Govern like you give a damn (because we do)

In early June, Tizetti founder Kendall Ananyi was accused of sexual harassment by Kelechi Udoagwu, a young woman he had mentored. He stepped down a few days later, but shortly after the board of Nigerian ISP Tizeti Network said that it had reinstated Kendall Ananyi as CEO after accepting the findings of “independent legal counsel” that a case of sexual harassment made against him in early June “had not been established”. However, the accuser, tech consultant Kelechi Udoagwu, expressed her frustration that there had been “no process, transparency, clarity, structure, or independence” in the company’s investigation. Meanwhile, within the same month, Okayplayer released a statement that CEO Abiola Oke had stepped down following several women shared an open letter about their experience of discrimination and harassment at the company.

The dialogue following these events is a wake-up call for local VCs and entrepreneurs to focus their attention on culture, policies, and governance systems at the earliest stages of startup investment.

At Acuity Ventures, as a third-party observer in this situation, we don’t want to minimize the complicated challenges VC-backed companies face when addressing accusations of harassment or misconduct. We’ve seen conflicting incentives and arguments in our own experience when facing, or discussing less-extreme governance challenges from gender inclusion to transparency in financial reporting. The senior team and their ability to execute is the primary factor for investors’ selection of an early-stage company. The founder is often key to driving company success, and removing a founder around governance concerns risks eroding a portfolio’s value. Additionally, investors promoting an entrepreneur-friendly brand may find it challenging to insist on provisions at the onset that highlight to their star founders that they aren’t behind them 100%, and need to protect themselves, stakeholders, and the employees of the company they’re investing in if things go south. It is key to balance this risk with the even more paramount one, that companies can suffer significant lawsuit costs and permanent destruction of brand value if critical issues are not prevented or dealt with when they arise. Meanwhile, the IFC has shown that putting policies in place for creating a respectful workplace and addressing sexual harassment can “drive productivity, profitability, and performance.” Ultimately being proactive in dealing with governance concerns around harassment and discrimination will lead to better returns.

We wanted to work with the broader community to develop policies that we will adopt and encourage other investors to adopt in our ecosystem, in-line with the following principles.

Principle 1: Create and uphold an environment of diversity, free from discrimination.

A 2016 McKinsey study showed that the number of female chief executives in Africa is only 5%, and just 29% of senior management roles are held by women. Research shows there is a direct link between gender-segregation and sexual harassment. Gender balance and equality policies, from the recruiting process, promotion schemes, and salary equity are key in reducing harassment in Africa’s tech companies. We have to do better, and we will start with our team and our investee companies.

We will hold the senior management of our portfolio companies responsible for the implementation of non-discrimination and equal inclusion plans through measurable and achievable goals. We will encourage our companies to work towards targets set by the 2X Challenge, an initiative to promote enhanced economic participation in developing markets through the allocation of investment dollars, of 20–30% of women in senior leadership positions and 30–50% of women across the workforce. In cases where talent pools of female candidates for a given position are prohibitory, our companies should take active steps to strengthen training and personal development provided to employees, or the broader ecosystem. As part of our Environmental, Social, and Governance (ESG) value-creation, we support and monitor our company’s progress of non-discrimination and inclusion plans while making sure all employees are protected from harassment and discrimination.

We apply the same principles of diversity and inclusion for our internal team at Acuity, particularly for those involved in the investment decision making. We believe having a diverse team of investors, further promotes diversity across our portfolio.

Principle 2: Cultural “norms” don’t justify harassment.

Cultural “norms” are often given as a reference point on how to determine whether statements are inappropriate, while the argument that “things can’t change overnight” is often imposed on activists fighting for equality. While we are open to a debate on what sensitivity should be had to cultural behaviors, we believe that many actions have no grey zone.

We will work with other members of the ecosystem to provide education and research to our team, our investee companies (management and staff) and the broader ecosystem around what harassment is, what form it takes, what causes it, what conditions foster it, and how it is linked to broader patterns of discrimination and inequality. We must raise awareness and determine effective solutions to fight harassment.

We will encourage local educational institutions, investment and tech advocacy groups, and government bodies to promote an informed understanding of harassment and broader patterns of discrimination and inequality, and to take actions against harassment. We encourage the broader ecosystem to call on companies and organizations in the ecosystem for measurable responses. Placating criticism with a “we are working on it” response, is not enough.

Principle 3: Harassment and sexism is not only sexual in nature.

We deeply believe in equality, across gender, race, religion, and sexual orientation. All behaviors that create a feeling of inferiority, not only sexual assault but also ridiculing behaviors, social exclusion, and physical abuse, should not be tolerated at any organization. For women, certain patronizing treatments such as insisting that women in the office dress in certain ways (I know of one Nigerian firm that requires their female employees wear skirts), serve food or clean-up may make women feel inferior, whether it is directly intended or not.

Effective policies and training should include examples on a wide range of conduct, emphasizing all forms of harassment.

Principle 4: Protect victims and create a safe ecosystem.

Too often those impacted by intimidation don’t find someone to confide in. Eliminating harassment requires solidarity with the victim. We must create a safe space where victims can freely speak without being judged and where they are supported with guidance and action.

We believe organizations can create a safe space by allocating resources to prevent harassment, investigating all complaints fairly, and creating a respectful company culture through measurable actions. We will aim to work with other co-investors on the allocation of such resources, while our policies will address whistleblower, grievance, and response mechanisms. We will be directly available as a contact for concerns across our investee companies and our team.

In our primary markets, we will encourage a legal framework that incentivizes managers to create a safe communication channel in their companies and identify and combat any kind of discrimination. The law should protect all employees who report misbehaviors or express their support to the victims from retaliation or dismissal, with no exception and at every level of the organization.

