While publicly-traded companies are coming under greater scrutiny and facing additional requirements to create diversity on their boards of directors (“boards”), private companies continue to skate under the radar on this front. One reason for this is that private companies do not face the same disclosure requirements that public companies do. (Ann Shepherd & Gené Teare, Crunchbase News). Another is that there is little information about the make-up of the boards of most private companies. However, in 2019 three organizations undertook a study of gender diversity of private company boards and built on that study in 2020 looking at both gender and racial and ethnic diversity. (Gené Teare, Crunchbase News; Ann Shepherd & Gené Teare, Crunchbase News). The 2019 study examined 200 of the most significantly venture-backed U.S.-based companies (approximately $58 billion in venture backing) with the 2020 study examining 359 of the most significantly venture-backed U.S.-based companies (approximately $95 billion in venture backing) and the results were dismal. (Ann Teare, Crunchbase News; Ann Shepherd & Gené Teare, Crunchbase News).

The 2020 study showed that 49% of the companies studied did not have a single female board member, which was an improvement over 2019 when 60% of the companies studied did not have a female board member. (Ann Shepherd & Gené Teare, Crunchbase News). Of the board seats at these companies (which have an average of 6.8 board seats), women held 11% of the seats in 2020, a 4% increase from 2019. Id. Finally, in companies that had one or more women directors, the female directors were generally an independent member of the board and not an executive of the company or an investor director. Id.

While the 2019 study did not examine racial and ethnic diversity, the 2020 study did. (Ann Shepherd & Gené Teare, Crunchbase News). Based on an analysis of the 359 companies studied in 2020, only 3% of all the board seats were held by women of color as compared to approximately 18% that were held by men of color. Id. Also, of the companies studied in 2020, 81% did not have a single woman of color as a member of the board. Id. These data points show stark contrast when compared to public companies where 93% of the Russell 3000 and 100% of the S&P 500 companies had at least one woman on their board and 23% and 28%, respectively, of the board seats were held by women. Id.

These studies make it clear that private companies are not making strides in creating diversity in their board rooms. What is telling about this data is that these companies are heavily funded by both “venture capital and private equity firms that ply them with money and influence their governance.” (Andrew Ross Sorkin, The New York Times DealBook). The top venture capital and equity firms have invested in “843 private companies that have gone public since 2000” and those companies are collectively worth over $10 trillion. Id. Additionally, only 49% of the board seats at these same companies are filled by Black directors, with most of those strides occurring in the past 20 years. Id. According to Ursula Barnes, former CEO of Xerox, a member of a number of public company boards, and a founding partner of the Board Diversity Action Alliance, “These organizations are started by white men. They start the company with their friends and family. Their friends and family look exactly like them, right?” Id. Gabrielle Sulzberger, another founding partner of the Board Diversity Action Alliance noted that while she believed the lack of diversity in private companies to be bad, she did not know just how bad it actually was. Id. Sulzberger pointed out that venture capital and private equity firms have significant influence over the companies in which they choose to invest and these investments “cut[s] through such a large piece of our economy,” thus putting those firms in a position to influence diversity at a private company’s early stages. Id.

It is clear that the culture of a company starts upon its inception and part of that culture is the diverse make-up (or lack of diverse make-up) of not just its board of directors but also its entire workforce. (Andrew Ross Sorkin, The New York Times DealBook). Instead of these companies focusing on establishing diversity as they are getting ready to go public because they are required to do so, the venture and private equity firms that fund these businesses should step in and make diversity a priority when they invest and thus change the landscape, focus, and culture early on. Id. However, it is clear that is not happening and one of the potential explanations for that is that many of those venture and private equity firms are dominated by white men. (Ann Shepherd & Gené Teare, Crunchbase News; Andrew Ross Sorkin, The New York Times DealBook).

Considering that many of these venture-backed companies will one day be publicly traded companies, it is disheartening to see how little diversity exists on their boards, whether based on gender, race, or ethnicity. It is abundantly obvious that something needs to change and studies like the ones discussed in this article which point out the glaring lack of diversity at these companies, as well as with the venture and private equity firms that fund them, may be the first steps to holding private companies just as accountable as public companies when it comes to diversity in the boardroom.