Innovating Inclusion: The Impact of Women on Private Company Boards

Florida State University Law Review Volume 46 Issue 2 Article 8 Winter 2019 Innovating Inclusion: The Impact of Women on Private Company Boards Jennifer S. Fan University of Washington School of Law Follow this and additional works at: https://ir.law.fsu.edu/lr Recommended Citation Jennifer S. Fan, Innovating Inclusion: The Impact of Women on Private Company Boards, 46 Fla. St. U. L. Rev. (2022) . https://ir.law.fsu.edu/lr/vol46/iss2/8 This Article is brought to you for free and open access by Scholarship Repository. It has been accepted for inclusion in Florida State University Law Review by an authorized editor of Scholarship Repository. For more information, please contact . INNOVATING INCLUSION: THE IMPACT OF WOMEN ON PRIVATE COMPANY BOARDS JENNIFER S. FAN* ABSTRACT Eight percent-that is the percentage of women who serve on the boards of directors of private high technology companies. Private companies, particularlyhigh technology companies, have transformed citizens' daily lives, while the unprecedented availability of private capital has allowed those companies to remain private longer. This rise, however, has also obscured some of the weaknesses of private companies, which are not subject to public disclosure and regulatory oversight:rampant sexual harassment, the lack of women leaders in technology companies, the relative absence of female venture capitalists,and the dearth of female board members, to name a few. Yet thus far, legal scholarshipon gender diversity on corporate boards has focused almost exclusively on public companies, overlooking the stark lack of women in the vastly wealthy and influential sector of private capital. This Article documents the exclusion of women from the boards of nearly all the major private high technology companies currently influencing American business, and it explains why this male-only hegemony matters. It then offers a new paradigm, the innovation imperative, for creating a business culture in which people of all genders can make valued contributions. This Article analyzes two potentialarenas for change: the legal and business realms. It concludes that a combination of legal and business reforms, such as adding inclusion riders to contracts and rethinking certain hiring and networking practices, would pave the way for progress in getting more women on boards. I. II. INTRODUCTION.............................. .............................. STATE OF ENTREPRENEURSHIP AND VENTURE CAPITAL...... ................. 346 353 A. Obstacles to Women-Funded Startups.... ........................... 355 1. Funding Challenges..........................................356 (a) Funding Dynamics and Trends..... ........................ 356 (b) Dearth of Fundingfor Women-Led Startups..... .............. 359 2. Absence of Human Capital ............... ..................... 360 (a) Few Women Venture Capital Partners ........................ 360 (b) Few Women Board Members ................................ 362 (c) Lack of Women in Leadership Positions in Venture-Funded Startups................................................ 364 3. CulturalDisadvantages ............................... ....... 364 (a) Implicit Biases Against Women ............ ................. 364 (b) StructuralInequities and the Lack of Social Networks for Women.......................... ...................... 365 (c) Lack of Gender Diversity in Service Providers to Venture Capital......................... ....................... 366 B. Problems of Gender Diversity on Boards of Venture Capital-Backed Companies................. ........................ .......... 368 C. Evidence of Lack of Women on Private Company Boards....... ......... 373 III. THE EFFECT OF CORPORATE GOVERNANCE, PUBLICNESS, SEXUAL HARASSMENT, AND THE INNOVATION IMPERATIVE ON PRIVATE COMPANY BOARDS .................................................................. 375 * Jennifer S. Fan is Assistant Professor of Law and Director of the Entrepreneurial Law Clinic at the University of Washington School of Law. The author wishes to thank Renee Jones, Sanne Knudsen, Liz Porter, Jeff Schwartz, Craig Sherman, and Kellye Testy for their helpful comments. Also, special thanks to John Delaney, Anna Endter, Christine Minhee, Mary Whisner, and Kiri Yoshimura for their excellent research assistance. FLORIDA STATE UNIVERSITY LAW REVIEW 346 [Vol. 46:345 A. CorporateGovernance...........................................376 B. Publicness.....................................................377 C. Sexual Harassment.................... D. The Innovation Imperative for Diversity .. 1. IV. V. The Prior Cases for Diversity.. ......................... 379 ........................... 386 ................................. 386 2. The Innovation Case for Diversity ............................... PROPOSED SOLUTIONS.....................................................392 389 A. Varying Levels of Success with PastEfforts..... 393 ..................... B. Proposed Legal Reforms.................. ........................ C. Proposed Business and Cultural Reforms ............................ CONCLUSION.............................................................. I. 395 402 414 INTRODUCTION By most standards, 2015 was a banner year for venture capital, with new unicorns being anointed on a regular basis, startups flush with cash, and venture capital firms with seemingly endless deep pockets. Despite these outward indications of success, 2015 certainly was not the year of the woman. Ellen Pao's landmark discrimination case' against vaunted Silicon Valley venture capital firm Kleiner Perkins Caulfield & Byers turned a glaring spotlight on the mistreatment of women in technology and the lack of women in the rarefied world of venture capital . 2 As one journalist observed, "even some of [her] critics concede[d] that she [was] exposing an uncomfortable truth about Silicon Valley: starting tech companies . .. is still a male game, and so is funding them."13 Although ultimately unsuccessful in her lawsuit, 4 some observers opined that Pao's case would bring much-needed change in the make-up of venture capital firms. However, as time passed, the number of women in venture capital improved little; if anything, the situation 1. Pao v. Kleiner Perkins Caufield & Byers LLC, No. A136090, 2013 WL 3224589, at *1 (Cal. App. Dep't Super. Ct. June 26, 2013). The case ended in 2015 after Pao decided not to appeal. 2. Other startups were also experiencing allegations of sexism, sexual harassment, and/or intimidation. Two such startups are Tinder (co-founder sued Tinder for sexual harassment) and GitHub. Sapna Maheshwari, Tinder Settles Fast with Co-Founder in Sexual Harassment Suit, BUZZFEED NEWS (Sept. 8, 2014, 4:44 PM), https://www.buzzfeed.com/ sapna/tin der- settels -fast-with-co -founder-in- sexual-h aras sment- sui [https://perma.cc/DLF73KSQ]; Alex Wilhelm & Alexia Tsotsis, Julie Ann Horvath Describes Sexism and Int (...truncated)