GEOLEGAL WEEKLY #7 -ESG End Times?
GEOLEGAL WEEKLY #7 -ESG End Times?
I provoke at the IBA with Pam Cone about law firms & ESG, then I ask Lisa Hart Shepherd to dissect law firm ESG data. Also-a law firm that justifies its rates "because ChatGPT says so" & PE eyes legal
ESG—including DEI—has long presented an opportunity and a challenge for law firms, but this year it will become a political threat. Don’t believe me? Well, you can now qualify for DEI scholarships offered by major law firms simply by showing “resilience” or “adaptability” rather than actually being from an underrepresented group. When actors do things that don’t make sense on the face of it, my political spidey senses start going berserk!
I had the opportunity to dive really deep into what’s going on with ESG in the legal sector in an International Bar Association webcast with hundreds of global lawyers who tuned in to hear me and Sasja Beslik discuss ESG last week. The session was expertly moderated by Pam Cone of Amity Advisory and Legal ESG - certainly worth checking out the full 90 minutes (on double or triple speed) by clicking below and watching it in the web version of my stack.
If you don’t see the webinar image above, watch the IBA webinar here
To dive even deeper into the issue, I wanted to take a data-backed view. So, I interviewed Lisa Hart Shepherd of Lamp House Strategy, which recently published a survey of 125 law firms’ ESG positions. The most startling finding to me was that despite all the law firm efforts over the last few years, only 32% of law firm clients felt like their lawyers care enough about ESG. This may be because, as Lisa points out in the interview, 90% of firms are serious on DEI and ESG but only a third are willing to speak publicly about it. Lisa is graciously offering access to her data and dashboards to in-house readers of this newsletter - respond to this email and I’ll connect you.
Click on the video above to play it within the web version of this update - if you don’t see it, launch the web version of this post
So why are some law firms preparing to retreat from ESG at moment when law firm clients admit (at least in the privacy of a survey) that they are still unconvinced their firms care enough? In short - ESG has become a political weapon, with the 2024 election cycle a major vector of risk for law firms and clients.
How we got here
Anyone who takes an economics course learns about negative externalities generated by business. As countries get richer, voters start to care more about those externalities and exert pressure for change. In the US and Europe, this has manifested in demands for “responsible investing” and caring about the environment. Activist interest groups put pressure on large investors like pension funds and money managers to divest from pollutive industries as well as other value-laden criteria (gun manufacturers, defense companies, tobacco companies etc) and many investment companies seized the momentum to create ESG investment products. Companies, fearing share price declines and boycotts or protests, started to take steps to either support or look supportive of satisfying ESG criteria. They fell over each other to disclose, report, and improve their societal impact.
While there were assertions of “greenwashing”, ESG seemed like an engine that could help companies reshape their images as responsible stakeholders. An industry of support services sprouted around them with law firms seizing major opportunities to help their clients navigate legal, compliance and regulatory issues around ESG. They stood up ESG practices led by ex-government leaders who advise on everything from environmental compliance to social justice. Latham’s ESG practice has a nice breakdown of the types of issues these practices cover:
A confluence of societal events and campaigns - #metoo, Black Lives Matter, trans rights, as well as wars and global humanitarian issues - created opportunities for companies to be increasingly vocal about public policy issues that they might not traditionally lobby on. The problem is this put them in direct conflict with politicians on the other side of those issues.
The best example of this is the conflict between Disney and Florida Governor Ron Desantis, who turned Disney’s cozy regulatory environment inside out when the company said its goal was to counter his bill banning discussions of homosexuality and gender identity in some elementary school grades. Disney took Desantis to court claiming political retaliation. When it lost, Disney vowed to appeal because the case has “serious implications for the rule of law…if left unchallenged, this would set a dangerous precedent and give license to states to weaponize their official powers to punish the expression of political viewpoints they disagree with.”
