The week before last introduced the world to LegalFling, an app for recording sexual consent preferences via blockchain. The week before that brought news from the Consumer Electronics Show (CES) in Las Vegas, an annual convention featuring no women or underrepresented minorities as main-stage speakers and no official code of conduct for its 180,000 attendees. Despite the tremendous spending power of consumers of color, especially black women, CES featured both the “booth babes” of years past as well as human and robotic strippers gyrating at an affiliated offsite party.
While meaningful conversations around diversity and inclusion are taking place in the tech industry, the sector has also evolved a cottage industry of lip service and annual company stats releases in place of real cultural shifts. I refuse to believe that people can build pole dancing robots but can’t find enough women and people of color to fund and hire.
One of the best solutions is to diversify the venture capital world itself–which is shamefully homogeneous–but while that, unfortunately, might take longer than we’d like, these two changes can be made right away by any VC who wants to doing the right thing.
1. LET CULTURE DETERMINE FUNDING
Misogyny, sexual harassment, gender bias, and other forms of discrimination: It all takes root in work cultures that aren’t sufficiently diverse or inclusive. So if you want to prevent that from happening, you’ve got to build diverse and inclusive companies from the ground up.
Those holding the purse strings determine and enforce the rules–it’s that simple. Human resources and diversity strategy and planning should matter for any investor considering backing a company, but particularly at Series B and beyond. At that point in maturation, “B” is for “build.” The order of operations for building a company should be:
If you hire the right people and create an inclusive environment, they’ll enforce the right processes that will yield the right products and lead to profit. However, it’s up to VCs to look under the hood and ask hard questions to find out whether a company really is ready for additional funding. Like what? Try these:
- Does the product/service solve a large problem of many, or a “first-world problem” of a few? If not many, what’s missing in order to gain market share–and coins?
- Do your board, employee ranks, executive ranks, and suppliers all reflect your existing customer base or the customer base you want to get?
- Do the products serve diverse demographics that include influencers–i.e., what they want to see and evangelize?
- Is there anything in the marketing of this product that wouldn’t appeal to women and marginalized groups, or worse, offend them?
These four questions can help you figure out whether a startup’s approach to diversity is superficial, genuine, in need of development, or nonexistent. This information will also give you a baseline to measure any gains or losses.
With the U.S. leading in early-adopter tech innovation, particularly in communities of color, it’s bad business not to put resources behind those demographic shifts. It’s also a surefire way to build an organization where discrimination and misconduct can thrive. And as the #MeToo movement and related media attention have made clear, social media is now a powerful force for calling out brands whose actions don’t square with their touted values.
Investors who want to head off all these risks should put culture at the very beginning of their conversations around funding.
2. AXE FORCED ARBITRATION
VCs should also require the startups they back to eliminate forced arbitration as their sole method of dispute resolution. These agreements are often baked into nondisclosure agreements, funding agreements, and especially employment agreements–which new hires sign when they’re most vulnerable. And many employees accede to them under duress, frequently in exchange for settlements they badly need, even when they disagree with what they’re officially agreeing to.
No matter the contexts where they come into play, forced arbitration essentially means employees sign away their constitutional right to sue a company (as an individual or a collective class action) should something go wrong. These lawsuits tend to lead to systemic change because they often have the largest financial fallout–so it’s no surprise big companies try to avoid them.
Fortunately, some companies are moving away from the practice on their own: Microsoft announced in December that it’s cutting forced arbitration for sexual misconduct and harassment from its employment contracts. The company is also supporting the Arbitration Fairness Act, a measure that would make such agreements unenforceable for employment, civil rights, and other claims bills. Vice President Mike Pence killed an earlier version of the bill in the Senate with a tie-breaking vote last October, but it’s been reintroduced by Senators Lindsay Graham and Kirsten Gillibrand.
More companies like Microsoft–and VC firms that agree with them–need to rally behind legislation like this in order to fight sexual harassment and provide victims with the legal recourse they’re entitled to.
If investors want to see returns on their funding (and obviously they all do), it’s in their interests to curtail sexual harassment and build more diverse, inclusive work cultures at the startups they back. A 2015 McKinsey study found that companies with more gender diversity on their boards outperformed competitors by 21%; that figure was 33% for ethnic diversity.
Intersectionality isn’t just a buzzy phrase thrown around on the progressive left. It’s a watchword for innovation in 2018 and beyond. Investors need to pay it more attention; they’ll find it pays off.