Where is private equity’s “Me Too” moment?
The venture capital world has been rocked with revelations of sexual harassment and bad behavior by venture GPs.
That includes Justin Caldbeck, co-founder of VC firm Binary Capital, who called it quits after several female entrepreneurs last summer came forward with stories of unwanted advances. Sam Isaly said he would step down from Orbimed Advisors in December following a StatNews report that claimed he helped perpetuate a culture of sexual harassment at his biotech hedge fund. Isaly denied the claims while Orbimed told investors it was investigating the situation. Caldbeck apologized without admitting or deny the claims against him and took a leave of absence.
Revelations about numerous Hollywood stars have led to the downfalls of several high-profile careers, including perhaps the biggest movie producer, Harvey Weinstein. The movement led to the creation of a social media hashtag, #MeToo, in which women shared their experiences with sexual harassment.
But the same has not happened on the private equity side. So what gives?
One male GP, who spoke on condition of anonymity, said PE firms have done a good job rooting out sexual harassment. PE firms, he said, are very big on rules and have strong human resources policies to prevent such incidents.
But some women who spoke to Buyouts disagreed with that assessment. “Bringing attention to a matter like sexual harassment could make a woman seem like a liability and make it difficult to secure a new job,” a female PE source said.
“Perhaps some [or many] would view it as cowardly, but the path of least resistance may seem like a better option for these women — get a new job and move on.”
The fact is private equity is a small, male-dominated industry. Women represent only 17.9 percent of PE employees globally and just 17.1 percent in the U.S., Preqin said in an October report. Of the 9.4 percent that hold senior positions in PE, most are in investor relations or marketing, the data provider said.
“You just have so much to lose,” a second female PE executive said, pointing to the vesting schedule in PE. “You are locked up. You say something. You do something. You better be ready.”
There have been exceptions. Lisa Lee in 2016 filed a lawsuit against her previous employer, CVC Capital Partners, alleging sexual discrimination. Among other things, Lee alleged that she was denied promotions and professional opportunities given to male colleagues. She also claimed the buyout firm tried to give her accounts to male co-workers when she went on maternity leave.
CVC and Lee, now a managing director at Providence Equity, ultimately settled the lawsuit confidentially in November 2016. CVC in a statement at the time did not admit to any wrongdoing, but in connection with the settlement, agreed to consult with Lee in the following months on issues of diversity and inclusion.
In another high-profile case, Ellen Pao, now a partner at Kapoor Capital, lost her $16 million gender discrimination lawsuit in 2015 against her former employer, Kleiner Perkins Caufield & Byers. Her 2012 lawsuit claimed the Silicon Valley VC firm had retaliated against her for reporting gender bias at the firm.
Several women in private equity who spoke with Buyouts on condition of anonymity talked about all types of sexual harassment in the industry. Off-color comments, which can include remarks about appearance (“You are so hot!”) to the more crude (“You’re sexier with your hair down.”) are frequent occurrences for some women in the workplace, the sources said.
One female GP said she’s been dealing with sexual harassment in the workplace for 20 years. “It was rampant in my life,” she said.
Employees of private equity, especially those at higher levels, commonly sign arbitration or nondisclosure agreements, said Michael Schulman, who counsels PE firms and portfolio companies as a member of the labor and employment practice group at Kirkland & Ellis.
While it depends on the firm, employees are oftentimes bound to arbitrate by a clause within their employment agreements, Schulman said.
Schulman said 100 percent of the harassment-related issues he’s been retained on for PE firms were for portfolio companies.
“Our PE clients have been very aggressive about addressing those issues,” he said. “I don’t know if that is a reflection of how they’ve handled those issues internally in the past. It might be a result of that.”
In other words, there’s no way of knowing how many situations are handled quietly behind doors. Lawsuits are not only stressful and costly economically speaking, but sexual harassment can be tough to prove, sources said.
“There’s no upside whatsoever,” said one female GP who dealt with sexual harassment for several years. “Nothing is going to change.”
“These are deep pockets and people get scared,” another woman said at a recent conference, noting that the industry seems to attract risk-averse personalities who are less likely to raise their hand.
To be fair, venture capital — and, for that matter, all of finance — is also male-dominated. Stark differences in culture are another factor to consider, sources said.
