Kleiner Perkins Lawsuit Gives Inside View of Clubby Venture Capital World

May 24, 2012 — -- Though it was widely known that the world of venture capital is dominated by male partners and funding recipients, a gender discrimination suit filed by a female employee of Kleiner Perkins Caufield and Byers has exposed a system that allegedly boosted male positions and compensation while excluding the company's female employees.

Ellen Pao, 42, an investment partner with the firm, filed a lawsuit on May 10 alleging the firm engaged in gender discrimination against her and other female employees. She said she faced retaliation when she complained of multiple instances of sexual harassment, which included being pressured by a junior partner to have a sexual relationship and being given a book that had "sexual drawings" and poems with "strong sexual content."

Kleiner Perkins, the esteemed venture capital firm based in Menlo Park, Calif., is seven miles away from the headquarters of Facebook, one of the many tech firms in which it has invested in its 40-year history. Google, Zynga and Groupon are among other beneficiaries of Kleiner Perkins' investments, which range from $100,000 to $50 million.

In this elite world, women represented fewer than 10 percent of high-level venture capitalists, and left the industry at twice the rate as that of men, according to an estimate from the Kauffman Foundation in 2004.

Teresa Nelson, a professor at Simmons School of Management in Boston and faculty affiliate at the Center for Gender in Organizations, said she has no knowledge that the situation has changed.

"The world of money has always been a difficult place for women to break into at the top levels and there are a variety of reasons why that's true," she said.

Simmons School of Management is the only MBA program in the U.S. with a curriculum designed for women, which Nelson said aims to make a contribution to gender equality.

"Gender is not a women's issue, it's society's issue," she said.

She said women are as rare as partners in venture capital firms as they are as recipients of venture capital funding.

"Probably some of this has to do with discrimination but there are many social issues that play into this as well," she said.

Kleiner Perkins has 49 partners, 12 of whom are women, and is one of the most gender-balanced venture capital firms based on those figures, it says. Of the 12 women partners in the firm, nine are investing partners and three are operating partners, according to the firm.

Pao, of San Francisco, was hired in June 2005 as a junior partner after working at a bevy of technology firms and a law firm. Pao studied electrical engineering at Princeton and went to Harvard Law School and Harvard Business School.

In the complaint, filed in San Francisco Superior Court, she alleges she was the victim of sexual harassment by Ajit Nazre, a former Kleiner Perkins investment partner who left the firm in January of this year, and gender discrimination and retaliatory action from the firm. She seeks unspecified compensatory damages, punitive damages, among other forms of relief.

Nazre, who could not be reached for comment, had been at the firm for two years longer than Pao and directed some of her work, the suit said.

"Mr. Nazre made inappropriate sexual approaches to [Pao]" during a business trip to Germany in February 2006, according to the filing. Pao "rebuffed his advances" and Nazre "responded to her rebuff" by "becoming brusque and distant."

From March to October 2006, he allegedly pressured Pao to "have a sexual relationship with him" and falsely told her that his wife had left him, the suit said.

Pao "eventually succumbed to Mr. Nazre's insistence on sexual relations on two or three occasions," but in October 2006 she told him she would "no longer have a personal relationship with him," the suit says. Then, over the course of five years, Nazre "engaged in retaliation against" her, including excluding her from "numerous" business meetings and removing her from business email discussions where she had been initially been included," the court filing stated.

Pao alleges that she repeatedly complained to superiors about this treatment but was told "that she should just accept it," the suit said. She also alleges "inappropriate" behavior by other male employees.

In one example, on Valentine's Day in 2007, a senior partner came into Pao's office, the suit states. He gave her a book called "The Book of Longing" by Leonard Cohen, which contained sexual drawings and poems with "strong sexual content," and invited her to dinner, explaining that his wife would be out of town, the suit states.

Christina Lee, a Kleiner Perkins spokesperson, said in a statement about the lawsuit that the firm "regrets that the situation is being litigated publicly and had hoped the two parties could have reached resolution, particularly given Pao's 7-year history with the firm."

"Following a thorough independent investigation of the facts, the firm believes the lawsuit is without merit and intends to vigorously defend the matter," Lee said in the statement. "The Firm has been a diversity pioneer in its industry and was one of the first venture capital firms to hire women as partners. The number of women partners at the firm is one of the highest within the venture capital arena and the firm has actively supported women in all respects."

The suit said that Pao "believed that the retaliation and gender discrimination were affecting her compensation at KPCB, because women generally were not treated equivalently or promoted to Senior Partner based on their gender."

Male Junior Partners, for example, "were allowed to add multiple Boards of Director positions and investment sponsorships each year, while female Junior Partners were limited to just one," the suit described.

"This difference in treatment affected compensation, because investment sponsorships impacted board positions, outside perceptions and the ability to generate returns," according to the court filing.

Pao describes instances of gender exclusion, including all-male dinners and being disinvited from a semiannual CIO meeting after complaining about being excluded. In December 2011, Pao said a senior partner told her "that the personalities of women do not lead to success at KPCB, because women are quiet."

She also cites complaints by three administrative assistants "that they were being harassed or discriminated against by KPCB partners in May 2007."

Whereas Pao claims she was told by general partner John Doerr during her performance review that she was "the top performer of the Junior Partners and that she had the most positive internal feedback," Pao complains that the firm later retaliated against her in several ways, including in subsequent performance reviews. In August 2010, her work was described as "appreciated and coveted" but the report cited "issues" with other partners.

She claims the company moved her office to the back annex of the building and asked her to move to Kleiner Perkins' China office "to separate her from Mr. Nazre." She said she refused.

Without commenting specifically about Pao's case, Nelson said professional partnerships like those of venture capital firms, have a distinct organizational style than corporations, which are large and run by a board of directors.

"How decisions get made, how people participate, how they're recruited" are usually through a "tight funnel" in the world of venture capital, she said. A large percentage of people entering venture capital firms have MBAs from Harvard and Stanford, for example, Nelson said.

"There's a different sort of visibility for VC firms than corporations," she said. "It doesn't mean they don't work as well. They're just different."

Originally, entrepreneurs established and worked in venture capital firms whereas today, many of those entering the field have been on an MBA track with a specialty in finance or technology. Many of those establishing technology companies have advanced degrees in engineering and few are women.

Nelson said while gender discrimination still exists in the world of finance, it has evolved since the types of discrimination seen in the 1950s, when there was a smaller pool of women trained to lead firms.

"There's a new ethos around the role of women in society and business," she said. "I think many times we need to look rather deeply how societies, businesses, and families work to understand why we see such a small percentage of women at the highest levels in any organization."