First Published on Litigation Finance Journal: November 19, 2019
John Freund: Welcome to the Litigation Finance Podcast. I’m your host John Freund. Brought to you by the Litigation Finance Journal, the only dedicated news source for the litigation finance industry.
Our guest today is Laina Miller Hammond, investment manager and head of Validity’s Houston office. Laina has been researching the topic of pay equity for lawyers and is here to discuss her findings. Laina welcome to the podcast.
Laina Miller Hammond: Thanks so much for having me.
JF: Thanks for being here. This is a really interesting topic so glad you could come and discuss this with us. First just wondering how you got interested in the subject of pay equity in the law and how you came to learn about it and research it.
LMH: I initially became interested in pay equity when I was principal at a law firm here in Houston. My firm was a wonderful place to work but I saw first-hand the challenges that an informal and highly subjective attorney compensation system can create for women and I’ve always been passionate about the experience of women lawyers and pay equity isn’t just a challenge that women lawyers face but I think it’s a really important one.
As a litigation funder, I’ve had the opportunity to enter a lot of law firms and learn a lot about the ins and outs of different firms. I noticed that when the lead trial lawyers bring their cases to us for funding, they are rarely ever women. It’s sort of impossible not to notice. And frankly, it concerns me and it prompted me to look more closely at why that was happening.
So I started researching and writing on the topic of gender fairness and law and have been thinking more closely about what role litigation funding might be able to play in moving the needle closer to pay equality. I’ve had the unique opportunity to speak to a lot of audiences and gain a lot of information that way -- panels, roundtable discussions on the topic-- and I’ve gotten a lot of valuable information from those experiences and every lawyer that I speak with--male or female-- has given me something really unique to think about.
JM: So how do we know that a gender pay gap exists in law. Have there been studies that have been performed? Can you cite anything for us?
LMH: Sure. The topic of pay equity in law has actually been studied quite extensively. The ABA and The National Association of Women Lawyers have both conducted important studies and the recruiting firm, Major Lindsey and Africa just recently came out with their results of their 2018 Partner Compensation Survey.
The ABA interestingly followed up their most recent survey with a report that was called “Closing the Gap: A Roadmap for Achieving Gender Pay Equity in Law Firm Partner Compensation” and what all of these studies show, is that, in a nutshell is that women lawyers are not paid at the same level as their male counterparts in their firms. The Major Lindsey and Africa survey actually led to some results that got a lot of national attention. Their study found that women law partners at the top US law firms earned 53% of what the male partners at their firm earned. The surprising thing is that the pay gap has actually widened since 2016 when that study was last conducted. At that time, it showed a 44% pay gap between men and women law partners at the same firm. Now the gap is 53%. So, it’s going in the wrong direction. The National Association of Women Lawyers survey shows that 93% of top law firms report their top earner as a man. Only 7% have a woman as their top earner.
JF: ‘What would you say are some of the factors that contribute to that? Did you identify anything in your research?
LMH: The studies show that the factors, as you might expect, that contribute to the gender-based pay inequity are numerous and they’re varied. One thing that’s clear from the data is that women lawyers are not paid less because they work fewer hours.
Some of the factors that have been identified are things like implicit bias and favoritism in compensation decisions, lack of women leadership in positions and key firm committees-like compensation committees, lack of mentorship and sponsorship for female lawyers, overly subjective compensation models seems to be a problem. Even things like women’s reluctance to advocate for themselves or to ask for higher pay. So those are some of the few factors driving this. But study after study has identified one major factor underpinning the pay gap that seems to have the greatest impact and that is the issue of origination.
There’s an undeniable link between origination credit and partner pay. That’s not surprising, that’s something that I think most lawyers recognize. And the data shows that on average, women simply get less origination credit than men. In that Major Lindsey and Africa study that I mentioned, women partners reported average originations that were 56% of the average originations that the men partners reported. And similarly, The National Association of Women Lawyers found that 46% of the nation’s top 200 law firms do not have a single woman among their top 10 rainmakers. So, the reality is that law firm compensation is overwhelmingly tied to client matter origination and while law firms may weight originations differently when determining partner compensation and they may assign origination credit in different ways, origination is a centerpiece in every compensation model.
I recently served on a panel where the topic was law firm compensation models and this is something that was just universal among all of the panelists talking about their firm programs. And what’s clear is the ability to bring clients in can make or break things for a law firm partner. Both in terms of compensation and advancement to equity partner. So when women lag behind in this area, they also lag behind in pay as well.
JF: So if the issue here is law firms focus on client matter origination when deciding partner compensation right, and female partners are statistically earn less origination credit than their male counterparts. Can you discuss why that is? What are the challenges women face when it comes to origination?
LMH: Sure. What I’ve observed from research and the panels and discussions that I’ve been a part of is that origination challenges seem to fall into two general categories. The first one being credit and the second one being access and opportunity.
With regard to the first one, credit, the data shows that firms often fail to allocate proper credit to women who participate in successful origination efforts. Or who are really the key to a firm maintaining an ongoing relationship with a client, but they aren’t getting credit for that. For example, women are statistically more likely to be the partner managing the day to day on matters rather than being the partner with the original client relationship that may date back years and years. Compensation systems that don’t give credit to the so-called “minders and grinders” on cases tend to disadvantage women.
Second, many firms allow informal client inheritance, this is where retired male partners hand some of their most lucrative clients down to younger male partners. The data shows this is what happens traditionally. I’ve found that law firms rarely have systems formalizing succession plans for key clients. The data shows that these informal inheritance systems disproportionately hurt women lawyers.
I mentioned the other origination challenge being lack of access and opportunity. The research has shown that women lawyers are not granted access to the same business development opportunities as men. Particularly the traditional business development opportunity we often think of. The classic example being the all-male golf outing or the night out at the cigar bar. While I think that there are efforts to widen these opportunities, the data is showing that women are still cut out from a lot of the business development opportunities that firms promote and support.
