• An analysis if what issues and/or problems need to be prioritized prioritize in order to rebuild and improve the culture at UBER;
Michelle_Michy
20200818021411chaos_at_uber_case_study.pdf
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Chaos at Uber: The New CEO’s Challenge
Syeda Maseeha Qumer ICFAI Business School, Hyderabad
Debapratim Purkayastha ICFAI Business School, Hyderabad
“I have to tell you I am scared,” 1 wrote Dara
Khosrowshahi, newly appointed CEO of ride- hailing service Uber Technologies Inc., in a
memo to his former team at Expedia, Inc.2 Besides growing Uber’s business, analysts said Khosrowshahi had the task of changing the dysfunctional culture within the company and improving corporate gov- ernance that had cost co-founder and former CEO Travis Kalanick his job. On June 21, 2017, Kalanick stepped down as CEO of Uber in the face of a share- holder revolt that made it untenable for him to stay on in that position. His resignation came after a review of practices at Uber including allegations of sexual harassment, a corporate theft lawsuit, defi- ance of government regulations, reports of misbe- havior, and a toxic corporate culture leading to the departure of some key executives.
Uber’s corporate structure ensured that its founders held super-voting shares and had dispro- portionate control over the company. Kalanick, because of the special class of shares he owned, enjoyed sweeping authority on the Uber board and nearly complete autonomy in running the company. According to some industry observers, Uber ignored corporate governance in its pursuit of growth and valuation, and flouted ethical norms while hiding behind notions of disruption and innovation. This was fine with investors until the beginning of 2017 when the company’s public image crumbled amid allegations of sexual harassment, they said. “The board chose to ignore the fundamentals of their gover- nance role and failed to provide guidance in correcting a trait which would ultimately endanger the company in many ways.”3 said Prabal Basu Roy, a fund manager.
The chaos inside Uber’s boardroom escalated in August 2017 when a small group of sharehold- ers aligned with Kalanick dissented against Uber’s biggest investor Benchmark Capital,4 after it filed a lawsuit to oust Kalanick from the board. Benchmark Capital had accused Kalanick of fraud and of inter- fering in the search for a new CEO—accusations that he had denied. Some analysts felt that Uber’s board needed to grow up as the constant bickering among the members was hurting the company. According to them, the board’s aggressive infighting was spreading confusion and uncertainty among Uber’s investors, customers, and shareholders, and putting the com- pany’s nearly $70 billion market valuation at risk.
As Khosrowshahi began his new role at Uber, he had the daunting task of dealing with a fraught Uber board and mending the frayed relations among investors. “Boards are so unpredictable, and this one seems as if they’re at each other’s throats. It’s hard to know if he’ll have the force of personality to navigate that,”5 said Alice Armitage, director of Startup Legal Garage.6 Khosrowshahi would have to figure out a way to unite the divided board and end the acrimony among them. Moreover, he would also have to con- tend with the legacy of Kalanick who continued to remain on the Uber board.
Khosrowshahi said that as Uber’s CEO he wanted to set the course for the future of the company, which included innovating and growing responsibly as well as acknowledging and correcting mistakes of the past. He planned to take the company public by
CASE 31
©IBS Center for Management Research
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Case 31 Chaos at Uber: The New CEO’s Challenge C-393
2019. “The culture went wrong, and the governance of the company went wrong and the board went in a very bad direction. But if the product is good, then if you can bring in good leadership, you can ultimately bring it together,”7 he said. However, some analysts wondered if the company valued at around $68 billion as of January 2018 could maintain its valuation as it pre- pared for an IPO.
BaCKGROUND NOTe Uber was co-founded by Kalanick8 and Garrett Camp9 in 2009. The duo was in Europe attending LeWeb, an annual European tech conference. On a snowy night in Paris, Kalanick and Camp could not get a cab. This was when the two came up with the idea of launching an on-demand car-service app. After getting back to San Francisco, Camp convinced Kalanick to partner with him in the new project that could fill the large and lucrative gap in the car service market.