Principle 5: Systemic institutional change is key to broader change.

Individual harassers should be held accountable for their actions. However, allowing serious harassers to resign quietly does not do anything to prevent them from causing harm elsewhere, nor does it affect cultural change. A broader approach that holds institutions accountable for systemic harassment should be investigated, implemented, and tracked. We will explore with ecosystem leaders on how to make an impact on institutional change.

Principle 6: Minimize discretionary authority and encourage internal and board-level checks and balances

Research shows that giving discretionary authority over subordinates fosters discrimination, harassment, and intimidation.

Our organizations must create frameworks where delegation and authority can be checked and objectively assessed, notably regarding hiring, dismissing, evaluating, and managing co-workers. Further, boards can play a meaningful role in ensuring that checks and balances are made on top management.

We will also encourage public awareness on structural weaknesses of organizations by fostering dialogue between the private sector, the government, and social activists on labor laws and legislation reform.

Principle 7: Never evade responsibility as an investor

Investors cannot ignore their impact on governance. A pre-#METOO survey showed that the vast majority of boards (77%) had not discussed accusations of sexually inappropriate behavior or sexism in the workplace. For nearly all of them, recent scandals around sexual harassment didn’t trigger the creation of a plan of action (88%) or any actualization of the risk assessment regarding these issues (83%). Why? The boards believed it wasn’t a primary problem at their companies. Many boardrooms in Africa have a similar perception, with high profile incidents only beginning to take stage.

We believe this is not only a board issue but also an investor issue. As investors, we will address harassment by:

1. Creating formal policies and statements about appropriate conduct between our co-workers, investee companies, and the broader ecosystem. A policy for our team members, their internal interactions and behaviors at the company, as well as their behaviors outside the company with ecosystem participants, investee companies, and pipeline companies, is essential as a first step. We will share these policies with our limited partners and the overall ecosystem.
2. Focusing on ESG risks at investee companies starting with due diligence. We will perform in-depth channel checking with company employees and our broader network. We will ask potential managers how they would respond to situations like allegations of misconduct, should they arise. We will look to uncover potential governance issues. Whether third party investigators are used may depend on the stage or size of investment. We will integrate “social due diligence” when early-stage founders may not have an extensive business history to investigate; the examination of founders’ social connections and social media can be helpful. We will question the company’s culture, including an examination of the policies and procedures in place to address harassment and discrimination. Past allegations and the outcome of any investigations will be checked.
3. Staying away from notorious “bad actors” as co-investing partners. We believe culture is shared by our family of companies and our own team. Ensuring the values of our co-investing partners is key to building a culture of good behavior, ethics, transparency, and trust.
4. “Putting it in the docs”. In-line with legal advice and based on the geography in which we are investing, we will look to include harassment-related representations and warranties in investment documents and/or employment agreements for top management of the companies we invest in. Such clauses provide that the founder/organization is not aware of any allegations of sexual misconduct against an officer and that the company has not entered into any settlements of such allegations within a specified time period. These representations supplement our due diligence by causing portfolio companies to make an affirmative statement concerning misconduct claims. Also, if previous sexual misconduct allegations are discovered, such representations may provide an avenue of recourse. In-line with our lawyers’ guidance, we will look to implement terms of removal of founders with “cause” and ensure definitions of “cause” to encompass reputational and economic harm that might arise from violations of company policies concerning workplace conduct, including harassment.
5. Asking our investee companies to implement policies to prevent and deal with harassment, guided by the principles highlighted above.
6. Being an active board member when it comes to harassment and all governance issues. Widespread allegations within the company and allegations involving a member of senior management will be brought to the board. As board members, our responsibility is to gather sufficient information from management to assess potential problems. To make sure that the appropriate policies and procedures are defined and followed, the board members of our team will track the number and type of complaints received and the outcome of any investigations led by the company.
7. Creating reporting channels. With independent or 3rd party options, we will be available to be anything from counsel to agent when it comes to harassment. We will build a system to escalate complaints of improper behavior directly to a team member serving as a board member or board observer. We will assign a team member to review and drive the investigation as a way of ensuring investigation is fair and conflicts of interest are avoided. This investigation will be led jointly with other investors, the board, and the human resources team at the company, if needed. We will also make sure employees of our companies are empowered with guidance and confidentiality while providing early warning signals and actionable internal remedies.
8. Investigating, investigating, investigating. And investigating independently even if the allegations are against a key employee protected by hierarchy. We will work with other investors and, for the most sensitive investigations, engage third-party experts to guarantee the integrity of the process instead of leading the investigation internally. An investigation should address not only one specific issue but also more systemic and organizational problems that potentially accept and foster unwanted behaviors.
9. We will address the discipline of violations through our procedures. Due process of the law can take time in many of the geographies we are investing in. With the guidance of lawyers and the support of our limited partners, we will look to form a process and an independent committee to evaluate needed actions in regards to substantial violations. We understand that moving forward with action, such as removing a founder from his management role, before a legal decision is reached is not straightforward. However, we believe that we need to have the processes in place to act on serious allegations should they occur.

While we have centered this conversation around harassment and discrimination, we are not ignoring that there are substantial opportunities in promoting diversity which will improve impact outcomes and portfolio returns. We will continue to explore ways that innovation in gender-inclusion can further uplift our investee companies and the African market.

We pledge to share our statement, external policy, and point(s)-of-contact for harassment or governance-related reporting at our investee companies in the next 30 days. We call on other investors to join; together we can make our ecosystem better.

A summary of our commitment was shared in the September 2020 issue of African Business Magazine.

Lexi Novitske & Thomas Nivard

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