THE TIME IS NOW: What Silicon Valley Learned From the Kleiner Perkins Discrimination Case

NY TIMES ON MARCH 27, 2015

Ellen Pao, flanked by her lawyers Therese Lawless and Alan Axelrod, thanked her supporters after she lost her gender discrimination suit against Kleiner Perkins. Credit: Jim Wilson/The New York Times

Kleiner Perkins’s victory Friday in the gender discrimination suit brought by Ellen Pao could be seen as an affirmation of the Silicon Valley old boys club. But venture capitalists have said that the trial has already put the tech industry on notice: It can no longer operate as a band of outsiders, often oblivious to rules that govern the modern workplace — even if that has been a key to its success.

Silicon Valley has always prided itself on doing business differently. Forget bureaucracy and the traditions of bigger, older companies, the thinking goes. Instead, wear jeans to work, bring your dog, don’t ask permission to try something new, and embrace failure.

That nimble approach has helped create more world-changing ideas and wealth than any other industry in recent years. But it can have a flip side — a sometimes blatant disregard for the policies that apply to big businesses, whether it’s obeying regulations, paying taxes or treating employees fairly.

The broad themes of the trial extended far beyond Silicon Valley’s casual workplaces. Just as Anita Hill once helped shine a light on overt sexual harassment, Ms. Pao, in suing Kleiner Perkins Caufield & Byers, might have done the same for subtle sexism. The trial was riveting in part because many women could relate to the slights described on the witness stand, like men interrupting women in meetings or assuming they were too preoccupied for a big role because they had children.

Studies indicate that a lax approach to gender and diversity issues is worse in an industry dominated by men. Just 6 percent of partners at venture capital firms are women, and 77 percent of firms have never had a female investor.

The data show how this affects women, and how a more modern approach to gender dynamics in the workplace could help.

In venture capital, a firm invests money from its joint fund, and the partners make investment decisions together. But individuals are responsible for each investment, by finding new start-ups in which to invest and advising them from perches on their boards.

Female venture capitalists’ financial performance is about 15 percent lower than that of their male colleagues, according to a study by Paul Gompers, a professor at Harvard Business School. The entire difference in performance, the study found, is that women do not benefit from their male colleagues, while men help one another.

When there are several female investors at a firm, however, women benefit from their colleagues’ contributions. The performance gap also disappears, the researchers found, in older, larger firms that have formal mentoring, performance reviews and explicit processes for making investment decisions.

“For women, at times, it’s, ‘Carry your own water,’ but this is a business that you can learn a lot from people who have been around the block,” Mr. Gompers said. “I don’t think it’s conscious gender discrimination, but I do think in many of these firms, it just happens because our natural tendency is to associate with people who are like us.” Mr. Gompers was a paid witness in Kleiner Perkins’s defense during the trial.

The researchers analyzed all venture capital investments from 1975 to 2003, using data from VentureSource. They controlled for characteristics like investors’ education and work experience and the industries in which they invest.

Jennifer Fonstad, a founder of Aspect Ventures and former partner at Draper Fisher Jurvetson, said that the results did not necessarily match her experience, and that the data was probably skewed by the small number of women, the years covered and the difficulty of attributing investments to certain partners. “There are things happening in real time in the field much more quickly than in the data, and there is much more success on the venture side than the data shows,” she said.

Still, in surveys with 93 female venture capitalists for the Harvard study, 59 percent said they felt they had been disadvantaged because of their gender. About a third said they received less informal feedback than their male colleagues did, and about a quarter said they had not benefited as much as men from mentorship. They were less likely to go fly fishing or biking with a colleague, or get advice during a casual office chat.

But women at larger, older firms or at those with other female investors were less likely to feel disadvantaged, particularly in the area of informal feedback from colleagues.

The dynamics, of course, vary by firm. Kleiner Perkins is an older, larger firm. Several people testified in the Pao trial that Kleiner Perkins did not have enough formal policies, including one on sexual harassment, and that women were excluded from informal meetings.

Though the study showed the benefits of formal processes, venture firms and start-ups sometimes view these as a waste of time. Small firms often have no human resources employees, and when they do, they are focused almost solely on recruiting.

Yet as heretical as it might sound in Silicon Valley, bureaucracy serves a purpose. Studies have found that women generally perform better in companies with more formal processes, and that women in science have better prospects for employment at start-ups that are more bureaucratic.

Informal changes can be just as important — and harder to make. These are about being aware of subtle slights and unconscious biases. Does a man notice that he asks only other men to grab a drink after work, or that he interrupts women in meetings?

The Kleiner Perkins trial, despite the firm’s victory, already seems to be having an effect.

One lesson learned, after Kleiner Perkins emails were read during testimony: Be careful what you write. “The idea that your behavior can be one way internally and another way externally and you can get away with it is evaporating,” a venture capitalist said. “Forwarding around sexist emails, which has happened in our industry and every industry, stopped overnight.”

Another venture capitalist said she was making sure her firm had a human resources employee and explicit policies. A third said he was rethinking whether he had turned away female entrepreneurs too quickly in the past. Most would speak only on the condition of anonymity, in part because of the many overlapping business connections.

Yet there are also concerns that the trial could have the opposite effect.

“I really worry more that there will be a chilling effect on the risk-taking appetite toward getting diversity into venture,” said Peter Fenton, a partner at Benchmark. He said he worried that others might resist hiring a woman because they could think, “Kleiner took the risk and look what happened.” Mr. Fenton, though, said he was pushing for his firm to hire its first female partner.

Another investor said he was concerned that the trial might have turned away the next generation of female venture capitalists.

If tech companies want to remain a band of risk-taking, fast-moving outsiders, the biggest risk they could take might be hiring more women and then creating company cultures where they can succeed.

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