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Yesterday, Carta released its 3rd Annual Table Stakes analysis on equity distribution by gender, race, ethnicity, and geography. Leveraging its unparalleled data, Carta’s report provides us visibility into inequalities that exist within the most important factor of wealth creation for private companies: the cap table.
Carta’s Table Stakes report is the only study that consistently reports on equity distribution with the added dimension of demographic analysis. Much like seats in the boardroom, the majority of equity belongs to people with similar demographic backgrounds and deserves to be brought to the forefront.
At first blush, it may seem that the output of this work has little to do with boards and more about recruiting and fundraising negotiations. However, upon reflection, the output of this report not only shines a light on bias in recruiting, employee compensation, and investment decisions but also on boards’ engagement on these topics.
First, as we know, the board plays an important role in determining executive compensation. Questioning discrepancies in executive compensation, especially when those discrepancies align to gender, racial, or ethnic diversity, is also the board’s responsibility. More and more, we are attuned to these inequities in cash compensation but cap tables are often overlooked.
The board’s role in determining promotional practices and compensation for lower-level employees may be less direct.
The Table Stakes data shows that there are too few women and people of color hired at early-stage companies and that they remain underrepresented at all levels and in all functions as a company grows. Women are underrepresented in Director level and above roles, leading to an underrepresentation on the cap table. So even though female representation has increased YoY, their male counterparts are still garnering the majority of senior roles and therefore own the majority of the equity at 23% vs 77% respectively. In addition, the study notes that of the Black and Latinx participants, both races predominately join companies in their later stages and hold lower-waged jobs, therefore holding a much smaller equity stake in the company.
The implication of the equity gap cannot be underestimated. Those early employees, founders and executives at companies that have lucrative exits often go on to become investors, entrepreneurs, and philanthropists. As a result, they have more opportunities to both distribute and create new wealth. Currently, with $1 trillion in equity value held by a homogeneous group, we not only limit wealth distribution to women and underrepresented minorities in our current companies but also the potential for them to create inclusive, wealth-creating opportunities in the future.
Why are these important issues often overlooked at the board level? Perhaps it is because boards lack the diversity of perspective that leads to asking the right questions: 66% of Fortune 500 boards (2018) are Caucasian/white men, 18% Caucasian/white women, 9% African American, 4% Asian, and 4% by Hispanic/Latino (Fortune 500 / 2018). So, the first thing a board can do to remedy these issues is to simply build a more diverse board.
Second, we cannot expect financial metrics alone to determine the health of the company. As we all know, the war for talent has risen to a strategic imperative for our companies. And, one of the best ways we can attract and retain exceptional talent is through total compensation. Many have acknowledged the pay gap but fewer recognize the equity gap and the implications on our ability to attract and retain a diverse pool of talent. Boards should ask for tracking of this data and establish a regular cadence for reviewing it.
There is no doubt that diversity is an important topic for all boards. However, too often it is limited to hiring diverse board directors. In fact, the issue of diversity is nuanced, far-reaching and touches nearly every aspect of our business. It can feel overwhelming but we must start somewhere. Let the Table Stakes report be the catalyst for your board to start asking the right questions, reviewing the right data with the goal of both creating a better performing company and creating a better future for its employees.