Startups Must Make Board Diversity a Priority: One Year Progress Update

Matt Ellis

Founder & CEO at Measurabl

 

The purpose of my original post in August 2020 was to share my personal experience with diversity, equity and inclusion while building a startup. I hoped it will help other founders recognize opportunities I missed and build better companies out of the gate as a result. I’m happy to report that we’ve made notable progress on some of the goals I’ve outlined below, which I’ve detailed at the end of this post.  

 

I have six wonderful Directors and three Observers on my board, plus myself. All are white and only one female. Here’s how we recognized the need to change and went about making it happen.

 

Board diversity, or the lack thereof on my board, should have been obvious – I run an ESG company after all so am well acquainted with data proving diverse companies deliver superior performance. In recognition of this fact, our company put diversity targets in place early on and funded programs supporting women and minorities in tech the second we had two coins to rub together. We have meaningful progress to show for it. And yet board diversity lagged. Why?

 

For one, board members didn’t come into our business unilaterally, except at its earliest stages when I could form a board by fiat. Those days quickly gave way to board seats dictated by the pathos of who led what round, who has the right to appoint whom, and what strategic investor, shiny logo, or product milestone the company might pull forward with a clever appointment. In other words, it can become transactional.

 

That’s shortsighted to say the least and something to beware. Looking back, I see how it happened…

 

I formed a board after securing my first few “friends and family” investments. At the time, I wanted to be able to point to other credible people and say “see, they think it’s a good idea..!” Early startup mode was a blur. The only power I had to bring people together around my idea was that of persuasion. After all there was little (no) money or pattern of success to point to. Personal relationships, then, were all I had to go with. Studies show people tend to affiliate with those of similar experiences which in turn often means they come from similar educational, economic, and racial backgrounds. 

 

So, like most startup founders who are overwhelmingly white and male, I did something all too predictable and common: the white guy appointed other white guys.

I hope other founders can start to see how my board took shape in those early days - how my network was pressurized against the existential need to hop to the next lily pad and out popped a homogeneous result. Not an excuse. Just sharing my experience.

 

Looking back, though, more was at work than expedience… 

 

When I said we set diversity targets I failed to mention we prioritized gender, not race. I remember talking with my team about race and whether we should also assign targets. “Not now” I said. That could be “next”. Why did that make any sense to me?

 

I am the proud father of two girls, married to the woman of my dreams. My wife works harder than she ought to for the respect of her business peers. I overhear things said to her daily that would not be said to me. When I do, I think of my daughters who I want to grow up to be like her but flinch anticipating they'll too bear the same slights from a male-dominated business culture that has so heinously deprived women of equality in every imaginable way – from wages to executive roles to board seats.

 

I believe these experiences and relationships disproportionately informed my priorities. Accordingly, my experiences and biases became our company’s reality. Women came first. Race was “next”. Again, not an excuse, just sharing my experience.

 

When I look back at that decision I am shocked I thought diversity was an assembly line where one group went in front of the other. It was yet another elephant hiding in plain sight I should have spotted. My team was trying to help me do just that.

 

I am shocked I thought diversity was an assembly line where one group went in front of the other.

 

Startup investors, as a ritual, temper the hubris of their freshly funded CEO’s by reciting two sacred reasons startups die. Number one: they run out of cash. What they’re pointing out is how, in many ways, startup success has been refined (reduced?) to how much you raise to subsidize market capture versus your less well funded competitors. Cash, not code, is the sine qua non. Number two? Lack of focus. Resources are precious and can only be spread so thin before efforts to concentrate water on a new way of doing things turn to mist.

 

What do these two sacred truths have to do with diversity? They both provide cover for delaying or deprioritizing diversity efforts, especially at the board level. Here’s how it works…

 

"Diversity", investors may say, "is for big companies to worry about. You're too small. You must focus.” Another common riff mashes them together: "Diversity is something we'll worry about when we can afford it." These are tricky thrusts for a young CEO to parry because they play on the two sacred truths. To deny them is heresy. The trick is to flip them around: "I’m glad we agree diversity is something we must act upon. Since we know it’s good for us in the future, let’s pull those rewards forward to today. After all, investments generate greater returns the longer they’re at work and adjustments to the board are easier when we’re smaller as opposed to pre-IPO."

