Novartis demands a 15% discount from its outside law firms unless they put more women and minority lawyers to work on Novartis legal matters (Michael Simkovic)

Bloomberg reports that Novartis AG, a Swiss Pharmaceutical firm with a Market Capitalization in excess of 220 billion USD and U.S. headquarters in Boston, is demanding that its U.S.-based outside law firms ensure that at least 30 percent of associate billable hours on Novartis matters are completed by associates who are female or members of racial minority groups or LGBTQ+ groups, and that at least 20 percent of partner billable hours are completed by partners who are members of such minority groups.  Any firm that does not meet these diversity targets will face demands from Novartis for an across the board 15 percent write down on its legal bill. The announcement of the policy is available here.

Under the new policy, above the 70 percent cap on straight-white-male associate hours, such non-minority associates would have to bill at least 4000 hours per year to be as financially valuable to Novartis's law firms as women or minorities billing 2000 hours per year on Novartis matters.

Novartis's policy represents a creative approach by Corporate Counsel to both cut costs and promote diversity.  Recent research suggests that much of the difference in employment outcomes between male and female law firm associates is attributable to men billing more hours, bringing in more revenue, and having greater aspirations to make partner.  The research could not rule out the possibility that law firms provided female associates fewer opportunities to bill hours. 

Affirmative action is generally legal under Swiss law.  The U.S. has historically been more permissive of affirmative action by private employers than by public employers or universities, but the legality of the policy above could potentially be challenged under more recent case law which imposes more limits on affirmative action and was decided under Title VII of the Civil Rights Act, which also applies to private employers.

However, standing and evidentiary issues could make a legal challenge to the new policy unlikely. Law firms are unlikely to sue a major client.  A suit would therefore have to be brought by an associate who was dismissed or denied a promotion or bonus at one of Novartis’s outside law firms.  The plaintiff would have to prove that he did not get enough work at the law firm specifically because of Novartis’s policy and that this led to adverse outcomes at his law firm.  The law firm and Novartis would both have incentives to point to other potential reason for the plaintiff's dismissal or lower pay.

Were policies similar to Novartis's diversity policy to become widespread among corporate clients, straight-white-men intent on career advancement at law firms could potentially claim LGBTQ+ status--which includes those who report that they are bisexual, asexual or questioning their sexuality. Evidentiary issues and basic privacy concerns would make it difficult for private employers to challenge such claims.  (However, courts have historically considered the factual truth of LGBTQ+ claims in asylum cases by requiring evidence of stereotypically effeminate behavior.  Social scientists say such behavior has little relation to LGBTQ+ status.  Courts have also asked asylum seekers to tell their "coming out" stories).

Widespread adoption of aggressive diversity targets could also raise questions about how much of one's ancestry would have to originate with individuals who were racial or ethnic minorities to claim minority status, and what kind of proof of such status would be required (i.e., self-report, an expert genealogy report, genetic testing, community involvement, or physical features stereotypically associated with racial minorities). Controversies related to similar issues have been raised to criticize Harvard law professor, Massachusetts Senator, and Democratic Presidential primary candidate Elizabeth Warren for claiming Native American ancestry based on family oral tradition and a small amount of Native American DNA. 

Issues of racial identity and passing were memorialized in a novel by Pulitzer Prize winning author Philip Roth, about a light skinned black man who passes for Jewish in the 1950s, only to see his career derailed in the 1990s by false accusations of racism brought by students who he calls out for repeatedly skipping his class. 

Aggressive diversity targets would also raise questions about whether Portuguese or white Spanish or Brazilian or Sephardic Jewish ancestry would entitle an individual to claim hispanic or latino status.

The Novartis Group General Counsel is Shannon T. Klinger, a graduate of UNC Chapel Hill and former attorney at Mayer Brown.  The U.S. General Counsel of Novartis AG is Elizabeth G. McGee, a graduate of Fordham Law School and a former attorney at Mayer Brown.