A big idea for boards in Sil­i­con Val­ley

This tech en­tre­pre­neur has a novel pol­icy to de­ter sex­ual ha­rass­ment

The Washington Post Sunday - - BUSINESS - JENA MCGRE­GOR

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.”

CASSIE REDSTONE

Kristina Bergman cre­ated a vot­ing agree­ment that would oust di­rec­tors if there’s “rea­son­able prob­a­bil­ity” ha­rass­ment oc­curred.

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