A big idea for boards in Silicon Valley
This tech entrepreneur has a novel policy to deter sexual harassment
Most companies deal with sexual harassment allegations retroactively, scrambling when allegations arise and trying to fix the culture afterward with a bunch of training and consultants. But one software entrepreneur is taking the opposite approach, hoping to preemptively deter any bad behavior from venture capitalists who could one day end up on her company’s board.
When Kristina Bergman, the co-founder of Integris Software, started her company a year and a half ago, she took the unusual step of adding a voting agreement to the company’s legal documents that forces investors to replace a director on her board if there is “reasonable probability” that sexual harassment occurred. Knowing how much the issue had become an open secret in the industry — and how hard it can be to oust a director for reasons other than “cause,” such as fraud or embezzlement, she said — Bergman wanted more protection as a female founder.
“It felt like a good, commonsense thing to get ahead of this,” said Bergman, who is chief executive of the Seattle-based provider of privacy intelligence software. “Just because there is an imbalance of power doesn’t mean that as a founder you have no power.”
Bergman’s decision preceded the most recent outcry over sexual harassment that has shaken Silicon Valley. Hot start-ups such
as Uber and prominent venture capital firms such as Binary Capital have faced public allegations over the behavior of their partners or the bro-driven cultures that have festered under their watch.
In response, the industry is trying to find a fix. LinkedIn co-founder Reid Hoffman started a hashtag — “#decencypledge” — and suggested that the industry needed some kind of “industry-wide HR function.” A group of 30 venture capitalists drafted a code of conduct for members of the industry. An influential startup incubator launched an app that could serve as something of a blacklist, providing Yelp-like reviews of financiers’ behavior; group is planning an online database to let female entrepreneurs report inappropriate behavior.
Bergman believes her policy adds to that list of solutions and specifically addresses another issue: the relationship between directors and the founders and teams they advise. Though she knew her board members well and had no cause for concern, she did worry about what could happen if she added more investors or if new directors came on board.
“If you think about employment agreements, employees are held to basic levels of conduct,” with human resources departanother ments in place to monitor them, she said. But in most start-ups, the same doesn’t apply when it comes to the board of directors. Among small, privately held start-ups, board members are typically removed only if they breach their fiduciary duties or come under fire for fraud or other criminal activity, she learned.
Having been a venture capitalist herself, she felt confident that she could present an idea that would work for both sides.
She and her attorney, DLA Piper partner Trent Dykes, worked up an approach that included three key components Bergman believed were essential for protecting herself, her cofounder and her employees — while also protecting her investors.
First, to help protect investors, the voting agreement doesn’t require that a venture capital firm lose its board seat if a board member misbehaves; it only mandates that the firm replace the offending partner on the board with someone else.
In addition, Bergman and Dykes stipulated that a special counsel would be appointed to investigate and report back to the board. “What that does is keep control at the board level,” Bergman said. “It allows the board to protect their investment in the company.”
The special counsel would not have to prove guilt — a standard that in the “he-said-she-said” world of sexual harassment can be extremely hard to meet — only the “reasonable probability” that inappropriate behavior occurred. “We didn’t want this to be a really burdensome process, where there was a burden of proof akin to what you would see in a courtroom,” Bergman said. (That also can be expensive: Dykes said a court process could take months, and “if the director wanted to fight, it might tank the start-up” financially.)
Dykes said he has never seen a voting agreement like Bergman’s in a private start-up.
Typically, if a director behaves badly, the way to remove him or her is “for cause,” and “there’s very little case law on what director ‘cause’ means,” he said. “There are these areas that clearly we all find as bad behavior but [may not] rise to the level of ‘cause.’ ”
Even if her policy will do little to address the sexual harassment that occurs between venture capitalists and entrepreneurs who aren’t yet funded, Dykes and one of Bergman’s board members, Mike Dauber, said they could see the practice spreading. Dauber, a venture capitalist with Amplify Partners, agreed that the idea is novel and added that “every founding team ought to be using something like this as a protection. As a V.C., I also want that protection from another board member who may be a bad actor.”
Dykes, who says he does 30 to 50 seed and venture deals a year, could see other start-ups benefiting from adding similar language to their voting agreements. “I don’t see a downside” to including it, he said, especially because “everybody’s got to agree to it.”
If they don’t, it could be a reason to think twice. “If the investors don’t like it,” Dykes said, “maybe that sends you a signal.”
Kristina Bergman created a voting agreement that would oust directors if there’s “reasonable probability” harassment occurred.