 

Did this move work for me?

 

Measurabl adopted a new Board Diversity Policy last week and is now in process of seeking a new Director. I’m proud of our board for their unanimous support of this path and taking additional strong actions including:

 

  1. Adopting the Policy in our Voting Rights Agreement so diversity is an explicit consideration of appointments going forward.
  2. Adopting minimum diversity requirements to safeguard progress.
  3. Setting equal compensation for independent Directors.

It's important to note we're not declaring victory on DEI - we are only now underway with our search for our newest Director. Instead, we're declaring renewed, action-based commitments with governance representing one small but powerful part. It is a step forward. There is no finish line. We have a board that is self-aware and determined, so I should point out this was not a controversial move. I believe other founders will enjoy a similar reception so long as they take the initiative.

 

I believe other founders will enjoy a similar reception so long as they take the initiative.

 

I was 10 years old when Rodney King was beaten by police officers in L.A., 50 miles from my home. The ensuing riots were my first major education on the complexities of race, power, and privilege. I took away that society was unequal and unjust. That people were angry about it. 

 

That this was not new... The protests following George Floyd’s murder stirred in me these same sad realizations. But twenty-nine years of additional life experience helped me perceive just how pervasive racial and gender inequities are in society, especially business. There was another difference: I was in a position to do something about it. In fact, it became clear it was unacceptable not to.

 

The purpose of this post is not to celebrate DEI "wins", rationalize tired excuses, or suggest any one "correct" path. It is not to entertain illusions governance is a silver bullet. Instead, its purpose is to reflect upon and share my personal experience and in so doing acknowledge there are many actions we can each take to improve the state of social equity. All actions to this end are good and we should positively support one another in those efforts irrespective their scope or relative perception of merit. There is only one thing that's wrong to do: nothing.

So one thing I am doing is sharing my experience working on matters of DEI at the board level of a startup. If it helps founders (or anyone) make better decisions, earlier, in this small but essential part of the startup journey, I will be glad for it.

 

5 Lessons Learned:

  1. Diverse companies outperform homogeneous ones. Startup founders have a fiduciary responsibility to create the fullest possible outcome for their investors and employees so must foster diversity immediately or risk negligence.
  2. Only at the earliest days of a startup are unilateral board appointments possible. After the first round of capital, appointments become subject to various rights associated with share class ownership and/or conditioned upon competing strategic priorities, of which DEI may only be one. It is therefore easier to build a diverse board and establish diversity criteria from the start.
  3. Diversity is not an assembly line where one group goes in front of the other. Diversity is a building block of your company that can be systematically applied at every decision point, from governance to hiring to product innovation and QA.
  4. People tend to be networked with those like themselves and base decisions on their personal experience. Self-reflection on the experiences and biases that inform those decisions is critical in order to rise above your own viewpoints, which are never all encompassing, and recognize the fullest possible set of options.
  5. Startups go out of business for many reasons, but there are two investors will commonly lock onto: (1) running out of cash and (2) lack of focus. Both can provide cover for delaying or deprioritizing diversity initiatives. The trick is to flip the argument on its head so diversity becomes the priority while you're still young enough to reap the full benefits of diverse experiences and governance is easier to change.

 

PROGRESS UPDATE: July 13, 2021

  • Marjorie Tsang was approved to the Measurabl Board as a voting Director November 10, 2020. Josh Henretig was rotated to a non-voting Board Observer role. The resulting Board composition is 7 Directors, 5 white men and 2 women, one of whom is non-white.
  • Gender and ethnicity targets and progress towards them are publicly visible here. The trend is strongly positive with respect to (a) improved male-female ratio and (b) racial and ethnic diversity.

 

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