Women Win in Venture Capital When They Don’t Sue

May 31 (Bloomberg) -- Kleiner Perkins Caufield & Byers is anti-woman.

That’s the position of Ellen Pao, a junior partner at the venture capital firm who filed a lawsuit in San Francisco Superior Court contending “discriminatory treatment of Plaintiff and other female employees, specifically in advancement and compensation because of their gender.” Pao is also saying she was sexually harassed and that after she complained to higher-ups she suffered retaliation.

The greater question here isn’t whether certain executives at Kleiner Perkins treated Pao poorly. That’s entirely possible. This column isn’t suggesting otherwise. The question is whether such a lawsuit is pro-woman -- whether its consequences will be good for women in the specific field of venture capital on a net basis, as they say in business schools. The answer is: probably not.

You can make the case that Pao’s action may work against women who want to be entrepreneurs.

There are two kinds of companies in the U.S.: square ones and wild ones. The former have the advantage that they follow many rules; their disadvantage is that they aren’t always creative. The wild type, common in venture capital, does everything differently, starting with the open office.

Over the years, creative rebels have often behaved poorly in their creative workplaces. Do most of us approve? Hardly. Nobody likes, say, the way the great creator of Apple Inc., Steve Jobs, treated many colleagues.

Growth or Responsibility

But creative environments boast an advantage: They contribute more growth than the old dinosaurs. The venture capitalists give money to entrepreneurs, including women. As the cowboy firms age, they tend to develop their own culture of responsibility. It’s their returns and their optimism that lured top students such as Pao in the first place.

A brilliant electrical engineer, Pao didn’t go straight from college (Princeton, class of 1991) to a job with a Midwestern manufacturer or the U.S. Department of Labor. She aimed higher: Harvard Law School, Harvard Business School and then venturesome companies such as Microsoft Corp. and Kleiner Perkins. If these workplaces were wild, there was glamour in wildness.

Her action may reduce the very kind of access she enjoyed for those who followed her. Setting Kleiner Perkins aside, consider the rest of the sector. Human-resources specialists aren’t idiots. They see how much Pao, still merely alleging, is costing a firm such as Kleiner Perkins: time, image and distraction from its main work, finding value. Other businesses will work harder to avoid a litigious hire. They will scour candidates’ resumes for similarities to Pao’s. Her husband, Alphonse Fletcher Jr., had filed lawsuits. Any job candidate with a record of suing, or with a litigious spouse, will get a cooler reception. Starting last week. In other words, some highly qualified candidates will be excluded. Will HR departments admit what they are doing? Never.

Pao complains that Kleiner Perkins excluded her from top-level meetings. At venture capital firms across the U.S., executives are probably rejiggering their e-mail and chat settings to be sure that every junior partner at the Pao rank gets CC’d. But there are still some meetings, alas, to which everyone isn’t invited. Management’s main response will be to ensure that next time the junior partners don’t even know those meetings exist. That is exactly the opposite of the open office.

Global Divide

The same trade-off between “safe” and “creative” exists among countries. Apparently it is difficult for a nation to be both intensely fair and intensely friendly to entrepreneurs. Compare the two premier surveys on entrepreneurship and gender fairness, the World Bank’s Doing Business survey, and Unesco’s highly regarded Global Gender Gap Report.

Singapore, Hong Kong and China, New Zealand, the U.S., Denmark, Norway, the U.K., and South Korea rank at the top in the 2011 edition of the World Bank survey. Less highly ranked for “doing business,” according to the same survey, are Finland, Ireland, Iceland, Canada, Australia and Japan. Business confronts more hassles in these countries.

Yet the very same countries that rank lower on the entrepreneurship charts star when it comes to gender equality. Iceland, Finland, Sweden and Ireland are top countries in the 2011 update of Unesco’s survey. Singapore, No. 1 for business opportunity, ranks 57th of 135 countries, below Jamaica, Namibia, Russia and Honduras on the gender-gap index. The U.S. ranks fourth when it comes to doing business, but only 17th when it comes to measuring the gender gap.

In the U.S., litigation isn’t great for growth and job creation. The tort system, according to estimates by the consulting firm Towers Watson, cost the country $264.6 billion in 2010. When you leave out the Gulf of Mexico oil spill, generally such tort costs are slightly down, in part because states have changed laws after recognizing the financial burden of lawsuits.

A case such as Pao’s might do more damage in the venture-capital sector than elsewhere. Such action forces the U.S. venture capitalists over a bit on the spectrum toward safety, and away from risk. It makes the old VC firms more like the public sector or traditional American corporations.

This isn’t to say that sexism or sexual harassment is acceptable, or that Pao should tolerate it, or that Kleiner Perkins shouldn’t take action against wrongdoers. It is to suggest that there is a cost to remedying the problem with showcase litigation.

Pao may think her legal action will create opportunities and top jobs for the next generation of girls. In fields such as the one she chose, there might be more jobs if there were fewer discrimination lawsuits.

(Amity Shlaes is a Bloomberg View columnist and the director of the Four Percent Growth Project at the Bush Institute. The opinions expressed are her own.)

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View columns, editorials and op-ed articles.

Today’s highlights: the View editors on Spain’s banking crisis and turmoil at the Nuclear Regulatory Commission; Michael Kinsley on intervening in Syria; Haresh Sapra on stress-test results; Luigi Zingales on competition and inequality; Steven Greenhut on California referendums; Matthew Schoenfeld on staving off the next AIG.

To contact the writer of this article: Amity Shlaes at

To contact the editor responsible for this article: Katy Roberts at