The Bombshell’s Gone Off: What’s Next for Kleiner and Ellen Pao?

You could practically hear the collective gasp across Silicon Valley Tuesday morning as people awakened to the news that Ellen Pao, a partner at Kleiner Perkins Caufield & Byers is suing the esteemed firm, claiming that she suffered years of harassment and discrimination and that when she complained, she faced retaliation in the form of stifled career advancement and reduced pay.

For Kleiner, which has long boasted that it has more female investing professionals on its payroll than any other venture capital firm, the reputational damage was immediate. “You can’t un-ring the bell,” says Gary Phelan, a seasoned employment law attorney with Cohen & Wolf in Westport, Conn. “You can’t necessarily eliminate the damage.”

And it may get a lot worse.

For starters, employment law specialists who do not represent either party believe that Pao — who attended Princeton before nabbing a law degree at Harvard — has a number of powerful claims. Among them is that Pao worked in a culture where sexual harassment was permissible. The reason it’s a dangerous claim for Kleiner, says employment attorney Joseph Sellers of Cohen Milstein in Washington, D.C., is that Pao’s suit suggests others can corroborate it.

Pao says in her suit that she was sexually harassed for five years by one of its investment partners, Ajit Nazre, and that her complaints largely fell on deaf ears. (The suit asserts that then managing partner Ray Lane even suggested that she resolve her conflict with Nazre by marrying him.)

It also claims Pao wasn’t alone in enduring harassment, highlighting three administrative assistants who complained about sexual harassment and discrimination in 2007. (Kleiner hired an outside investigator in response, according to Pao’s suit.) The suit also claims that a junior partner repeatedly complained to senior management that she was being sexually harassed by Nazre last year. (An outside investigator was engaged again, says the suit, after which “Mr. Nazre left KPCB.”)

Kleiner will “probably say that it took prompt action by removing [Nazre], but on the face of it, [Pao’s sexual harassment claims] could be easier to prove if there are corroborating witnesses,” says Sellers, who last year represented the discrimination claims of female Wal-Mart employees before the Supreme Court.

Neither Kleiner nor Pao’s legal team responded to requests for comment for this story. On Tuesday, Kleiner stated publicly that “[f]ollowing a thorough independent investigation of the facts, the firm believes the lawsuit is without merit and intends to vigorously defend the matter.”

Yet another of Pao’s claims, that she was retaliated against, could also be difficult to easily squelch, suggest both Sellers and Phelan.

Pao says in her suit that after reporting Nazre’s actions, she was first told that “it was unfair…but that she should just accept it.” When she refused, the suit claims, Pao was asked to move her office “to the back annex of the building,” then asked to move to Kleiner’s China office.

While such claims might be difficult to verify, the suit makes numerous other claims of retaliation that may be harder to challenge, including that in 2008, Pao was denied an annual performance review, one that would have determined whether she received a bonus, raise, or promotion. It’s particularly relevant, claims the suit, because Pao was told in a performance review the previous year by managing partner John Doerr that she was the top performing junior partner at the firm. (Pao’s suit says she first complained about Nazre to two managing directors in June 2007.)

“Obviously, those claims are something she’d have to prove,” says Sellers. “But… if she can prove that she had a bigger share of the profits, then a smaller share of the profits” or was on track to become a more senior partner, then bumped off it, “that’s pretty good evidence that she was disadvantaged.”

Either way, the case could prove very costly for Kleiner, from which Pao is seeking unspecified damages. “Retaliation is where employers get in the most trouble in these cases,” Phelan says. “Juries get angry when people bring these issues to their employers in hopes they’ll be remedied and instead they get punished; that’s where you get the largest punitive damages.”

The harm to Kleiner’s sterling brand may be all but impossible to fully repair, too. Unless the “case goes to trial and [Kleiner] is vindicated entirely, [it will be] living with a changed reputation, and that’s going to linger,” says Sellers.

As for anyone tempted to draw a line from Pao to her husband, a well-known Wall Street investor who has filed discrimination suits in the past and who was included in media coverage of the suit on Tuesday, the connection won’t mean much in a court or settlement situation, suggest both attorneys.

“The fact that her husband has [filed lawsuits in the past] would legally have no relevance to what [Pao] did unless [Kleiner] had evidence that she repeatedly cited her husband’s views at the company,” says Sellers. “And given her [elite educational and professional] background, I’d be very surprised if that were the case.”

“Generally, someone’s spouse’s track record isn’t going to be admissible,” adds Phelan. In fact, he says, “To the extent [that the spouse] is relevant, it will be in settlement negotiations, where spouses are often very involved, especially in sexual harassment cases. When you have a married couple, they’ve lived through it together, often for years. And often, the spouse is as or more angry than the [plaintiff].”

Photo: Image courtesy of Shutterstock.