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Coke’s ‘Rigid’ Legal Diversity Drive Pushed Corporate Limits

April 1, 2022, 3:59 PM

The Coca-Cola Co.’s withdrawal of controversial diversity standards for outside lawyers has sparked questions about the future of similar efforts at major corporations.

The decision, confirmed by the company on Monday, made waves in the legal industry. It highlights a growing debate over where to draw the line between permissible diversity initiatives and unlawful mandates in a profession that remains overwhelmingly White.

“A step back by a major corporation is disheartening to say the least,” said Regina Speed-Bost, a longtime inclusion advocate. “I hope that it’s being replaced with something that they think is going to produce better results.”

Corporate diversity programs have been around for decades, but a climate of skepticism toward race-based policies—the subject of a pending U.S. Supreme Court case—has some wondering whether Coca-Cola’s calculus could have a chilling effect on diversity, equity, and inclusion efforts.

Coca-Cola sought to have Black lawyers handle at least half of the billable time on the 30% of new matters that the company’s outside counsel would be forced to earmark for diverse attorneys. The policy also would have cut fees by 30% for U.S. firms that failed to meet those requirements.

The policy was one of the more tangible corporate commitments to diversity because it had actual metrics associated with it, said Speed-Bost, who runs her own diversity consultancy in addition to practicing law.

“The summer of 2020 sparked a lot of promises and the focus now is on the follow through,” she said, referencing the death of George Floyd.

Minority Corporate Counsel Association president and CEO Jean Lee said she fears that Coca-Cola’s about-face will give some law department leaders worried about being too aggressive in promoting diversity cover to promote “watered-down” policies of their own.

“It’s disappointing because Corporate America and the world really had a blip moment of being enlightened,” Lee said. “And now they’re back to where they were.”

Coca-Cola initially said last year that it would pause and review the outside counsel diversity program announced in January 2021 in a letter to the soft drink giant’s outside law firms by its former general counsel Bradley Gayton.

Bradley Gayton

Gayton previously said he came up with the initiative because he felt the legal industry wasn’t doing enough on diversity. He resigned from Coca-Cola in April 2021 with a roughly $12 million deal to become a strategic consultant to the Atlanta-based company, a contract that expires next month.

Gayton didn’t respond to requests for comment.

Diversity Challenges

Coca-Cola acknowledged the program was never implemented after being threatened with a shareholder lawsuit but has said publicly it remains committed to diversity and inclusion.

The company and its new general counsel, Monica Howard Douglas, declined to discuss their rationale for nixing Gayton’s proposal. That has led to speculation about the abrupt exit of Gayton, who joined Coca-Cola on Sept. 1, 2020, from his former role as the top lawyer for Ford Motor Co.

“Certainly from a general counsel’s perspective you do what you can to reduce the likelihood of a shareholder lawsuit,” Speed-Bost said. “I wonder, however, the extent to which pushback also came from outside counsel that felt that application of the policy was more than challenging given the current makeup of some firms.”

The U.S. legal industry’s struggle to diversify its ranks has been borne out in data compiled by the National Association for Law Placement. While there have been gains for diverse lawyers over the years, improvements remain slight for Black lawyers, particularly minority women.

A major obstacle is retention, or the ability of minority lawyers to eventually make partner in Big Law, a crucial factor for mentorship, networking, and becoming a business generator.

All Eyes on Harvard

Coca-Cola faced questions about the legality of earmarking billable time for Black lawyers at the risk of financial penalties.

“Law firms and other service providers can’t agree to use hiring or promotion quotas simply because their clients want a certain amount of their business to go to a particular ethnic group,” said Samuel Estreicher, a labor and employment law professor at New York University. “Most companies don’t have this rigid a policy, although some pursue affirmative action in hiring and recruitment, which there’s nothing wrong with as long as it doesn’t take the form of a rigid quota.”

