SAN FRANCISCO — She seemed an unlikely challenger to Silicon Valley’s elite — a lithe, shy Harvard graduate, alleging sex discrimination at one of the world’s most prestigious venture capital firms.
But Ellen Pao, former venture capitalist turned tech CEO, has taken her former employer, Kleiner Perkins Caufield & Byers, all the way to the state courthouse, where this week trial proceedings began in the high-profile case that has planted the schmoozy and insular venture-capital community smack dab in an unflattering spotlight.
If Pao wins her suit, she walks away with up to $16 million and a victory that will likely accelerate reform in the largely closed, male-dominated venture industry. If she loses, Kleiner — which has denied all allegations — will have triumphed over one of its most determined opponents, a victory that will add credence to claims the firm has made repeatedly that it is among the most women-friendly venture businesses.
But for the larger VC community, it may not matter who wins. The Pao case, which began in 2012 with her lawsuit accusing Kleiner of gender discrimination and retaliating by stymying her career when she reported sexual harassment by colleagues, and ultimately firing her, has rocked the venture capital world, according to legal experts and advocates for women in technology. At a time when tension over the lack of women in all areas of technology has hit a boiling point — just last month a former Stanford student filed a salacious lawsuit against a venture capitalist alleging rape — the Pao suit has put the heat squarely on venture capital.
“I think it’s a wake-up call to the venture capital community,” said Deborah Rhode, a Stanford University law professor and expert in legal ethics. “They have a really dispiriting history around gender equity. The lack of women participating, especially at higher levels, is really distasteful.”
While tech companies such as Google and Facebook face mounting pressure to diversify their workforce, the Pao case is the most glaring example that VCs, too, must be part of the solution to finding a better gender balance in tech, say experts. Jury selection began Thursday, with opening arguments next week.
“The facts of the case are likely to be mixed and messy, but regardless of the outcome, the expense of litigation — not just in terms of money but in reputation — is likely to serve as a warning for all venture capital firms,” Rhode said.
In 2011, 11 percent of venture capitalists were women, according to the National Venture Capital Association, but it was closer to 7 percent in a 2013 survey of 26 leading firms. Women who do get into the industry leave at twice the rate of their male counterparts, according to a 2004 study by the Kauffman Foundation. Just four women were listed on the 2014 Forbes Midas List of the top 100 venture capitalists in the world.
Compared to other firms, Kleiner boasts a high number of women in its ranks –11 partners, or 20 percent of the firm. That such a relatively progressive firm with worldwide prestige — it has backed such successful companies as Google, Amazon and Genentech — would become the centerpiece of the first high-profile discrimination lawsuit against a venture firm shocked much of the tech community, say experts.
Pao’s lawsuit alleges in 2006, a year after she was hired at Kleiner, her colleague and then junior partner Ajit Nazre made “inappropriate sexual approaches.” She succumbed on “two or three occasions,” but when she broke it off, he retaliated, according to the suit. Pao’s lawsuit says she experienced harassment from other male colleagues, and after reporting the harassment to management, she was excluded from meetings and investment opportunities, told to move to the firm’s China office and skipped over for partner promotions.
But Kleiner claims Pao told Nazre she loved him and sent him angry texts after their affair ended, according to a court filing. The firm has also disparaged Pao’s work and said she was fired in 2012 for underperformance. In the filing, Kleiner said Pao “had conflicts with most of her colleagues, men and women” and “failed to develop the expertise needed for success in the investing partner role.” Yet she made more than her male colleagues — $300,000 to $380,000 annually.
As many as 13 Kleiner executives, including Pao’s former boss, John Doerr, will be called as witnesses to rebut Pao’s claims.
Most experts expected Pao and Kleiner to settle their dispute in private. Employment law attorneys say at least 90 percent of these cases never make it to trial because they can be damaging to the employer’s reputation, invasive for the employee and expensive. Pao’s relentlessness in this case has surprised many who know her. Pao, 45, who wears thick-rimmed glasses and boasts three Ivy League degrees, is widely described as quiet and even introverted.
But discrimination lawsuits are familiar territory for Pao. Her husband, Alphonse “Buddy” Fletcher Jr., has filed at least two racial discrimination lawsuits, including one against a well-known New York apartment building that declined his offer to buy it. The building owners said he didn’t have enough money; Fletcher, who runs a hedge fund, said it was because he is black. He was also recently sued for fraud by major pension funds in Louisiana and Massachusetts, and many of his funds have been bankrupt since 2012.
Some in the VC community have said Pao is only after money, given her husband’s financial troubles; she has asked for $16 million, saying her career potential has been damaged. Kleiner’s attorneys have requested information about Pao’s equity and salary from her current employer, microblogging site Reddit, where she has served as interim CEO since November.
And legal experts say Pao will also be hard pressed to convince a jury that she was sexually harassed by a colleague after she agreed to sleep with him.
“It’s going to be a really difficult case for her to win,” said Kellie McElhaney, a corporate responsibility expert with the UC Berkeley Haas School of Business. “She’s in for a very long road. She’s the one whose (reputation) is getting slaughtered.”
Contact Heather Somerville at 510-208-6413. Follow her at Twitter.com/heathersomervil.
Ellen Pao vs. kleiner perkins caufield & byers
The Players:
Ellen Pao, former venture capitalist and current CEO of Reddit; and Kleiner Perkins Caufield & Byers, a venture capital firm based in Menlo Park
The Case:
Pao has sued KPCB for gender discrimination, retaliation and failing to take action to prevent discrimination. She is seeking $16 million. Pao worked at KPCB from 2005 to 2012.
Timeline:
Case was filed in May 2012. Pre-trial proceedings began Tuesday, with jury selection beginning Thursday. Opening arguments are expected next week.
The Allegations:
Pao’s lawsuit alleges in 2006 her colleague and then-junior partner Ajit Nazre pressured her into having an affair. She succumbed on a few occasions, but when ended the relationship, Nazre retaliated, according to her suit. She said in her suit she was harassed by other male colleagues, and other women at the firm had similar experiences. The suit claims that she reported this to management on multiple occasions, but her complaints were ignored and she was excluded from meetings, promotions and opportunities at the firm before she was fired in 2012.
KPCB alleges Pao’s relationship with Nazre was consensual and it was Pao who became angry when it ended. The firm claims Pao was difficult to work with and fired for underperformance, after years of poor performance reviews. The firm says Pao’s salary was more than some of her male colleagues. It also conducted an investigation in 2012 which found that Pao’s complaints were without merit.
