The ‘Pao effect’

The lawsuit filed against CVC has echoes of Ellen Pao’s case against Kleiner Perkins in 2012.

Many in the private equity and venture capital community experienced déjà vu this week when reading about the gender discrimination lawsuit against CVC Capital Partners.

The suit, filed last week by former managing director of investor relations Lisa Lee, bears a strong resemblance to the case venture capitalist Ellen Pao brought against Kleiner Perkins Caufield & Byers in 2012, which ended in the firm’s favour last year after an acrimonious trial.

To recap this week’s news: Lee is alleging she was fired in retaliation for her complaints about sexual harassment and gender discrimination at CVC. She alleges male supervisors and colleagues subjected her and other women to unwanted physical advances and “demeaning and denigrating” comments; that she was denied promotions that were given instead to male colleagues; and that when she took maternity leave in 2012, CVC attempted to redistribute her client accounts to her male coworkers.

Four of Lee’s claims in the suit relate to discrimination. The remaining two claim breach of contract. When Lee started as managing director of business development at Providence Equity Partners six months after leaving CVC, CVC deemed her a “bad leaver” for having breached her non-compete agreement, resulting in her involuntary forfeiture of more than $10 million in equity compensation, deferred compensation and commissions, according to Lee. CVC said Lee’s claims were “without merit” and it would “defend [its] position vigorously”.

In order to win the discrimination part of the case, Lee has an uphill battle. She will have to prove that a systemic gender bias existed across the firm at CVC, and that her gender was the main reason why she was denied higher compensation or promotions, rather than other factors like performance.

Of course, Kleiner Perkins and CVC aren’t the only firms in the financial services industry to face gender discrimination suits. Goldman Sachs recently settled a lawsuit out of court in London and another US class action case against Goldman (being fought by Outten & Golden, the same firm representing Lee) is currently pending. In 2004, Morgan Stanley agreed to pay $54 million to settle claims of widespread sex discrimination at the firm, including strip-club outings with clients and higher compensation for men. And these are just the cases that were made public.

Beyond the finance world, employment lawyers speak of the “Pao effect” – an influx of gender discrimination cases in Silicon Valley against the likes of Facebook, Microsoft and Twitter over the past year as women have felt emboldened by Pao’s case (despite the result) to settle workplace discrimination issues in court.

The difference between these cases and CVC’s, however, is that in the private funds world these types of issues are generally handled internally, employment lawyers tell PEI. The fact that Lee and CVC have reached this point does not bode well for either party. Lee will have to have something up her sleeve in order to clinch a win against CVC, because in suing the firm she has already played her biggest negotiation tool – exposing the case to public scrutiny.

Given CVC’s statement that it plans to fight her allegations “vigorously”, it’s likely – say legal sources – that the firm has already conducted an internal investigation into the allegations made against it, and plans to follow the Kleiner Perkins playbook and go to trial rather than settle out of court. So once again, a private fund manager and an employee have been unable to settle a human resources issue internally, and once again, in an industry that has historically dealt with acrimonious matters in private, reputations are being scrutinised publicly.