Microsoft Adopts “Pay for Performance” to Enhance Legal Diversity

REDMOND, Wash., July 21, 2008 — Microsoft General Counsel Brad Smith announced today that the company has launched an innovative effort that uses a “pay for performance” approach to enhance diversity in the legal profession.

Brad Smith, Senior Vice President, General Counsel, Corporate Secretary, Legal & Corporate Affairs

Under the new Law Firm Diversity Program, Microsoft is changing its legal fee structure for 17 Premier Preferred Provider (PPP) law firms that collectively handle more than US$150 million of legal work for the company annually. Each firm will be eligible for a two percent quarterly or annual bonus based on whether it achieves concrete diversity results.

“We believe that diversity in our legal teams is a business necessity,” Smith said. “We cannot be effective if we cannot understand and appreciate the interests and needs of the incredibly diverse individuals who make up our stakeholder groups.”

Many individuals and groups have taken important steps to increase diversity in the legal profession, Smith said. Yet despite good intentions progress has come slowly. Smith and the senior leadership team in the company’s Department of Legal and Corporate Affairs decided it was important for Microsoft to add to these initiatives by becoming more proactive itself.

“We acted with the hope that new and creative steps might help accelerate progress,” Smith said.

Microsoft simultaneously launched new internal initiatives to work in closer partnership with its leading law firms on diversity. Most notably, five percent of the annual bonuses of Smith and his senior leadership team will depend on the level of success the PPP firms achieve in improving diversity and earning their bonuses from Microsoft.

“We concluded that if we were going to ask those who work for us to commit to something new, we needed to make a similar commitment ourselves,” Smith said.

Smith outlined the program in a detailed letter to Microsoft’s 17 PPP firms on July 14.

To learn more about the Law Diversity Program, PressPass spoke with Brad Smith and two senior executives who helped develop the program, Deputy General Counsel Mary Snapp and Neal Suggs, Associate General Counsel for the Interactive Entertainment Business and diversity lead for the Legal and Corporate Affairs group.

PressPass: Why is legal diversity important to Microsoft?

Brad Smith: We believe that diversity in our legal teams is a business necessity. The better we can understand and appreciate the interests and needs of the incredibly diverse array of individuals who make up our stakeholder groups, the more effective we can be. If we can’t understand how other people are thinking, there’s a greater likelihood that we’ll fail to address their needs or persuade them of our position. In this sense, diversity is not simply something that would be nice for us to have; it’s a prerequisite for our success.

Mary Snapp, Corporate Vice President, Deputy General Counsel Law and Corporate Affairs Department

PressPass: Can you explain how the Law Firm Diversity Program will work?

Mary Snapp: Under the program, Microsoft is changing its legal fee structure so each PPP firm can earn a 2 percent bonus by achieving concrete diversity results.

We created two alternative diversity goals, and each firm can choose which goal it wishes to use. The first is a 2 percent 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.

PressPass: What are the diversity statistics of Microsoft’s in-house legal department, and have you also set goals for your group?

Smith: About 44 percent of our most senior attorneys are women or minorities. Below that level we’re at about 50 percent. We feel our focus on diversity is yielding good results. But we’re certainly not standing still, and we’re coupling the Law Firm Diversity Program with a substantially broadened diversity initiative for Microsoft’s in-house Legal and Corporate Affairs department.

For one thing, we have decided that five percent of the annual bonus paid to our most senior departmental leaders, including myself, will be based on diversity progress at the PPP law firms participating in this Law Firm Diversity Program. But there are many other things we are doing.

Microsoft has been focused on this issue for some time. For example, we were an original sponsor of the Minority Corporate Counsel Association’s (MCCA) Lloyd M. Johnson Jr. Scholarship Program, funding three students a year. We recently extended this commitment for three more years as part of a $500,000 contribution to the MCCA. Several years ago we started the Microsoft Women and Minority Law Student IP Summit, a meeting of law students, law firms and in-house counsel designed to encourage women and minority law students to seek careers that focus on technology and intellectual property-related issues. And over the next year we will organize an Advocacy Academy focused on diverse counsel at our PPP law firms.

PressPass: How are you defining “diverse attorneys?”

Mary Snapp: We include both women and minorities, the latter category including attorneys who are Black/African American, Latino/Hispanic, Asian, Native Hawaiian/Other Pacific Islander, American Indian/Alaska Native, or of mixed race. In addition, we strongly encourage firms to include openly gay, lesbian or bisexual attorneys in their definition of diverse attorneys, though we recognize that it may not be legally permissible in some states to require disclosure of or track this latter group. We therefore will honor whatever approach a firm decides to take with respect to this particular aspect.

Neal Suggs, Microsoft Associate General Counsel, Interactive Entertainment Business

PressPass: What sort of diversity statistics does the legal profession have today?

Neal Suggs: Despite many admirable efforts, the legal profession in the U.S. hasn’t yet achieved impressive results in expanding diversity, especially at the partner level. Only 18 percent of the partners at the nation’s large law firms are women, and only 5 percent are minorities. At lower levels in the organizations, women and minorities are better represented, at about 45 and 18 percent, respectively.

PressPass: Is Microsoft the first large corporation to try something like this?

Snapp: As far as we know, we’re the first corporation to offer a program structured like this one, which includes incentives both for the firms to succeed and for the leaders at Microsoft to help contribute to that success.

PressPass: How do you think this program will be received by your law firms?

Smith: In fact we developed the program with significant input from our leading law firms. While the decision to move forward was obviously ours alone, it was important for us to understand their concerns and needs were around a program like this. From the beginning, we viewed this as a partnership to attain a commonly-held goal, and our firms have played a big part in the design of the program. Also, I think all the firms appreciate that we are putting our own money on the line to ensure that we are good partners to help make them successful. One of the gratifying outcomes from this process was a strong desire among many of these firms to identify new ways for us to partner together on diversity issues in general.

During the last decade, the nation’s law firms and large corporate legal departments have grown considerably in size. As a profession, we’ve taken important strides to promote diversity. We believe we have an opportunity to achieve even bigger results if we can find new ways to work together, and that’s what we hope to accomplish with this initiative.

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