The entrée hadn’t even arrived when the youngest person present at a dinner in San Francisco a few years ago got up abruptly to go see a startup he wanted to fund. That was a bit odd. So was his nervous tic.
But for other reasons Joe Lonsdale, then in his 20s, intrigued me, and I later arranged an on-the-record interview. It was the table-pounding conviction with which he argued the old ways of doing business, as defined by the decaying industries of the East Coast and Wall Street, were on the outs. Everything could be done better by adopting the Silicon Valley ethos of disruption.
Lonsdale explained that the East Coast is the home of Luddites, while the West is the brave new frontier. “Here it is much more focused on working hard. Value is created by iteration. The engineers are the ones building stuff and matter most,” he said. “The core culture is about execution, not about sales – not lawyers.”
A founder of secretive big-data outfit Palantir Technologies, Addepar and most recently investment firm Formation 8, Lonsdale knows the value of a good lawyer now. Ellie Clougherty, his former girlfriend and Stanford University mentee, has taken him to court, alleging sexual harassment and assault and seeking damages of at least $75,000.
The civil suit – countered by Lonsdale with a statement saying Clougherty’s claims are “100 percent fiction” and a defamation lawsuit against her – has some striking similarities with a trial that kicked off last week. Ellen Pao, a former employee, is suing Kleiner Perkins Caufield & Byers, the venture capital firm that invested in Google, Amazon, JD.com and other tech blockbusters, for $16 million for discrimination and retaliation.
Silicon Valley has long exuded a sort of moral exceptionalism, a belief that its technological prowess and entrepreneurial spirit set it apart from the compromised arenas of finance, commerce and politics. But the tech world is having its “boom-boom room” moment. The expression comes from another industry in another time. Three decades ago, Wall Street was a Petri dish for the kind of bad behavior that too much money, too much hard work and too few older, wiser adults tend to engender.
A 1996 lawsuit by a Smith Barney stockbroker alleging widespread sexism over her 10 years at the firm and its predecessors arguably put the frat-house culture of New York’s financial industry on wide display. The suit against the broker – then run by current JPMorgan boss Jamie Dimon – alleged 19 kinds of sexual discrimination. She also charged that the three women in the branch where she worked (out of 58 brokers) were excluded from, among other things, golf outings with clients and drinking parties in a basement room where a toilet bowl was hung from the ceiling.
Pao worked at Kleiner Perkins from 2005 to 2012. She claims the firm impeded her career and senior partners excluded her from key meetings after she cut off an affair with a married colleague who she said had pressured her into the relationship. She said women at Kleiner Perkins were told they would “kill the buzz” at dinners and were not invited to outings, including ski trips on private jets.
She complained she was given short shrift when she voiced her concerns to senior members of the firm. Kleiner Perkins, the suit concluded, “committed the acts herein despicably, maliciously, fraudulently, and oppressively, with the wrongful intention of injuring (Pao), from an improper and evil motive amounting to malice.” Those are harsh words about a firm that was an early investor in Google, where “Don’t Be Evil” is a corporate slogan. The VC firm has denied Pao’s allegations.
Rather than focusing on the latest giant initial public offering or the newest report from Kleiner Perkins investment guru Mary Meeker, Silicon Valley is transfixed by the Pao affair and the allegations against Lonsdale, a protégé of PayPal founder and investor Peter Thiel.
Information tends to spread like wildfire through the tech industry in the way bawdy jokes once did across Wall Street trading terminals. Up until now, however, the hot reads on the West Coast have mostly been self-serving manifestos from tech billionaires about making the world a better place through an IPO or PowerPoint presentations predicting Armageddon among startups. Now it is unsavory court transcripts and legal complaints.
Like Lonsdale and Kleiner Perkins, Smith Barney rejected the allegations against it back when the world first learned of the boom-boom room. As then, lawyers, judges and a jury will decide whom to believe. Whatever the strict legal results, it’s hard not to conclude that lines of propriety were crossed by Lonsdale, notably in his role as a mentor at Stanford (which has since banned him from the campus), and by at least one Kleiner Perkins executive, in his dealings with Pao.
Whatever happens, not much good is likely to come from either mess – that is, except for one thing. The harsh light could hasten an end to the tech industry’s unwarranted righteousness and usher in a more humble acceptance that it is a business focused on profit like any other. If that comes with the adoption of stronger moral principles, and clearer human-resources policies, then Silicon Valley really might make the world a better place.