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If Silicon Valley Wants to Be Decent, It Should Give Up NDAs

VCs who want to fix the tech industry's toxic culture should stop abusing nondisparagement and nondisclosure agreements.

The disruptors of the world have deigned to be decent.

They are upset—very upset—about allegations that Justin Caldbeck, at Binary Capital, a well-regarded venture capital firm, behaved inappropriately toward female executives at companies in which he’d invested. What's troubling about this is not only what the alleged victims, who went public in a story that was published in the Information, say Caldbeck did. It’s also how Caldbeck and his firm initially responded when confronted with allegations that include groping one startup founder and sending another sexually explicit text messages. Before Caldbeck apologized and resigned, Binary sought to minimize the allegations, describing them as examples of Caldbeck’s “social interests” and noting that Caldbeck had not broken the law.

In fact, it seems that many in Silicon Valley had heard “rumors,” as Caldbeck’s partner Jonathan Teo put it in a Facebook post. (“I had full belief that he was turning over a new leaf,” Teo wrote on Facebook. “I saw it in his eyes.”) Caldbeck's former firm, Lightspeed Ventures, another Silicon Valley highflyer apparently saw the same—that is, until last week, when it disclosed that a portfolio company had complained about Caldbeck's behavior. “In light of what we have learned since, we regret we did not take stronger action,” the firm tweeted.

Enter the #DecencyPledge. A week ago, Reid Hoffman, the co-founder of LinkedIn and a partner in the venture firm Greylock, proposed a zero tolerance policy of VCs making sexual advances toward portfolio company employees. Not to be outdone, Chris Sacca, the founder of Lowercase Capital, posted a long confessional essay on Medium in which he apologized for failing to “call out bad behavior by industry peers.”

Sacca's essay was published a day before the New York Times came out with a sweeping report about sexual harassment. Among other allegations levied against investors in the article, an entrepreneur, Susan Wu, said that Sacca touched her face inappropriately in 2009. In a follow-up post Saturday, Sacca disputed the account and attempted a magnanimous tone. “I am still grateful for Susan and all of the strong women speaking up on these vital issues,” he wrote, adding that he would continue “growing the work I have been doing for years to bring about permanent change in our industry and our lives.”

If the dawning of the Age of the Woke VC feels a little bit late in coming and, at this point, a bit self-serving, it's also ridiculously vague. So I have a suggestion: Rather than grandstanding about decency, Silicon Valley venture capitalists might try something of substance—such as, for instance, doing something about the industry's culture of secrecy. In particular, tech companies should stop abusing nondisparagement and nondisclosure agreements.

In theory, NDAs are intended to protect companies' trade secrets, but as the Binary case shows, they can also be used to protect secrets that deserve an airing. As it turns out, not everyone at Binary Capital overlooked Caldbeck's alleged actions. In a lawsuit filed last week against Binary and Caldbeck, Ann Lai, a former principle at the firm, says she complained about Binary’s culture, including a dress code for only female employees and “inappropriate conduct with female staff at company outings.” Lai resigned in May 2016. 

According to the complaint, Caldbeck then embarked on a campaign to ensure Lai never told anyone about her concerns about the firm. Among other things, the suit alleges Caldbeck threatened Lai that “she would never work again” and sought to prevent her from finding a new job at other venture capital firms. Lai, a Harvard Ph.D., struggled to find a new job for months and believes Binary was working behind the scenes to damage her reputation. Binary declined to comment. A person close to the firm said that it views the suit as opportunistic and that Binary and Caldbeck would respond to the allegations set forth in the lawsuit.

Part of what allowed this to happen, according to Lai’s complaint, was a nondisparagement clause that Lai signed when she was hired and which she says Caldbeck used to keep her silent after she left. These clauses are common in Silicon Valley. They are not supposed to apply in cases where an employee is acting as a whistleblower, but in practice that is exactly what they do. Lai’s lawsuit includes what she says were threatening text messages by Caldbeck urging her not to speak to the press about Binary’s culture. 

It might be tempting to dismiss Binary's alleged abuse of a routine employment agreement as an isolated incident, but it is not. Pretty much every other big tech company these days tries to force visitors to sign a nondisclosure agreement on their way in the door. Google, that great beacon of transparency, was accused in a lawsuit of using a broad confidentiality measure that prevents employees from ever talking about their work at Google—or, hilariously, from so much as writing a novel about a Silicon Valley tech company without company approval. The suit, which was brought by a Google product manager who was fired after being accused—falsely, he says—of leaking information to the press, claims that Google makes it all but impossible for employees to speak up about bad behavior. (Google called the lawsuit “baseless.” The case has been partially dismissed.)

Meanwhile, Apple has aggressively targeted leakers with an extensive counterintelligence operation staffed by former NSA agents who urge employees to avoid telling even loved ones about what they do, according to a report in the Outline. The idea is to preserve the company's “surprise and delight” moments. Freedom is slavery, I suppose.

Hypocrisy aside, I don't think the cult of secrecy in Silicon Valley is the product of a discriminatory mindset, but the Binary case suggests that these measures can enable that behavior for years. In a blog post, former Uber engineer Susan Fowler, whose account of sexual harassment at Uber sparked changes at the company and led to the resignation of Chief Executive Officer Travis Kalanick, suggested that the widespread use of nondisparagement and nondisclosure clauses has contributed to a toxic culture in some Silicon Valley companies.

Decency—even #decency—is well and good. But if VCs are serious about reforming the seemingly rampant sexism in the tech industry, they and their portfolio companies need to stop blackballing those who are brave enough to diagnose it.

    Bloomberg Businessweek Columnist
    Max Chafkin
    Bloomberg Businessweek Columnist
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