Holloran Center

for Ethical Leadership in the Professions

Minnesota Lawyer Publication

Applying business ethics to the law firm
By Neil Hamilton | December 16, 2002

The learned professions have always been at the same time a calling and a business. The tradition and ethics of the legal profession ask us to find a balance where we both sell our services to make what the Preamble to the Minnesota Rules of Professional Conduct call �a satisfactory living� and at the same time constrain self-interest to some degree in service of justice.

Those lawyers, including me, who subscribe to a professional morality and culture both tied to this tradition and going beyond the morality of the marketplace are the �party of aspiration.�

Some lawyers, the �party of business reality,� argue that competitive pressures in the legal marketplace today are so intense that we are, in fact, no longer a profession constraining self-interest in service of justice, but just a business like any other.

Both the Harris and Gallup polls indicate that the public, over the past 30 years, has changed its view of the legal profession�s morality, and currently perceives our profession�s public standing, honesty and ethics as virtually indistinguishable from those of business.

One risk for the �party of business reality� is that excesses infecting the markets will infect the legal profession to the same degree. For example, according to the annual CEO Compensation Survey, 20 years ago the average CEO made 42 times as much as the average worker in the company, whereas in 2002, the average CEO made 411 times as much. As business author George Soros recently noted, rather than act as a check on greed, the elites of the legal and accounting professions joined in this glorification of financial gain.

Whether you are in the �party of aspiration� or the �party of business reality,� business ethics is an important field of knowledge that should shape the business side of the law firm. Minnesota has a long history of leadership in business ethics that is helpful for law firm management.

Minnesota Principles

One of the most important contributions our state has made to business ethics is known as The Minnesota Principles.

The Principles were developed by a group of business leaders under the auspices of the Center for Ethical Business Cultures (CEBC) and its predecessor, the Minnesota Center for Corporate Responsibility. CEBC is a nonprofit working in partnership with the business schools at the University of St. Thomas and the University of Minnesota. It assists business leaders in building ethical and profitable business cultures. (Its Web site is www.cebcglobal.org.)

The Minnesota Principles, growing out of the experience of business leaders, are a statement of aspirations that provide an ethical standard against which a business can measure its performance. For a copy, go to www.cebc.org/Publications/Principles/MN_PRIN.htm.

CEBC hosted and chaired a drafting group that integrated The Minnesota Principles, the ethical ideal of human dignity, and the Japanese concept of kyosei (�living and working together for the common good�) to form the Caux Round Table Principles for Business. The Caux Round Table (CRT) is a group of senior business leaders from Europe, Japan and North America committed to the promotion of principled business leadership. The CRT Web site is www.cauxroundtable.org, where you can also obtain a copy of the CRT Principles of Business.

The Minnesota Principles are general propositions to guide business management in search of corporate responsibility. The document lists five General Principles:

� Stimulating economic growth is the particular contribution of business to the larger society. We understand that profits are fundamental to the fulfillment of this function.
� Business activities must be characterized by fairness. We understand fairness to include equitable treatment and equality of opportunity for all participants in the marketplace.
� Business activity must be characterized by honesty. We understand honesty to include candor, truthfulness and promise keeping.
� Business activity must be characterized by respect for human dignity. We understand this to mean that business activities should show a special concern for the less powerful and the disadvantaged.
� Business activities must be characterized by respect for the environment. We understand this to mean that business activities should promote sustainable development and prevent environmental degradations and waste of resource.

The Principles then develop Stakeholder Principles for six stakeholder groups � customers, employees, owners/investors, suppliers, communities, and competitors. For example, the

Stakeholder Principles for Employees include the following:

� to provide working conditions that respect employees� health and dignity;
� to be honest in communication with employees and open in sharing information, limited only by legal and competitive constraints;
� to be accessible to employee input, ideas, complaints, and requests; and
� to avoid discriminatory practices and to guarantee equal treatment and opportunity in areas such as gender, age, race and religion.

Both the General Principles and the Stakeholder Principles provide useful ethical standards against which law firm management could measure its performance. They also provide a foundation on which law firm leadership could build a business conduct policy. Finally, they are useful in addressing specific ethical problems that may arise in the management of a law firm. For example, in a recent column I described a case analysis template used in business ethics courses to address a problem or case. (See Observations, �Part Two: Business ethics for the practicing lawyer,� in the Oct. 14, 2002, edition of Minnesota Lawyer.)

The first step in that template is to describe the stakeholders affected by the decision in question. This first-step stakeholder analysis starts with the six stakeholder groups listed above: customers, employees, owners/investors, suppliers, communities and competitors.

The template�s first step also seeks to identify the stakeholders� interests, rights and duties. The General Principles and Stakeholder Principles articulate a number of fundamental ethical duties for the owners and management of business; they are applicable also to business decisions in law firms.

Concrete context

It may be easier to see how the General Principles and Stakeholder Principles apply to the business side of law firms in a concrete context.

I had lunch a few weeks ago with a former student who is now on the executive committee of one of the large Twin Cities law firms. She pointed out that when she joined the firm 13 years ago, there were 16 percent women shareholders. Today there are 15 percent women shareholders, even though law school classes have been roughly half women for many years and the firm has hired roughly 40 percent women associates for a number of years.

The Minnesota State Bar Association Committee on Women in the Legal Profession regularly undertakes surveys of legal employers in a report called the Self Audit for Gender Equity (SAGE Study). The October 2002 survey reports that women associates increased from 41 percent to 44 percent and women shareholders increased from 16 percent to 18 percent in the period 1997 to 2000.

From 1995 to 2000, the proportion of women eligible for partnership has averaged around 30 percent while the proportion of women as associates has averaged over 40 percent. Women associates left firms at approximately the same rate as hired during the years surveyed � approximately 40 percent. Male associates also left proportionately.

As a percentage of the respective populations, women partners left firms at twice the rate of men in 1997 � 7 percent for women and 2 percent for men. In 1998, it was 10 percent for women and 4 percent for men, but in 2000, it was the same percentage � 4 percent for both women and men.
These data create prima facie concerns in terms of business ethics. Law firm management analyzing this data in light of The Minnesota Principles would have concerns with respect to General Principles No. 2 (fairness) and No. 4 (respect for human dignity) and Stakeholder Principles for Employees No. 1 (respect for employees� health and human dignity), No. 3 (accessibility to employee requests and complaints), and No. 4 (nondiscrimination and equal treatment).

Addressing concerns

The question is what can firms do to address the concerns raised by the data? One group with particular credibility who could shed light on what is happening is women partners who leave law firms. They could provide insight into why they left, whether the reasons relate to either the General Principles or the Stakeholder Principles for Employees, and what the firms could do about the problem. The organized bar or the law firms should fund such a study.

Some months ago, at a lunch with a general counsel, we discussed business conduct policies. He commented that the policies are not difficult to draft; the difficult part is how to inculcate the values throughout the culture of the organization. The conduct policy must be developed from the ground up with midmanagement identifying the real issues, indicating what they can live with and implement, and recommending how to change culture to address the problem areas.

That is useful advice for law firms � focus on senior associates and junior partners to assess whether the firm is realizing the General Principles and the Stakeholder Principles for Employees. These are the highly trained individuals on whose shoulders the future of the firm rests. The objective is to create a culture that produces quality of work life and sustained excellence at the mission. A satisfactory living will follow.

Neil W. Hamilton is a Professor of Law and Faculty Adviser to the Mentor Program at the University of St. Thomas School of Law. To contact him, send an e-mail to nwhamilton@stthomas.edu.