What do readers in Silicon Valley make of the Ellen Pao case against Kleiner Perkins?

Silicon Valley friends: What do you make of the lawsuit by Ellen Pao against Kleiner Perkins? (USA Today) The standard employment discrimination case, to my mind, starts with the principal-agent problem. It is another way for managers to cheat shareholder-owners, the same way that they might by moving the company headquarters to a different suburb in order to shorten their commute. The managers indulge their personal preference for hiring buddies, people that they think will be fun to work with, etc., regardless of the fact that more qualified workers are available at a lower price. But the Kleiner Perkins partners are compensated strictly according to their funds’ performance. (Perhaps still the standard “2 and 20” structure where they get 2 percent of the fund every year just for showing up and then 20 percent of any profits, even if the profits are driven by inflation and the fund underperforms the S&P 500.) So if Pao’s allegations are true, i.e., that she was doing a great job and producing profits, the greedy venture capitalists stand accused of intentionally making themselves poorer simply so that they would not have to look at an additional woman in the office (25 percent of Kleiner Perkins partners are female, according to Wikipedia, but it is unclear what the percentage would be for the entire office). Econ 101 would predict that those partners would have been happy to have a green Martian in the office if he/she were making money for them.

I haven’t set foot inside Kleiner Perkins for about a decade so I don’t feel qualified to comment on the likely merits of the case. What do Silicon Valley readers think?

Sidenote: Pao is married to Buddy Fletcher, a former hedge fund manager who was a successful plaintiff against Kidder Peabody, initially alleging race discrimination. Wikipedia says that prior to his marriage he was “in a same-sex relationship with Hobart V. ‘Bo’ Fowlkes Jr. for over 10 years” so presumably his lawyers had to choose between alleging that Kidder Peabody discriminated against him because of his skin color or his sexual orientation (at the time).


8 thoughts on “What do readers in Silicon Valley make of the Ellen Pao case against Kleiner Perkins?

  1. I am not in Silicon Valley, but I have not seen evidence of you pure Econ 101 motivations very frequently. As you pointed out, if women are compensated at a rate 76% of identically performing men, then all companies should shift immediately to hiring only women and cut their compensation budgets by 24%.

    The behavior inside KP is most certainly more complex than the model you are hoping for.

  2. I have a lingering question, discussed in our office today. Does your opinion of the merit’s of Pao’s suite change knowing nothing but the fact that her husband has filed several such suits of his own? You could imagine having two mental models here:

    (a) Pao’s husband is litigious by nature, and encouraged or influenced her to file her own suit, which is of dubious merit; or perhaps having seen her husband’s success at filing such a suit she was influenced to do the same
    (b) There is injustice in the world, some people are courageous enough to stand up to it, and Pao is doing the world good by uncovering the unfair hiring, pay, and promotion practices at KP.

    I’m curious what the readers and author think of this. My gut is that a small number of people (say, 1%?) make all the trouble in the world. I feel like Pao’s lawsuit is less meritorious as a result of her husband’s history of litigating.

    Related: should employers be allowed to ask potential hires whether they have filed a lawsuit before? A lawsuit against a former employer? This would potentially be a major red flag! You could imagine no doctor, for example, wanting the business of a patient who has sued previous doctors.

  3. Patrick: From our book on family law nationwide: The anecdotal experience of litigators confirms Brinig and Allen’s [research paper] results from 2000 and from 2011. “A lot of potential clients [who hadn’t previously considered divorce] come to my office after hearing about a big score by a friend or neighbor,” noted a Massachusetts attorney. “When I tell the prospect that the facts of her case are different and she is likely to end up with a smaller number, if that number isn’t sufficient for her to maintain her lifestyle, she’ll typically reconsider the idea of suing. If that number will provide a better material lifestyle than what she enjoys presently, she’ll write me a $25,000 retainer check on the spot. A lot of men in Massachusetts would be surprised to find out that they are still married only because they aren’t wealthy enough to be worth suing.”

    So if Pao is like the typical divorce lawsuit plaintiff, her eagerness to sue was influenced by learning about the profitable outcome of her husband’s lawsuit. That said, a lot of plaintiffs don’t expect to have to go the distance to trial. Their lawyers tell them that most defendants can’t take the pain and will cave in with a lucrative settlement offer.

    It will be interesting to hear the arguments to the jury. I wonder if Pao’s lawyer will explain to them that Kleiner Perkins, and therefore the partners, can get paid even when grossly underperforming the S&P 500 or even when underperforming cash. So that she would have gotten paid a fortune, had she stayed at the firm, regardless of the success of the portfolio companies. Pao’s testimony on life as a VC should be highly quotable!

  4. It’s all about the spin. It sounds to me as if Pao was trying to sleep her way to the top. She admits that she had sex with a married partner on “two or three occasions” but then broke off when the partner failed to leave his wife. But it’s not her fault – she “succumbed” to the partner’s “insistence”. Pao’s behavior confirms the worst ancient stereotypes on why you should not allow women in a workplace. If this is what feminism means, then we are in big trouble.

  5. Not Silicon Valley proper, San Francisco, but I find her accusations plausible, or at least that she is sincere in her perception of being discriminated against, even if the real reason may be something else. The downside of being blackballed by the VC community far outweighs whatever paltry award she could get once the lawyers’ cut is deducted, and by any reasonable standard she is already wealthy anyways.

    There are very, very few ranking female VCs – Heidi Roizen and Ann Winblad are the only ones that come to mind. That has a knock-on effect on startup founders’ likelihood of being funded, and the composition of their boards.

  6. Not ever having set foot inside Kleiner, I may be less qualified to comment, but here goes.

    1) KPCB will be willing to spend unlimited sums to protect their reputation. For them, more so than nearly anyone else, reputation is huge. Also, they have unlimited sums. I am sure Ellen Pao would have known all this. To some extent this argues against the simple notion that she got the idea to sue from her current husband and/or that her suite is just sour grapes. I tend to think she truly believes she was the victim of discrimination and would have been prepared to take it to trial from the beginning.

    2) The theory about “trying to sleep her way to the top” does not seem plausible. She was working for John Doerr, not likely to be the person she had an affair with (a “junior partner”). A much more straightforward way to obtain success in that position would simply have been to impress her boss.

    3) Some of the allegations repeated in the article above can potentially be shown to be incorrect (women partners not invited to parties, women partners not allowed to serve on more than one board). It will be interesting to see what comes out here.

    4) If you had an affair with a guy, why are you surprised that he wants to restart it? If there are any men on the jury, I don’t think she is going to get all that far, at least with the general gist of the allegations as presented in this article.

  7. >2) The theory about “trying to sleep her way to the top” does not seem plausible. She was working for John Doerr, not likely to be the person she had an affair with (a “junior partner”). A much more straightforward way to obtain success in that position would simply have been to impress her boss.

    I didn’t say the VERY top. It’s quite possible that by the time she changed her strategy, it was already clear to her that she had failed to make an impression with Doerr. Impressing your boss with your mental talents is very hard – only a few % of people are extraordinarily gifted in this way. Being a “special friend” of a junior partner might also give you an advantage vs. male associates – not as much as sleeping with il capo di tutti capi, but still an advantage. In any case, assuming the partner was heterosexual, only female associates are able to use this strategy – this is sex discrimination right there, but it’s discrimination against male associates.

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