But Disney is not the only example. Morgan Lewis documented anti-ESG laws across the United States, including legislation that outlaws boycotting companies over ESG, discriminating against certain industries because of ESG or even prohibiting ESG consideration in investment decisions. A group of legislators in New Hampshire, as James Suroweicki points out in the Atlantic, have even gone so far as to try to make it a felony for a state official to consider ESG in their investment decisions.
That’s politics, but anti-trust law is also being used as a weapon - both against big companies and their lawyers. ESG practice groups of 51 major law firms were called into question just over a year ago when a group of Republican Senators laid down a marker by threatening to “scrutinize the institutionalized antitrust violations being committed in the name of ESG” and refer those law firms to the Federal Trade Commission and Department of Justice for their “collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.” Their letter to Akin Gump is below.
Senator Grassley’s website accessed 22 Jan 2023 https://www.grassley.senate.gov/imo/media/doc/cotton_grassley_et_altolawfirmsesgcollusion.pdf
Recycle ESG?
In such an enviornment, it is no surprise to read about companies reframing or dialing back their commitments to ESG, particularly if they didn’t take them seriously in the first place. For instance, a number of banks and investment funds are pulling out of Climate Action 100+, an interest group that recently shifted from focusing on climate disclosures to actually getting investment firms to pressure companies to reduce their emissions.
Columbia Business School professor Shivaram Rajgopal piut it well when he told the New York Times, “This was always cosmetic…If signing a piece of paper was getting these companies into trouble, it’s no surprise they’re getting the hell out.”
But for many companies ESG is not cosmetic.
Unilever, for instance, is one of the most outspoken companies on sustainability and their strategy statement provides a guiding light. Unilever’s purpose is: “to make sustainable living commonplace.” A purpose like that is lodestar for decisions those within the company might make. Should a product be brought to market that damages the environment? That probably would not be compatible with company strategy regardless of the political climate. Should the company comment on legislation to loosen or tighten environmental regulation? Probably, because it has a world view and it is seeking to promote it.
One could play a similar game with Coca-Cola’s purpose, which is “To refresh the world and make a difference.” Ebay has a similarly inspirational goal “to make selling and buying equitable, attainable and sustainable.” The list goes on. And while those companies may shift from the language of ESG to the language of sustainability or responsible business (after all, who would argue for irresponsible business?) their commitment won’t really waiver because it is a central part of who they are.
But what of law firms? It’s one thing to remind email recipients to think twice before printing or to move into swanky, more energy efficient office space. It is another to make ESG central to your mission.
Given all we read about how younger generations are attracted to work with purpose, I asked Mia Tellmann, who helps me research GeoLegal Notes, to survey Vault’s Top 100 Best Law Firms to Work for, figuring that would be the best chance to see some principles in action. We researched the stated purpose, strategy and vision of each of these firms as well as whether they commented publicly on issues of the day.
I’ll summarize four of the top 5.
Cravath, which is ranked #1, describes its enduring values as “a passion for lawyering as a noble calling, a commitment to pursuing excellence and a belief in the power of collaboration.”
Wachtell describes a founding vision of “a cohesive team of lawyers intensely focused on solving our clients’ most important problems.”
Latham describes its core values of unwavering client focus, constant excellence, true partnership and strong teamwork.
Sullivan and Cromwell describes itself as providing “the highest quality legal advice and representation to clients around the world” noting that its success “is the result of the quality of its lawyers, the most broadly and deeply trained collection of attorneys in the world.”
Most of the rest of the top 25 have statements that are similar - so much so, that it stands out when a firm says something different. In the top 5, it is only Skadden that orients toward a mission of inclusivity by remaining “focused on developing an inclusive complement of extraordinary attorneys who work together as a team to deliver the highest quality advice and best outcomes for clients” (emphasis mine).
This is not to say that these firms don’t have robust diversity, ESG and pro bono programs - many do. But it is to say that the north star of most law firms is to do great legal work by getting smart employees to collaborate with each other - with no paramount concern for societal externalities or rubrics by which an average associate or partner could decide whether work is compatible or not compatible with firm values.
