Should (And Will ) Kleiner Perkins Settle Its Gender Discrimination Fight?

Published on July 10, 2012
by Liz Gannes

High-profile venture firm Kleiner Perkins Caufield & Byers squares off in San Francisco court later today against its partner Ellen Pao in what will be the first public face-off in one of the most closely watched stories of the past months in Silicon Valley.

What to expect in court tomorrow at 9:30 am PT? Well, Judge Harold Kahn has already said he’s inclined to rule with Pao, in Kleiner’s effort to get her to take her gender-discrimination legal claims against the firm into arbitration rather than via a court battle.

The early initial defeat spells a potentially longer battle ahead, thus raising the bigger question of whether Kleiner might settle before it has to go to court.

While the Kleiner-Pao case has given rise to titillating gossip as well as heavier discussions about gender discrimination in tech, tomorrow’s hearing won’t bring all the mess out.

Rather, the discussion is about whether Kleiner — which has vigorously protested and tried to discredit Pao’s claims — can compel Pao to arbitrate out of court due to employment agreements.

Kleiner is also seeking to keep its partnership agreements private, which the court has allowed so far.

That’s important, since understanding what the firm pays its partners would give great insight into what it might owe Pao if she wins her case.

Pao says that due to her previously voiced concerns about gender discrimination and retaliation, she went back and forth with Kleiner over “non-disparagement” clauses in her contracts. Ultimately, though, she signed the contracts, so she could receive “carried interest,” or a share of the profits.

But even so, those contracts were for management of Kleiner’s various venture funds, not the firm itself, she says. And standard arbitration rules were not attached or provided.

Kleiner tried to dismiss those arguments. “A deal’s a deal” was both the opening and closing line of its recent court filing about Pao’s employment and arbitration agreements.

Kleiner and Pao will present these arguments in court tomorrow, even though Kahn has already made a tentative ruling. If Kahn, as is likely, rules against Kleiner Perkins again, the firm could appeal.

But if Kahn’s ruling is upheld, the legal action could head to court, unless Pao drops it or Kleiner settles.

It’s not clear just how much that would cost.

A settlement could mean a smaller amount, or much more than that — perhaps up to $10 million or more — based in part on what Pao might have earned over the past five years if she had been more actively promoted and compensated at the firm.

More importantly, perhaps, is what a settlement might cost Kleiner in reputation. Some of the allegations have already been made public, in two very different accounts of the past five years.

Pao tells a history of ignored harassment and systematic discrimination, with some very embarrassing details, while Kleiner says Pao was an underperforming employee who failed to bring up her complaints until very recently, when they were invalidated by an outside investigator.

Kleiner partners — including its most famous VC, John Doerr — appear particularly angry that Pao has dragged the company through the mud, with her lawsuit naming names of partners who allegedly shunned her, or worse, came on to her.

That seems to be why the firm has so far taken a black-and-white approach to the case — almost to a fault, considering the issue of gender inequality in venture is a real one in tech.

Though perhaps unrelated, in the time since Pao sued, Kleiner has also made a couple of high-profile hires of women — Stephanie Tilenius of Google and Megan Quinn of Square. It has also touted its marginally better gender ratio compared to other VC firms, which is true.

For her part, Pao says all the scrutiny is not her fault, with her lawyers responding in a recent filing:

“Ms. Pao did not write this Complaint to engender media attention and did not alert the media about the existence of the lawsuit and has not spoken to the media on or off the record about the lawsuit.”

That may be, but the media will surely be covering the case in full force if it goes to trial.

And a court battle would bring out more evidence, testimony and public scrutiny — all things Kleiner has reacted allergically to so far.

So, if Judge Kahn rules against arbitration again, at this point, the additional damage of a settlement could actually be negligible.

Return to: Should (And Will ) Kleiner Perkins Settle Its Gender Discrimination Fight?