For example, VC tends to back smaller companies through deals often made over coffee or drinks, rather than in a corporate boardroom. Its employees are also more tuned into social media platforms like Twitter or Medium, which lend to more sharing of personal stories. Even the PE professionals in the small shops tend to come out of corporate firms where they have structured procedures.
The lack of formality that arguably encourages greater innovation in VC also lends itself to a blurring of the lines between personal and professional lives — or as some sources put it, a greater “opportunity” for harassment.
Calls for change
Some women questioned by Buyouts feel that LPs today do little to push GPs to prevent harassment. Money may partly be the cause. LPs are also under pressure to not embarrass a GP or cause them to lose money, one investor said.
“The reality is that we are still paid solely on returns. Environmental, social and other behavioral issues don’t matter on the scorecard at year-end, for most of us, if the returns are still there,” the LP said.
One PE executive likened LP diligence to a “check-the-box exercise” that is gaining momentum. Another said she has never witnessed an LP ask a question around promotion, salary, diversity or termination, despite having sat through a ton of fund-diligence meetings.
“We are scared of LPs” and “they’re all scared of us,” the second PE source said. “I don’t know if [these questions] are not on their list or if they’re so nervous to poke the bear.”
Kate Mitchell, co-founder and partner of Silicon Valley’s Scale Venture Partners, said that structural issues contribute to why LPs haven’t felt they’ve had a voice. LPs may shy away from asking the tough questions if they’re vying for an interest in a top PE firm or a VC firm, sources said.
That’s why making it routine to ask these questions is so important, said Mitchell, who also chairs the National Venture Capital Association’s new Inclusion & Diversity Task Force.
“That’s why this will make its way into” due-diligence questionnaires, she said.
Momentum is shifting though and LPs may soon make questions about sexual harassment and discrimination a normal part of assessing new managers.
The Institutional Limited Partners Association plans to update its due-diligence questionnaire by the end of June by adding new questions that address sexual harassment and, separately, diversity and inclusion, Emily Mendell, an ILPA spokeswoman said.
“We’ve been moving at a glacial pace up until now, and I think things are really going to accelerate,” Mendell said.
ILPA is working with counsel to develop pointed questions that look specifically at whether there have been claims of sexual harassment or misconduct, Mendell said.
While they are still exploring particular language and the extent to which questions can be asked, she said ILPA is examining questions that look at things like whether firms engage in NDAs or have settled in any lawsuits.
Female GPs have plenty of their own ideas for new questions, including looking at termination by gender and role, for instance. Questions that look specifically at annual compensation and bonuses over several-year periods, carry and management ownership, and the number of women who actually sit on the investment committee should all make their way into the mix, they suggested.
For change to take place, one of the PE sources said: “LPs have to be willing to walk away.”
While Mendell says a majority of ILPA’s members are receptive to asking such questions, she cautioned, “if the GPs don’t want to change, it will be hard to force the needle.”
ILPA, for its part, also plans to update its PE Principles for the first time since 2011, Mendell said.
The changes will likely include language around GP behavior, guidance around key person clauses and actions that should be taken in the event a GP or executive is accused of sexual harassment. In addition, ILPA is looking into developing a “code of conduct” that LPs could provide to GPs that they could then choose to sign.
The PE Women’s Initiative, formed as a partnership between NAIC and the American Investment Council, also has issued guidelines and best practices for private equity firms.
AIC’s Bronwyn Bailey, who heads up the initiative, said it is also working through ways to become more solution-oriented, partly through its annual forums.
Another initiative is Callisto. Launched in August 2015 as a year-long pilot at the University of San Francisco and Pomona College, Callisto provides technology that lets survivors confidentially document and report sexual assault. It also helps identify repeat perpetrators.
The service is going to trial in the VC community, Mitchell said, adding that Callisto or similar services could be expanded to address harassment in the PE community, especially the smaller shops.
Some large PE firms are also taking measures to combat harassment. Carlyle Group, which has one of the better records of hiring women, enables employees to report anonymously any problems, a source said.
While industry organizations take steps that could force executives to rethink their attitudes toward sexual harassment, at least one female GP continues to believe the best route may be to stay quiet:
“Keep your head down. Do your work. You have to show what a great job you’re doing and work your way up, so you can get into a position where you are hiring and doing the culture setting and leadership development. That’s the truth.”
Luisa Beltran and Sam Sutton contributed to this report.
Render illustration of Harassment title On Legal Documents. Photo courtesy of hafakot/iStock/Getty Images