Estreicher said a case currently before the Supreme Court over race-based admissions policies at Harvard College will give some companies pause before crafting initiatives similar to the one withdrawn by Coca-Cola. The dispute, which came up during Supreme Court confirmation hearings for Judge Ketanji Brown Jackson, is challenging the consideration of race in the college admissions process.

The court is likely to determine that Harvard’s decision to consider race as a determining factor in admissions violates federal law, Estreicher said.

“The legal issue is whether they are, in fact, insisting on a quota,” he said. “One suggestion I’ve had for companies like Coca-Cola is have a conversation with your law firm or other service providers and say you want to have an account of what they’re doing on the recruitment and retention fronts to improve diversity.”

Stacy Hawkins, a former diversity counsel at Holland & Knight and current vice dean and professor at Rutgers Law School, said the Harvard case, which includes the University of North Carolina, coupled with the Trump administration’s attacks on diversity programs helped cast doubt on workplace diversity efforts more generally.

Corporate legal chiefs with little appetite for risk could take a more cautious and conservative approach to diversity programs by restricting what they’re willing to do or changing how they structure such policies, Hawkins said.

Still, Hawkins noted that shareholders have circulated demand letters for decades that largely fell on deaf ears, while the courts didn’t deliver any major notable setbacks to diversity programs.

“There’s no reason to believe that under prevailing legal standards there’s any cause for concern,” Hawkins said. “You’ll have general counsel who are willing to say, ‘Look, we believe as an institution in these values and we’re going to defend them.’”

Chilling Effect?

Tsedale Melaku, a sociologist and author of “You Don’t Look Like a Lawyer: Black Women and Systemic Gendered Racism,” said the fallout over Coca-Cola’s proposal focused far too much on the 30% of work it sought to carve out for diverse lawyers.

“There has to be a much more nuanced discussion, conversation, and debate around what it means to figure out ways of changing a system that inherently disadvantages particular people,” she said. “I don’t think we’re having that conversation because we’re still focused on what this means for the 70%.”

Zakiyyah Salim-Williams, chief diversity officer at Gibson, Dunn & Crutcher, said Coca-Cola’s reversal won’t have the chilling effect expected by others.

“You have to look at the trajectory that the legal profession is already on,” she said. “The people who I’m sitting across the table from at client meetings are articulating to us that this is important to them. Diversity is an opportunity to align with your clients—there’s no stopping where this train is going.”

Speed-Bost, the diversity consultant and lawyer, shared that conclusion.

Companies were more cautious in offering their assessments. Law department leaders at HP Inc., Facebook parent Meta Platforms Inc., Microsoft Corp., Nike Inc., and Starbucks Corp.—all of which have touted diversity programs involving outside counsel—didn’t respond or declined to discuss their initiatives.

Novartis AG in 2020 unveiled a legal diversity program with fee holdback provisions similar to Coca-Cola’s before hiring a new legal chief last year. Novartis said its entire panel of 22 preferred firms had agreed and signed on to the initiative, which applies only to them and not all of the Swiss pharmaceutical giant’s legal service providers.

The company said a diverse environment helps it “reach underserved communities and reimagine medicine.”

At least one veteran former legal chief now working for Coca-Cola has publicly expressed skepticism about corporate lawyers embracing the social justice causes that underscore many diversity programs.

J. Michael Luttig, hired a year ago as a counselor and special adviser to Coca-Cola in a $3.4 billion tax dispute, said in a Financial Times interview last year that law department leaders should be wary about wading into controversial territory. Luttig was speaking generally about such issues and not Coca-Cola specifically.

“A general counsel should not be in the business of encouraging or discouraging—much less initiating—his or her company’s involvement in the political or social issues of the day,” Luttig told the FT, which didn’t note his Coca-Cola work. “That role is for the company’s business leaders. Most business leaders would resent a general counsel who thrust his or herself into the running of the business in this way.”

Luttig, a former Supreme Court candidate who retired two years ago after more than two decades as general counsel for the Boeing Co., declined to comment.

To contact the reporter on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com; Meghan Tribe in New York at mtribe@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com