By Elizabeth Gore, co-founder and president of Hello Alice.
In the wake of #MeToo, our society is finally becoming more aware of rampant bad behavior by those with financial power. But in the business world, I’m not seeing enough action to prevent terrible incidents before they become headlines. Our first priority will always be to believe, protect, and advocate for anyone on the receiving end of these actions, but it’s clear to me that chronicling their emotional and psychic pain has done little to deter unacceptable behavior or force bad actors from their pedestals. What if we instead examined the price tag attached to each incident? As a country of capitalists, I suspect dollar signs would sound a very loud alarm for anyone with a financial stake attached to these events.
In six years of business and four rounds of venture capital funding, my company, Hello Alice, has had two investors accused of sexual misconduct after they joined our cap table. None of these accusations involved anyone within our company, but our association with these men carries reputational damage that impacts Hello Alice and every company in which these investors have a stake. I believe an important step in ending these acts once and for all is running the numbers on the labor and money we devote to protecting our brands, employees, and customers.
Thankfully, other folks have started the calculations. In March 2019, Deloitte published a study investigating the monetary cost of workplace sexual harassment. When they added up the impact on victims, perpetrators, bystanders, employers, and governments over a single year, the nation’s economy faced an estimated $2.6 billion in lost productivity alone. Another analysis in the Journal of Corporate Finance found that news of a sexual harassment case at a major company leads to a 1.5% dip in market value, with the average drop totaling $450 million.
My co-founder and I have been aware of these staggering figures for some time. In fact, as Hello Alice closed its Series A, we knew multiple CEOs reeling from the fallout of sexual misconduct by investors associated with their companies. In hope of protecting Hello Alice, we drafted a first-of-its-kind “morality clause” for board members. The short but powerful paragraph stipulates that anyone accused or involved in negative actions involving gender, sexual orientation, or race is required to step down from the board and would lose voting rights and any control they had over our company’s decision-making. Since late 2019, I’m proud to say that every one of our investors has agreed to these governance terms.
Soon after this process, a general partner at a top-rated venture firm, was accused of numerous scandals. We immediately got to work looking for ways to cut ties and neutralize the risk he posed to our brand. Not long after, while closing our Series B, we learned that another investor who joined our seed round, introduced to us by a community-led angel group, was similarly accused of sexual misconduct. The moment we heard, we spent thousands of dollars in legal fees attempting to buy him out, so far without success.
The second investor might own less than .3% of the company, sure, but it kills me that those who experienced pain are spending money on legal fees while this guy stands to be rewarded for our team’s hard work. Our most recent correspondence asking to buy back his shares still sends shivers down my spine: “Thanks for the message. I believe in you and your company too much to want to sell my shares right now. I believe my shares in Hello Alice will be worth exponentially more in the next few years.”
As a leader of a mission-driven company that prides itself on equity in all forms, this problem keeps me up at night — especially as I learn its true scale. Almost every venture-backed founder I know who has been in business for five years has dealt with a similar circumstance. Like most founders, I try to ensure we’re taking money from quality institutions and individuals. However, after four rounds of funding and literally hundreds of pitches, the law of averages (and assholes) starts to close in. We typically have limited visibility into the firms or angel groups we’re pitching, outside of the leads we’re working with directly, and rarely interface with the other general partners. We might not even learn of our connection to a bad actor until the damage is done.
That’s why I believe change must start at the top. On behalf of all entrepreneurs, I’m asking limited partners, fund managers, and managing partners to help address the root causes of these issues. Going forward:
- If you’re a limited partner (LP), ensure the firms acting with your money are vetting general managers for their behavior in and out of the boardroom
- If you’re a general manager or fund manager, investigate quickly and swiftly when an employee or fellow investor is accused of a heinous act
- If you benefit from the financial success of portfolio companies, step up with your voice, action, and reaction
- Create your own version of a “morality clause” that articulates your expectations and values from day one (we’ve published our full morality clause here on our blog to get you started)
- Most of all, ensure you have a policy in place that protects those who experience pain, prevents retaliation, and provides support to portfolio companies in the event of a reputational crisis
Again, your first priority should be to support individuals who are harmed and to immediately release the responsible parties. Then turn your attention to your portfolio companies, before we’re all saddled with the unfair mental, financial, and reputational burdens. After all, we’re supposedly here to make money, and look how much this is costing.