No Arbitration For Kleiner Perkins, But Plenty Of Public Scrutiny And Some Leonard Cohen

| William A. Schreiner, Jr.

We’ve written before about the sexual harassment suit between the Kleiner Perkins venture capital firm and its former partner, Ellen Pao.  Developments at the end of last week point out another reason to follow this case, however (and the great Leonard Cohen is only part of the story). 

The case is interesting to us for several reasons, including Kleiner Perkins’ somewhat unique theory that it is the “third party beneficiary” of another company’s agreement to arbitrate.  It’s also interesting because it points out, more generally, the role arbitration clauses in employment contracts can play.  Those two story lines may be coming to an end, however: on Friday, a California state court judge denied Kleiner Perkins’ second attempt to have the suit diverted to arbitration, instead of proceeding to trial. 

Significantly, arbitration is a way parties to a lawsuit can move the case to resolution outside of the public eye.  It is, essentially, a “private trial” – the result is usually binding, but the process itself is not part of the public record.  It’s not surprising that a firm like Kleiner Perkins (or any firm, for that matter) would prefer to keep this trial out of the public’s view when its own conduct could be part of the evidence in it.   

Enterprising reporter David Streitfeld of the New York Times noted this when he filed two great pieces on the Kleiner Perkins arbitration saga last Thursday and Friday.  And those two stories bring us to another interesting facet of the Kleiner Perkins trial that’s separate and apart from the money the firm will spend to defend itself, and the risk it may have to pay Pao in a judgment or settlement: that’s the risk that the suit itself could generate negative publicity for the firm. 

In a very delicious irony, Streitfeld’s Friday article saw this exact threat:  

A trial might provide a spectacle of a sort rarely seen in the clubby world of venture capital, which for all of the extravagance of Silicon Valley likes to keep prying eyes at a distance. That is particularly true of Kleiner, which has worked hard over the years to cultivate a mystique that this case is undermining.

Surely Kleiner Perkins understands that its “mystique” will melt like ice cream in Washington in July when the newspaper of record turns its attention on it.  It also sees that it may not even take a full-blown trial (which could be months or years away) for Streitfeld’s prediction of a “spectacle of a sort” surrounding the firm to come true: Streitfeld’s Thursday article described how one partner’s gift to Pao of a copy of the “steamy” book of poetry by well-known singer and poet Leonard Cohen, Book of Longing, is at the center of the case. 

They say all publicity is good publicity – but in this case, Kleiner Perkins may not agree.