Carta's CEO explains why he's doing away with draconian employee separation agreements and eliminating militaristic terms like 'firing' and 'termination'
- On Nov. 22, Carta CEO Henry Ward announced new separation policies at the fintech startup, including departure pay for all employees and removing separation agreements and legal documents.
- Ward told Business Insider that the changes will likely cost his business around $3 million through 2020, but he sees it as an investment in benefits spending for employees.
- After posting his internal memo on Medium in November, Ward said several other startup CEOs reached out to him to gauge how he won over the board and legal team. He told Business Insider that many CEOs wanted to implement similar changes but were waiting to see whether or not the board fired him for the decision.
- According to Ward, Carta was also among the first to offer employees a 7-year window to exercise any options they earned during employment after they left, a policy which many other highly valued private startups have adopted as employees have become more vocal about equity.
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The freewheeling culture at Silicon Valley's biggest tech companies has come under intense scrutiny from an unlikely source: its own employees.
Companies like Google and Facebook have faced marches, petitions, and lawsuits from current and former employees questioning the motives of the companies that were once heralded as best places to work. Employees are putting everything up for debate, from paternity leave policies and gender inclusive benefits all the way up to whether the company should take on controversial projects with the government. A sea change has come to Silicon Valley with workers at the forefront.
Carta cofounder and CEO Henry Ward could see the seismic shifts at his own startup, a company that is essentially the NASDAQ for private companies like Carta itself. The $1.6 billion business announced on Nov. 22 that it was revamping its employee departure policies, including paying out all employees at the time of departure and doing away with separation agreements and non-disparagement clauses.
"It had always kind of bothered me that we did this," Ward told Business Insider. "It didn't sit well with me, but I never really thought about doing it differently."
That changed when an early employee left the company voluntarily to pursue passions outside of tech, Ward explained. Shortly after, a different employee who had been with the company for only a month had to be let go, but that employee was given severance where the early employee had not.
"This woman that left, we gave her nothing," Ward said. "I couldn't sleep at night."
Doing away with 'draconian' procedures
In addition to paying out every employee that leaves, a move that Ward estimates will cost his business $3 million through 2020, Carta also updated the language it uses internally when an employee leaves. There are "employee-initiated departures" and "company-initiated departures," but no firings or quitting, Ward said.
"Somehow we got this war language with words like 'termination' and 'firing'," Ward said. "Somehow that entered the vernacular of letting employees go. I think words matter, so changing the language is the first step in changing how people think about it."
But it's not just all talk, Ward said. The biggest hurdle he had to overcome with his legal team and board of directors was ultimately doing away with legal paperwork that tends to accompany any employee departure, such as a separation agreement or non-disparagement clause. The goal of any agreement is typically to protect the company from lawsuits coming from former employees, but can have an adverse effect on culture and unofficial codes of silence.
"The separation agreement is draconian," Ward said. "The lawyers told me I needed it for protection, but I've done this for a while and I've been through litigation, and not once have I ever had a lawyer tell me not to worry about it because the employee signed a separation agreement."
Ward said his conviction helped sway the lawyers and his board of directors, which consists mainly of his investors. After posting the changes publicly, he said several other tech CEOs reached out to him to ask how he'd done it. They were interested but concerned their own boards wouldn't go for it, he said.
"Everyone knew it was the right thing to do but they needed someone to do it first and not blow up," Ward said. "If I don't get fired over it other, CEOs will start doing it. I feel pretty good, so far the world hasn't exploded."
The change is the second major overhaul at Carta, which is widely credited with spearheading an extended window in which startup employees could buy or sell vested stock options. Typically, employees could only buy or sell options in private companies while they were employed, and so either left money on the table to leave or stuck around long past when they would've liked. Carta lobbied hard to extend that window to up to 7 years after an employee had left, which is now standard at most major tech startups.
"It's all conviction. If you are a successful visionary with a founder-supportive board, you can make it work," Ward said of the new changes. "If you are a private-equity supported thing, they are not going to like it. It's just the right thing to do, and we're going to do it."
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