should show the business unit or firm’s average score calculated for critical performance categories like each performance category within the company’s supplier diversity policy. It should also include select comments made by evaluators. When evaluating outside counsel, be sure to include ratings for individual attorneys.

Analyze and use performance data. It can help in-house counsel and procurement teams look for patterns, success and problem areas, and other insights.

Benchmark services according to set standards. This is especially helpful when reviewing third-party contracts. For instance, this can help law departments:

• Compare services across law firms
• Improve the service it receives from each benchmarked firm
• Compare its law firm rates against the rates paid by other law departments
• Determine whether the increase is warranted and is consistent with the value provided by other similar firms when faced with a firm's rate increase.

In-house legal teams are perfectly positioned to design supplier diversity programs that work within the context of the business, particularly when it comes to procurement practices, board reporting, and public disclosures. Thankfully, they don’t have to go it alone. With tools available like Practical Law, in-house counsel and law department operations can access trusted resources to implement DEI-focused initiatives throughout the supply chain.