Unless you’ve been on a deserted island without internet access all week you’ve read about Donald Sterling’s galactic audiotape disaster and RadiumOne CEO Gurbaksh Chalal copping to two misdemeanors after being charged with multiple felonies for apparently striking his girlfriend 117 times.
Our US democracy was founded on the principle that you are “innocent until proven guilty”, but that privilege does not extend into the board room. Not in the real world, at least. I may sound harsh, but it’s true. As partners in a private equity firm, we represent more than just ourselves. We represent our investors, the managers, employees and customers of our portfolio of companies. We won’t allow any of these people to be tainted by toxic issues like discrimination, domestic violence or harassment. Period.
This kind of exposure hurts you, but its ripple effect can spread quickly. We are not in the position to delicately parse facts. There is little room for nuance in these situations and we have to move faster than the fallout. Guilty or not, the immediate reaction will be to create distance between you and everyone else. Witness the rapid response of all of the Los Angeles Clippers sponsors, including CarMax and Virgin America. They jumped ship even before the NBA’s commissioner ruled on Donald Sterling’s alleged comments—in fact, they were gone before it was even proven that it was Sterling’s voice on that TMZ audiotape. If it turned out that the Sterling tape was a fake, it still wouldn’t matter.
This is not a matter of reasonable doubt, it’s a matter of reasonable likelihood. And it’s exactly what we would do. RadiumOne’s board decision to axe Chalal was slightly easier, since he had already pleaded guilty to two misdemeanor charges. While the board took some heat in the trade rags this week for not moving fast enough I’m giving them the benefit of the doubt that they acted as fast as they could given the legal implications of firing a founder who might still actually control the ownership of the company.
We’ve recently seen this play out in the investment world. Consider the story coming out about tech-startup darling, Github. One of the co-founders and his spouse were alleged to have harassed an employee, Julie Ann Horvath. Tech businesses tend to be male dominated environments, therefore, showing any tolerance for gender discrimination is a deathblow. While co-founder Tom Preston-Werner was cleared of harassment charges after an internal investigation he resigned anyway. My guess is that the clever boys at Andreesen Horowitz (a Github investor) might have brought a little pressure to bear here with their $100m investment at stake.
So, what’s the lesson in the mid-market? You had better get your house in order and make sure it stays in order. You can’t tolerate discrimination, harassment, domestic violence or anything like it in your company. We won’t tolerate bad behavior and our action will be swift. We won’t accommodate brilliant jerks. And if the CEO won’t clean it up, we will. And if it’s the CEO who’s the jerk we’ll deal with that, too.
Our reputation depends upon it.
So it’s not personal, it’s just how we do business.