The legal profession has long struggled with diversity and inclusion. HP has taken a novel step in announcing that the company may withhold legal fees from law firms that do not meet diversity staffing requirements.

Kim Rivera, HP's chief legal officer and general counsel, revealed the new policy in a letter addressed to law firm partners. Law firms that do not meet HP's "diversity mandate" could see their invoiced fees withheld by 10%.

"I spoke to GCs and law firm partners across the country, and much to my gratification, they were very open and collaborative," Rivera said in an interview with Legal Week sister title Corporate Counsel.

The policy will apply to all US-based law firms working for HP with 10 or more lawyers. It requires firms have "at least one diverse firm relationship partner regularly engaged with HP on billing and staffing issues" or "at least one woman and one racially/ethnically diverse attorney, each performing or managing at least 10% of the billable hours worked on HP matters".

Rivera spoke to Corporate Counsel about the genesis of the holdback programme and what she hopes it will accomplish:

What prompted you to implement this mandate now?

Rivera: "I just finished my first year in this role with HP and during that year, I've spent a lot of time collaborating with my team on what kinds of things we can do to promote diversity and inclusion. We felt like – in addition to what we're already doing in the legal department, such as working on pipeline programmes and supporting diverse individuals with recruiting – this was a great supplement to really drive diversity in the profession as a whole and specifically in law firms, which have not gained as much traction as anyone would like in diversifying their ranks."

Do you know of similar diversity holdbacks at other companies?

"I don't, not like this one. I know companies have all kinds of different programmes, such as associating diversity and inclusion with actual cash being spent. But I don't know any that are doing this type of holdback."

Did you reach out to other companies and law firms as you developed this policy?

"I did. Probably six or seven months ago, when I decided to sign onto the American Bar Association's Resolution 113, which urges law firms and companies to create opportunities for diverse attorneys, I really started to think about the ways we could do our performance reviews for firms based on diversity.

"I spoke to GCs and law firm partners across the country and much to my gratification, they were very open and collaborative. Many had suggestions on how to shape the programme and some pointed out the challenges we might face, such as how we'll track and measure diversity staffing requirements. From there, we came up with the holdback programme."

Speaking of measuring, how will you determine whether the programme is a success?

"There are two responses. There's a technical answer, which means looking at whether firms are capturing information about diversity consistently. The second answer is that our hope is that we never have to withhold these fees – meaning firms are meeting or exceeding our minimums."

What has the response been?

"People have largely embraced the programme. I haven't received any direct negative feedback, and no one has resigned from doing work with HP. A number of firms have already agreed to meet these standards, including Paul Weiss Rifkind Wharton & Garrison, Morgan Lewis & Bockius, DLA Piper and Baker McKenzie. And there are others that are not on our provider panel who have reached out – probably two dozen firms – expressing support and interest in finding out if they can also participate.

"There are some who perceive this as a punishment, but I see it as simply an additional incentive to be more diverse."

HP is a company with a lot of leverage to put demands on law firms and you can select from major firms that are likely already encouraging diversity. Is there any concern that this type of holdback policy would be seen as unrealistic for smaller companies and firms?

"I think that as customers of legal services, we are entitled to request that the work be performed to our standards and satisfaction and those standards absolutely can include having diverse teams. Yes, HP has more leverage. But that should not stop smaller companies from saying this is a performance requirement.

"As for firms, we haven't had any smaller firms reach out to express concerns. And I will say a lot of our intellectual property work is done by smaller boutique firms. The last time I checked, we were well over 40% diverse with those firms. So our experience is that this is not impossible for even smaller firms to accomplish."

Is it foreseeable that there will be matters that are so important to the company that this mandate is not enforced, or is it a policy across the board?

"It applies to anybody who is going to do work for us. If it's bet-the-company litigation or transactions, odds are very strong that the kinds of firms you would go to are going to be able to staff diversely. If I do have a firm that can meet or exceed these standards versus one that can't – all things being equal – I would choose the one that can meet those standards."

"My experience is that there's no reason to think we'd have to sacrifice our diversity and inclusion performance expectations just because it's a large or significant matter."