Statistically women are also less likely to be included on pitch teams to clients and sometimes when they are included, they’re not always given credit when the matter is brought in. Or they’re not positioned in a lead role on the case. And the last thing is women on average are just much less often the recipients or internal referrals from their partners than their male colleagues are. So all of those are some of the origination challenges that women face.
JF: Let’s say that law firms don’t change their model, that they remain entrenched in this culture of emphasizing origination when it comes to partner compensation. What can women do within that system to get more origination credit and up their compensation?”
LMH: I think that the most critical thing women can do is to approach rainmaking in a new and creative way. The old methods are not necessarily working. Change the rules of the game, so to speak. I think women have to find a way to set themselves apart from the rest of the pack. They can do this in a lot of different ways. One is by establishing networks with women in in-house positions. The data shows that women law partners are most often hired by another woman. They can demonstrate to clients why the diversity of their team can bring enhanced value and I think a lot of clients recognize that. Women lawyers can offer new solutions to clients. Things like flexible fee structures and litigation finance as ways to stay competitive.
JF: I’m glad you mentioned litigation finance because I wanted to tie it all back to that. Of course, we are on a litigation finance podcast so bringing it back to litigation finance, how can litigation finance help women lawyers achieve greater pay equity?
LMH: Well women lawyers just like their male colleagues, I’m not saying that litigation finance is only for women by any stretch, but women lawyers like their male colleagues can use litigation finance as a tool to develop new client business and expand on existing client relationships that the firm might have. For example, instead of offering the same hourly fee structure, women can offer clients alternative fee arrangements coupled with litigation funding and she can educate clients on how these tools and this combination of tools can allow the clients to pursue cases without having to devote that precious company resources to the litigation.
When litigation finance and alternative fee structures are in place, rather than the client pay all the cost of the fees on case, the expense and risk can be shared by the law firm and the funder. And the client then can put those savings to other company initiatives and goals. This can be very attractive to clients who are worried about the impact the cost of the litigation will have or potentially have on their balance sheet. And if the lawyer is able to facilitate the process by introducing the client to a funder that she knows and trusts, that’s even better. But definitely by approaching clients with new ideas on how to pay for litigation, I think a litigator is also demonstrating that she is also innovative and is not just thinking on how to win the case but is also thinking creatively on how to help clients manage those fee and budget constraints they have through being creative and a workable solution.
Women partners can also use litigation finance to build on existing relationships with clients by sharing risk with them. This is one way she can show the client that she is a true trusting partner who is all in with them in these cases. I think it’s important to mention that a really critical feature of litigation finance is that it can help lawyers take on risk in a smart and measured way. Rather than taking on all of the risk in a case like a partner would in a full contingency arrangement, she can share that risk and offload some of that risk with a funder. For instance, she can take a portion of a case fee budget on contingency and get the other portion of the budget by the funder.
Getting guaranteed fees up front is very comforting for law firms. We call this a hybrid fee structure. Instead of the firm taking on all the out-of-pocket cost on the case, which they’re often reluctant to do, the funder can cover those too. When a lawyer presents this type of arrangement to the firm’s contingency committee or whoever is making the decision on whether alternative fee structures are going to be permitted, she has a much greater chance of getting the green light in this type of hybrid structure because the risk is shared.
And it’s important to mention that the contingency interest that the lawyer gains gives her the opportunity to share in the upside of a really great case that she loves. That extra revenue generated by selecting a contingent fee on a successful case has been shown to substantially boost partner profits and as a result should boost the lawyer’s compensation as well.
One more thing I’d like to add about litigation finance is that funding companies are also in a unique position to give women lawyers opportunities to grow their business. We interact with a lot of lawyers and we have the ability to make the connections between lawyers. One way that Validity does this is through our “Women in Power Luncheon” which we host. It’s a forum of women lawyers to network and learn from each other’s experiences and develop business relationships. It’s been really well received. We offer the opportunity to women lawyers in all specialties not just litigation but we invite law firm lawyers and in-house lawyers as well.”
JF: There’s a lot of attention being paid to this issue right, of gender equity, many firms have established diversity initiatives yet you mentioned earlier that the study shows the pay gap widening instead of shrinking. So what’s happening there? Why is it that there seems to be more awareness today and yet the pay gap is widening?
LMH: Well unfortunately, I think many well-intentioned diversity programs at law firms simply have no teeth. They can’t achieve greater equity because they don’t have the authority to make real change in terms of the way women attorneys are compensated. And the data shows that really unless the chair of the diversity committee at a firm has a direct line to the executive committee and the compensation committee who are really making decisions on pay, the diversity committee can sort of become window dressing for the firm. Something that the firm can put on their website and promote to their clients but not really agents for meaningful progress.”
JF: So are there any steps that law firms are taking that are helping achieve greater pay equity?
LMH: Absolutely. Many firms are taking important steps. And these are things like adjusting their compensation models to make sure that they assign credit on given matters to multiple attorneys not just the attorney with the original client relationship. Some firms are building in new criteria into their compensation systems in order to reward non-billable contributions to the firm that statistically women tend to take on more frequently than men. Other firms are creating business development opportunities specifically for their women lawyers. Some firms have instituted policies that incentivize its lawyers to build diverse teams within their firms and many are trying to have more diversity on their compensation committee. Those are the steps that we see firms are taking.
JF: It’s definitely a pertinent issue and an ongoing challenge. It is nice to know that there are some creative outside-the-box approaches that female lawyers can take to hopefully narrow that pay gap. We really appreciate you coming on here with us today and sharing your research with us.
LMH: Thank you. It was my pleasure and I appreciate the opportunity.
