Firms face obligation to reveal gender, ethnic and class background of staff

Kenny: rigid rules encourage tick-box approach to compliance

The Legal Services Board (LSB) wants law firms to go public with the gender and ethnic make-up of their staff – as well as possibly their social background – as a way of encouraging them to build a diverse workforce, it has emerged.

Chief executive Chris Kenny has also resoundingly endorsed the move to principles-based and outcomes-focused regulation, saying he worries when lawyers ask for absolute clarity in their rules.

In a speech on standards and efficiency in regulators to the annual Regulatory Affairs International Symposium, held in London last week, Mr Kenny argued that a culture of complete transparency and accountability is the key characteristic of effective regulation. Talking about “incentive regulation”, he explained that regulators make incentives work best by being rigorous in requiring transparency, using the LSB’s duty to encourage a diverse workforce as an example.

“We are therefore asking the regulators we oversee to find ways of getting the firms they regulate to publish information about the make-up of their workforce in terms of gender, ethnicity and possibly other markers of diversity such as social mobility as well,” he said. “We are not interested in headline-grabbing initiatives in this area – not least to avoid the rather silly headline of ‘political correctness gone mad’. But dispassionate investigations of the legal workforce all show a common pattern of a great deal of effort to attract a diverse workforce at entry level, but glass ceilings apparently kicking in harder and lower than in many other sectors.

“Regulators have a role to hold up a mirror – to those they regulate, to consumers and to policy makers – so that everybody can see where any individual firm or group stands relative to the general picture. That discipline is as, if not more, powerful than any specific targets – not least because it gives the incentives to firms to find solutions themselves rather than pursue top-down initiatives forced on them by the regulator. And I’ll take some persuading that the cost of such transparency is less than that of failing to attract and retain the most talented workforce.”

Mr Kenny also said that as well as “economically rational behaviour”, the LSB needs to incentivise ethical professional behaviour too. He said: “To believe that professional ethics can be reduced to a tick box list of compliance is to profoundly insult the professionals I oversee – and indeed professionals in other sectors as well. And, in fact, it not only insults the genuine professional, but it also gives licence to the small minority whose behaviour does give rise to genuine concerns.

“I worry when I hear of lawyers asking for absolute clarity and prescription on what regulatory outcomes enable them to do. Regulatory rules are no more riddled with mind-numbing uncertainties than is the legislation on which lawyers advise clients day in and day out. Regulatory outcomes need to clearly align with professional behaviours. But they do not need to be defined at the level of the number of angels dancing on the head of the proverbial pin – that encourages compliance with the letter, not the spirit and leads to the wrong outcomes.”

To read the speech in full, click here.


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