Are law firms shifting away from DEI programs?

Concerns were sparked earlier this year about the future of DEI programs at some Australian law firms, especially those with strong links to the United States, after US President Donald Trump announced efforts to eliminate the long-standing initiatives .

Peter Mousaferiadis, founder and CEO of cultural services firm Cultural Infusion, says some Australian law firms are trimming DEI programs, but mostly due to finances, not ideology.

Mousaferiadis, whose company has provided multicultural programs to more than six million people and is the official partner of the Australian National Commission to UNESCO, says “Australia is part of a wider global trend where some large firms are stepping back from traditional DEI programs”.

“Consultants in the DEI space report downturns of 30 to 80 per cent in the past 12 months. I know of at least six organisations that have either disappeared or completely wound back their operations,” he tells LSJ Online.

“The pullback is not unique to law – it is occurring in the US, Europe, and Australia alike. For law firms, this shift is driven by the need to tighten costs, but also by scepticism about the effectiveness of programs that have been more symbolic than transformative.”

Some large firms are quietly scaling back formal DEI initiatives, he says, pointing to firms retaining high-profile public programs but moving bulk resources to lower-visibility internal efforts or embedding DEI under “professional development” or “talent” umbrellas.

His observations fit with shifts seen overseas. For instance, in the UK some business leaders have reportedly been rebranding DEI as “wellbeing”, “belonging” and “culture” programs in order to avoid attracting negative political scrutiny.

But it’s in the US where the erosion of law firm DEI initiatives has been most stark.

Some 46 of the 50 highest-earning firms in the US have “have removed or altered website references to diversity, equity, and inclusion,” while 17 cut references to immigration and racial justice from pro bono web site pages, according to local trade media reports.

The about-face has been rapid, with some US law firms that spent years fostering DEI programs reportedly taking just weeks to alter, end, or rebadge them.

The overseas trends are part of a “broader recalibration” in DEI, including by law firms cautious about reputational risks, especially in a political climate where the rationale for DEI is being challenged, Mousaferiadis says.

Advocates of DEI see the initiatives as part of moves to correct for unconscious biases and structural inequalities on race and gender whereas critics argue that DEI unduly focuses on minorities at the expense of individual merit.

Such misgivings, imported from the US, has created hesitancy at some firms on rolling out, or continuing, DEI programs “fearing alienation of clients or staff”, Mousaferiadis says.

He adds that whatever the ideological forces at play, many firms are getting increasingly wary of spending big on DEI without clear return-on-investment.

The Melbourne-based CEO says cost pressures at firms are playing a big part in the pullback with the legal industry increasingly focused on “billable hours and cost recovery”, amid a rapid escalation in direct operating expenses.

Not helping matters, the cultural services expert says, are perceptions of inefficiency about DEI programs and “measurement gaps”. “Many firms struggled to show impact in terms that resonate with partners – revenue, talent retention, client satisfaction”.

“So the issue is not just cost – it’s the absence of credible, data-driven evidence that links DEI to the firm’s bottom line and strategic goals,” he says.

The comments come after reports an Australian legal market survey by global ratings agency Best Lawyers, based on 162 law firms, this year noted economic challenges may have resulted in firms needing to prioritise resources away from DEI programs.

The same survey found cash strapped clients were prompting more law firms to switch from billable hours to fixed fee charging on the basis it provided better pricing transparency.

Nicholas Stewart, from Dowson Turco Lawyers, which bills itself as Australia’s only “Out Loud and Proud LGBTQ+ law firm”, has not seen a “big retreat” from DEI in Australia but says there has been has “some pushback”. This is particularly “from people who feel left out or confused about what DEI actually means”.

Stewart, who heads up the Sydney firm’s criminal and human rights law teams, says while sometimes groups may feel threatened by change or think DEI is about exclusion, there remains a strong demand among employees for programs in the area.

He points to a recent survey of 1,000 Australian workers that found 39 per cent of respondents may leave their employer if DEI was deprioritised, with that rate lifting to 55 per cent among Gen Z workers polled.

However, he concedes that political changes in the US, including the rollback of affirmative action policies, has “sparked some rethinking especially for firms with American ties”.

He also acknowledges that diversity training such as engaging DEI consultant or planning diverse recruitment can be costly.

“At my firm, being LGBTQ+ operated and with a clientele in that space means that we naturally expand our policies and diversity strategies to be all-inclusive,” he tells LSJ Online.

“We have staff who are heterosexual and have a Christian or Islamic faith, and some with no faith at all; we have bisexual employees who have opposite sex partners, and we have lesbian and gay employees, as well as non-binary employees.

“We find that the real investment isn’t the dollars; it’s the time, leadership focus and effort to maintain a diverse and technically skilled team.”

In Stewart’s view, looking at DEI as more than a human resource function can pay off in the long run, despite the substantial costs involved.

He says the firm views DEI as “cutting across hiring, client engagement, team dynamics, internal communications, marketing and more”.

“That cross-functional collaboration is resource-intensive and needs coordination through the lens of DEI, but attracting the best talent and return clients is then possible. If you’re serious about it, DEI becomes part of a firm’s core identity – not just a checkbox or a recruitment tool.”

When it comes to dealing with DEI resistance from employees, Sprintlaw, a Sydney-based online law firm for SMEs, urges firms to bolster communication efforts.

It says a common challenge is “the perception of reverse discrimination or resistance among employees who may feel that DEI initiatives compromise merit-based advancement”.

“Transparent communication is essential to dispelling these myths. By explaining that diversity initiatives are designed to level the playing field rather than give undue advantage, you can alleviate concerns and foster broader support,” the firm’s founder Alex Solo says.

Other tips, according to the firm, are to run a diversity Audit, make sure to review recruitment processes, review firm DEI policies, roll out mandatory training on diversity and inclusion, and examine performance data to track the success of existing programs.

Even so, Cultural Infusion’s Mousaferiadis says most challenges facing DEI programs  right now are external, especially the need to “demonstrate ROI in very tangible ways”, rather than from staff disgruntled about so-called reverse racism.

“As with other sectors, we see this as a temporary recalibration rather than a permanent retreat,” he says. “In the medium-to-long term, law firms that do not invest meaningfully will face significant disadvantages.”

Among downsides for firms that abandon DEI, he points to trouble securing young talent.

“Younger lawyers, particularly Gen Z, are unwilling to stay at firms where they feel excluded,” he says.

There’s also missing out on closer alignment with multinational clients that increasingly expect their legal advisors to reflect the diversity of the communities they serve.

“For example, multinational corporations are asking their panel law firms to report on workforce diversity as part of procurement,” he says.

This fits with Law Society of NSW research, which has found upsides, especially on talent.

The research, which highlights that 28 per cent of solicitors in the state were born overseas and that 53 per cent are female, found that organisations that value diversity and have a culture of inclusion are able to recruit and retain high-performing staff.

It also points to gains on productivity, performance, competitiveness and business growth.

Dowson Turco’s Stewart agrees on the long-term upsides. While the Trump administration’s approach is causing some businesses to question whether DEI is necessary, or look for measurable returns, “the spend on diversity does not have to be significant to gain the benefits,” he says.

“In Australia, we are hugely multi-cultural and there is also a lot of intersectionality. Businesses should reflect the clients they serve and look to be holistic in business purpose.”