There are more women than ever on public company boards, but private companies have not kept pace. Legal scholarship has tended to focus on women on public company boards perhaps in part due to the relative absence of information about private companies. Even though private companies, particularly high tech companies, have transformed people’s daily lives, they operate in relative secrecy. They are also able to remain private for longer compared with their earlier counterparts due to the unprecedented availability of capital from venture capital firms, corporate venture capital, mutual funds, sovereign wealth funds, and other sources. By operating in the private realm, these companies are able to obscure some of their weaknesses, as they are not subject to public disclosure requirements and regulatory oversight. As an example, California has already passed legislation mandating that the boards of public companies headquartered in California meet certain gender diversity requirements. Illinois considered passing similar legislation which also required racial diversity on boards, but it was ultimately revised significantly; instead the governor is now considering signing a bill that requires public companies to disclose board and executive demographics. Tellingly, neither state has advanced comparable legislation for private companies.
In a new article, “Innovating Inclusion: The Lack of Women on Private Company Boards,” I call for a reexamination of corporate governance from a private company perspective and offer possible ways to increase the number of women on private company boards. I also look at the theory of publicness, as developed in the work of Professor Hillary Sale and others.
While the high tech industry prides itself on its mission to change the world through innovation, it is guilty of unequal and, at times, discriminatory treatment of women. Lack of gender diversity may in fact impede innovation rather than help it progress and flourish. Indeed, despite all of their innovations, high tech companies have not been able to hack the problem of the lack of women in their companies. One area where this is particularly glaring is the private company boardroom. It is likely that the problems of sexism and sexual harassment are inextricably tied to the lack of gender diversity in Silicon Valley – on private company boards of directors, in venture capital partnerships (i.e., investors), and among founders of startups. To be sure, these problems are not new. However, a renewed focus, prompted by the #MeToo movement, on the dearth of women in the venture capital world outed bad actors that had previously not been identified in the “bro culture” of venture capital. This then galvanized various industries, including the high tech industry, to start to change a culture that has long ignored the importance of gender diversity.
In my article, I document the absence of women at every stage of the life cycle of high tech private companies and show how pervasive the problem is. As an example, I’ve constructed a dataset extrapolated from data available from PitchBook, a company that provides private market data, about the number of women serving on the boards of directors of venture-backed private companies in the software sector. I found that women only comprised 8 percent of directors on the boards of these companies. I then illustrate how various societal factors, including the media’s focus on sexual harassment and sexism in the workplace, and the #MeToo movement provided the impetus for a cultural shift in an industry known for its male hegemony. This shift provides an opportunity to change corporate governance practices in private companies and by extension the structure of such companies’ boards. Although business and social good have often been offered as reasons for gender diversity, I put forward a new paradigm for gender diversity: the innovation imperative.
My article suggests that a combination of legal and business reforms would pave the way for progress in getting more women on boards. Because board seats in venture-backed private companies are typically comprised of individuals from the company itself (i.e., the founders), the investors, and independent board members, the reforms I identify are focused on changes that are possible within these three groups. The following highlight a few of the reforms that I suggest in the article:
- agreements between venture capital firms and the limited partners who invest in them could include provisions mandating that venture capital firms have more diversity in their ranks, particularly among those who serve as the representative of venture capital firms on the boards of private companies;
- venture capital financing documents could incorporate an inclusion rider that specifies that women will be considered for certain board positions; and
- the formation of nonprofit organizations focused on diversity and inclusion could help investors identify potential board candidates outside of their networks.
It is important to start early: By the time a company goes public, diversifying the board is challenging – the company culture has ossified, and meaningful change is difficult to implement. If more systemic changes like the ones described above were to occur when a company is still private then sound corporate governance policies that include women leaders has the possibility of becoming the new normal.
Achieving gender diversity is challenging in the private company context – just as it is in the public company context. But private companies require different solutions because they are unfettered by the regulations that public companies must abide by. I have identified a series of private ordering and contractual mechanisms to encourage more gender diversity on boards that could work in the private company context. These solutions may not be as feasible for public companies because of their larger, dispersed shareholders. Ultimately, the contribution of this article is that it adds a private company dimension to the legal scholarship on gender diversity. Despite the rich body of legal scholarship exploring questions of gender diversity, private companies have largely escaped scrutiny – and it is time for a more thorough examination.
 See generally Jennifer S. Fan, Catching Disruption: Regulating Corporate Venture Capital, 2018 Colum. Bus. L. Rev. 341 (2018).
 See generally Jeff Schwartz, Should Mutual Funds Invest in Startups? A Case Study of Fidelity Magellan Fund’s Investments in Unicorns (and other Startups) and the Regulatory Implications, 95 N.C. L. Rev. 1341 (2017).
This post comes to us from Professor Jennifer S. Fan at the University of Washington School of Law. It is based on her recent article, “Innovating Inclusion: The Impact of Women on Private Company Boards,” available here.