Microsoft executive vice president and general counsel Brad Smith leads a legal department that is larger and more multinational than many corporate law firms: The software giant has a 1,100-member legal team that includes 480 lawyers in 51 countries.

Smith is an advocate of using business incentives to diversify the legal profession, which lags behind industries such as medicine and business in terms of minority representation. He sat down with Capital Business to discuss the company’s initiatives to push its outside law firms to get more women and minority lawyers working on Microsoft’s legal matters — and for the first time shared the latest results those efforts are reaping.

The initiative, which made headlines when the company announced it in 2008, offers a 2 percent bonus to firms if they achieve one of three benchmarks: Increase by 2 percent the number of hours that women and minority attorneys at the firm work on Microsoft matters; increase the number of women and minority attorneys at the firm by 0.5 percent compared with the previous year; or become more diverse than the Microsoft legal department itself, which is 54 percent women, minorities and lawyers who are lesbian, gay, bisexual or transgender. Microsoft also cut firms rates by 1 percent if they didn’t meet at least one of those standards.

The company folded in an additional element: Smith and other senior Microsoft leaders would only receive their 5 percent year-end merit bonus if at least 75 percent of the law firms got their diversity bonus. The first year, only 70 percent of the firms did so; Microsoft executives donated what would’ve been their merit bonus to diversity scholarships. Every year since then, at least 80 percent of the firms have earned their bonuses. Below is an edited transcript of Smith’s interview:

Why did Microsoft choose this approach to diversity?

When we started down this path five years ago, people talked about diversity when you hire and when you fire. It’s easy to think about diversity when you hire firms because you’re making a fresh start. And if a firm does such a bad job on diversity, it makes sense to fire the firm if you’re dissatisfied with their work. But the nature of life is that most people don’t like to fire other people. It’s a very uncomfortable thing to do, it’s true of an employee and just as true if it’s a law firm. The focus on hiring and firing is good but incomplete. One conclusion we came to is we need more tools. You want to encourage people to advance diversity after you hire them. Imagine if the only way you could motivate anyone in the workforce was to say, ‘Do this or I’ll fire you.’ It would not be a very pleasant environment. We said, ‘Isn’t there a way to create tools that might inspire people to do better and pay them for doing better?’ Hence the bonus program.

Which firms does the diversity bonus apply to?

Covington & Burling; Gibson Dunn; Orrick; Cadwalader; Sidley Austin; Perkins Coie; Fish & Richardson; Shook, Hardy & Bacon; Davis Wright Tremaine.

What are the results?

In 2008, the percentage of hours that were worked by diverse (women, minorities or LGBT) attorneys at large law firms on Microsoft matters was 33.6 percent. Today, that is 46.5 percent. At a time diversity has been basically flat in the profession as a whole, we’ve seen a significant improvement in work being done by diverse people for Microsoft as a client. The other thing we look at is the head count of the attorneys. There, the progress has been much more limited. Among these firms, it’s gone from 43.7 percent to 45.3 percent. After five years, this (initiative) has had the most impact changing the representation on our matters. It’s a lot easier to change the representation on our matters than it is the change the composition of the firm.

Have you ever cut ties with firms because they failed to make enough progress in diversity?

I don’t recall any firm we cut ties with any since 2008 because of a lack of progress on diversity. One of the things this program has done is send a message loud and clear to every firm that works with us that we care about diversity. Most firms want to do a good job of addressing the things their clients care about.