The only reason why I employ diplomats is for the trade rights at the beginning of a campaign and to make it harder for rich enemy factions to bribe my ungoverned cities out from under me.

It's such a pity that CA didn't spend more time considering the diplomacy side of the game, it would've made it even more immersive IMHO. Still, if/when RTW2 sees the light of day and it is fully mod-able (is that actually a word?), hopefully that can be rectified.