For instance, assume a client was seeking representation for work that could set a precedent enabling greater pollution, increasing access to tobacco products, proliferating dangerous weapons or ramping up protections for racist hate speech. It’s hard to read these mission statements and know which firm would take on the work and which would reject it. This is important to recognize when thinking about how to navigate the cross-cutting politics of ESG at the current moment.
To some extent, the vision and mission statements tend to underscore the fact that these partnerships are just that - partnerships of individuals, not companies. But there has been societal and client pressure for these firms to act like companies in order to mimic the behavior and expectations of their clients. In reality, however, partnerships are platforms to collect capabilities under a brand rather than a singular mission or constraining factor for the type of work to be done. This is true in consulting, accounting and other partnership - not just legal.
So, if ESG and social good is not central to your mission, should you cut and run? That may seem like a rational strategy but it is short-sighted. As Lisa points out in the interview above, you can’t attract the talent pool of tomorrow with values of yesteryear. And from a political science point of view, issues like diversity and the environment are classic “luxury goods” - that is to say, they are things that average voters tend to demand when they feel rich (and tend to fade when they don’t.) The point being that there’s a pendulum which will swing back to demanding support for these positions in the not so distance future. If you run scared, you cede ground on all the hard work you’ve done to burnish your reputation. And you make it harder for clients to turn to you to represent them when they get in trouble on these issues.
A better approach is to find an authentic narrative to organize the good you do for society. That is to say, speak specifically about what you are doing rather than join the high level fray with platitudes and half-commitments.
Are you focused on increasing access to justice by having an outsized commitment to pro-bono work? Talk specifically about that.
Does your firm have an advantage in helping clients because you have recruited practitioners from diverse backgrounds who produce novel solutions? That would seem to support many of the mission statements above.
Is your firm doing high profile work in the human rights space because the leadership believes it is the right thing to do? Let the world know.
Do you have a specific carbon reduction goal that your firm will meet because it is being more judicious about travel and real estate? Speak to that.
What you probably shouldn’t do, though, is simply comment on the news in inauthentic ways. Yes, there can be unbearable pressure from staff and stakeholders to take a position when awful events happen in the world. But if your firm is not guided by a normative mission or purpose, you are most likely going to alienate customers and invite claims of hypocrisy if you selectively dip into and out of moral commentary.
In other news
When it rains geopolitics for lawyers, it storms - As readers of GeoLegal Notes know, every week is geopolitical risk week in the legal sector. But this week, it’s also geopolitical risk week for Bloomberg Law. Alison Lake has curated an interesting set of essays, kicked off by Rob Chesnut and Beniamino Irdi. While I could offer differing perspectives to some of the techniques and methods for managing risks that are outlined, the world is better for more stakeholders contributing thoughtful analysis about the intersection of geopolitical risk and in-house legal. Worth a visit.
Our hourly rates are so high because ChatGPT says so - A judge admonished a law firm for using ChatGPT’s response on what its legal fees should be as substantiation for those fees. I’d be lying if I didn’t say I was mildly compelled by the law firm’s basic logic that hourly fees are so non-transparent ChatGPT’s guess is as good as any. At Hence, we’ve dived deep into solving this problem within our outside counsel management suite, which I’d be happy to discuss with anyone interested.
Law firms for sale - Forbes has a great breakdown on the logic of private equity interest in purchasing law firms if only they were allowed. This is something I covered previously for Bloomberg Law. In short, today only lawyers can buy law firms. This is likely to change over time. Hat tip to Zack Posner of the Legal Tech Fund who highlighted this on LinkedIn.
A2J = Access to Ja Rule? - The UK government has a track record of denying rappers and other musicians visas based on past criminal records or character judgements. Ja Rule is the latest to join a list that includes Snoop Dogg, Lil Wayne, Tyler the Creator, and a disproportionate number of Afrobeats stars, among others. While many religious countries are picky about who can come and perform, I haven’t seen many other examples of such strict interpretation of visa law in the US or Europe when it comes to well known entertainers - have you?
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That’s it for this week. If you are at Space Beach Law Lab in Long Beach today give a shout.
-SW