Client procurement power and its impact on women lawyers

The law is a service industry. Clients make hiring decisions that are impacted by a multitude of factors--pre-existing relationships, geography, matter-specific expertise and merit among them. Yet with women comprising the majority of law school students for nearly a decade but only a quarter of equity partners in law firms, these factors alone do not necessarily favor hiring women as lead counsel. But women have found that clients themselves can be powerful partners in enhancing advancement opportunities.

Client leadership

Clients have paved the way for female advancement through formal procurement processes, shifting away from traditional relationship-based hiring. Formal Requests for Proposals (RFPs) require written submissions that allow clients to compare credentials, expertise, price and demographics. Even where RFPs do not expressly require the submission of diversity statistics, firms can voluntarily submit this information and often do so to their benefit. RFPs heighten competition among firms to the advantage of clients while leveling the playing field between the best and the best-known lawyers within submitting law firms.

Some clients also retain panel counsel whose membership is conditioned on similar metrics and sustained through demonstrated ongoing commitment to diverse teams.

Significantly, client commitment to diversity does not end at the award stage. To ensure diverse teams are not limited to the pitch documents themselves, many of those same legal departments track diversity metrics in billing data. Others go further, seeking annual reporting; disclosure is voluntary, but non-disclosure has a predictable cost.

What motivates clients?

Client demographics, too, are a critical component of the ecosystem advancing women in law firms. Women hold the general counsel position in approximately 40% of Fortune 500 companies, and are thus positioned to use their procurement authority to direct work to diverse teams and firms with a proven commitment to diversity.

Attempts to mandate female presence in corporate positions of power, though, have so far failed to withstand legal scrutiny. And because legal mandates have failed, client procurement power becomes even more significant as a driver of women's advancement.

California's SB 826

Passed in 2018, California's SB 826 mandated that every publicly held domestic or foreign corporation with principal executive offices located in California have at least one female director on its board by Dec. 31, 2019, and yet higher minimums by Dec. 31, 2021, based on total board size. The law penalized noncompliance with a $100,000 fine for the first violation and $300,000 for each subsequent violation.

Judicial challenge soon followed. In the matter Crest v. Padilla, Case No. 19STCV27651, 2019 WL 3371990 (Cal. Super. 2019), three plaintiffs filed a taxpayer suit, arguing that taxpayer resources should not be used to enforce an unconstitutional gender-based quota. In May 2022, Los Angeles Superior Court Judge Maureen Duffy-Lewis struck down the law, finding that it violated the Equal Protection Clause of the California Constitution.

But during the pendency of the matter there was no injunction in place. Whether through organic evolution or legal mandate, female board presence grew appreciably during this time. In 2018, when SB 826 was enacted, women held only 15.5% of California's public company board seats. By 2021 that figure jumped to 29.6%. Id. Since the law was struck down, female presence on boards in California has roughly held steady around 30%.

Nasdaq: comply or explain

Nasdaq has also taken a run at institutionalizing female board presence with a "comply or explain" policy. Nasdaq's Board Diversity Rules, Rule 5605(f) and Rule 5606, required most Nasdaq-listed companies to (1) have, or publicly explain why they do not have, at least two diverse directors, including at least one self-identified female director and at least one director who self-identifies as an underrepresented minority or LGBTQ+, and (2) publicly disclose board diversity statistics annually using a standardized Board Diversity Matrix.

In August 2021, the SEC approved these Board Diversity Rules.

In the matter All. for Fair Bd. Recruitment v. Sec. & Exch. Comm'n, 125 F.4th 159 (5th Cir. 2024) (en banc), Alliance for Fair Board Recruitment and the National Center for Public Policy Research challenged the rules, alleging that (1) the SEC's approval of the rule constituted government action triggering Equal Protection analysis and could not survive strict scrutiny, and (2) the rule was inconsistent with the purposes of the Securities Exchange Act of 1934. 

In December 2024, in a 9-8 decision, the 5th Circuit held that the SEC exceeded its statutory authority when it approved the rules and thereby vacated the SEC's approval of the diversity rules and struck them down. The court expressly noted, however, that "nothing prevents companies from voluntarily disclosing--or even advertising--their directors' social demographic, political, or any other characteristics."

Path forward

Ruth Bader Ginsburg is famously quoted as saying, "When I'm sometimes asked 'When will there be enough [women on the Supreme Court]?' and I say 'When there are nine,' people are shocked. But there'd been nine men, and nobody's ever raised a question about that." She is also less famously quoted as saying, "Real change, enduring change, happens one step at a time." Id. In this moment, client demand proves to be a durable force driving the next step for the advancement of women in law firms.

Kirsten A. Hart is a partner at ArentFox Schiff LLP.