(Reuters) - The Coca-Cola Co is requiring its law firms to staff its matters with diverse lawyers or risk losing pay and business, its general counsel Bradley Gayton said on Thursday in a letter to outside counsel.

Gayton, who is the latest in-house leader to use the position's spending power to push for change, said that on new Coca-Cola matters, firms must commit to have at least 30% of each billed associate and partner time be from diverse attorneys – people of color, LGBTQ people, women and people with disabilities. At least half of those amounts of time must be from Black lawyers specifically. The work is expected to be substantial, Gayton said.

If a firm fails to meet those requirements, it has to provide a plan to fix the situation. Failing two quarterly reviews on team diversity will result in a non-refundable 30% reduction in fees payable for the matter until the firm's commitment is met. After that, the firm could lose Coca-Cola as a client.

Gayton said he wanted the reduction to be "a bit punitive and meaningful" – not something firms could write off. But he also wanted to give outside counsel time to change. He's offered to help firms build matter teams that meet requirements through introductions and suggestions, a way to increase the demand for diverse lawyers.

"I'm not going to create demand if I make you try to sign up to commitments that you don't think you can create, and then I just fire you," he said, in an interview.

Gayton also wanted the requirements to put an extra focus on advancing the careers of Black lawyers, whose ranks have dwindled over the past two decades and whom law firms have long failed to promote, he said.

Fewer than 2% of U.S. law firm partners were Black in 2019, the most recent year available for National Association for Law Placement data.

Gayton, who is Black, said firms could improve the situation by increasing transparency around how work is assigned, so meaningful matters don't just go to family and friends, and around origination and relationship credits. He's requiring outside counsel disclose how credit is apportioned on Coca-Cola matters.

Firms must also identify two or more diverse attorneys, at least half of whom must be Black, as candidates to succeed its Coca-Cola relationship partners. His aims to have at least 30% diverse relationship partners at Coca-Cola's highest-spend and preferred panel firms, with at least half of those partners being Black.

Atlanta-based Coca-Cola is set to select a panel of go-to firms in the next 18 months. Meeting diversity commitments will be a "significant factor" in who makes the cut, Gayton said.

Coca-Cola's outside counsel has included King & Spalding, Littler Mendelson and Shook, Hardy & Bacon, among others.

Gayton, who joined Coca-Cola in September, is the latest of several general counsel to push law firms to increase diversity in recent years. HP Inc legal chief Kim Rivera for years has demanded diversity from outside counsel. Microsoft Corp has as well.

In January 2019, more than 170 general counsel signed a letter threatening to pull spend from firms that didn't improve their diversity.