UberCab, as it was then known, started its service in San Francisco in the summer of 2010 with only a few cars, a handful of employees, and a small seed round. After entering credit-card information on the app, customers could book a car at the press of a button. The cost was automatically charged to the customer’s account. Uber required its drivers to have their own car and to pass a background check. In August 2010, Ryan Graves, Uber’s first hire, was briefly appointed as CEO of the company. In October 2010, the company was renamed Uber after some regulatory bodies objected to the use of “cab” in UberCab’s name as the entity was operating without a taxi license. Uber closed a $1.25 million seed funding in 2014. Chris Sacca of First Round Capital was its first institutional investor and he invested about half a million dollars in the company. Other investors included Napster co-founder Shawn Fanning, venture capital fund Lowercase Capital, and venture capitalist Mitch Kapor.
In December 2010, Graves stepped down as CEO and Kalanick stepped into the position. Graves stayed on as Uber’s head of global opera- tions. In February 2011, Uber closed an $11 million Series A funding round that valued the company at $60 million (see Exhibit 1). Benchmark Capital led the round and its partner Bill Gurley joined Uber’s Board of Directors. In May 2011, Uber was launched in New York City and thereafter it expanded to Seattle, Boston, Chicago, and Washington D.C. In December 2011, Uber raised $32 million in its
Series B of fund raising from Amazon Inc’s CEO Jeff Bezos, Menlo Ventures, and Goldman Sachs. In July 2012, Uber unveiled its low-cost “Uber X” service.
In August 2013, Uber entered India and Africa, and closed a Series C funding round which saw a massive $258 million investment from Google Ventures. In July 2014, Uber entered China after a $1.2 billion funding round. In August 2014, Uber launched its UberPOOL service. Notwithstanding strikes by angry taxi driv- ers over Uber threatening their livelihood and break- ing local taxi rules, and unresolved questions of legal liability, the cab service expanded rapidly. The company continually rolled out new services from freight and helicopter rides to food delivery to driverless cars.
Uber upended the tightly regulated taxi industry in many countries and changed the transportation landscape. In 2016, its gross bookings hit $20 billion, double that of the previous year (see Exhibit 2). As shown in Exhibits 3 and 4, net revenues were $6.5 billion for 2016, although losses were high at $2.8 billion. As of 2017, Uber had a presence in 724 cities in more than 84 countries.10 With a valua- tion of nearly $68 billion, it was by far the richest of the Silicon Valley’s private unicorn technology com- panies (see Exhibit 5).
Analysts said that while Uber had tasted great success, its journey had been a bumpy one. According to them, the company was synonymous with contro- versies. Since its launch, Uber had been the subject of ongoing protests from taxi drivers and regulatory bod- ies who argued that the company should be subjected to the same regulations that they faced. From non- compliance issues to regulatory concerns and lack of driver background checks, Uber drew scrutiny and criticism. The service was banned in The Netherlands and in parts of Thailand and China. Uber’s surge pric- ing had been one of the most controversial aspects of the company’s business model. Customers equated it with price gouging as it took advantage of users in unfortunate situations. Uber had also been embroiled in a long-standing battle with some labor organiza- tions as it classified its drivers as independent con- tractors and not employees, which deprived them of various benefits. There had also been cases of sexual assault on passengers, which some activists said hap- pened because the background checks on drivers had not been stringent enough. Uber’s critics went to the extent of saying that the company ignored ethical and legal standards in the name of disruption and valued money, power, and control above morality.
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EXHIBIT 1 Uber Funding Rounds
Date Amount/Round Valuation ($ billion) Lead Investor Investors
April 2017 Undisclosed Amount — — 1
July 2016 $1.15 billion/Debt Financing — Morgan Stanley 4
June 2016 $3.5 billion/Series G — Saudi Arabia’s Public Investment Fund 1
May 2016 Undisclosed Amount/Series G — — 1
Feb 2016 $200 million/Private Equity — Letterone Holdings SA 1
Aug 2015 $100 million/Private Equity — Tata Capital 1
July 2015 $1 billion/Series F — — 6
Feb 2015 $1 billion/Series E — Glade Brook Capital Partners 9
Jan 2015 $1.6 billion/Debt Financing — Goldman Sachs 1
Dec 2014 $1.2 billion/Series E 40.0 Glade Brook Capital Partners 8
June 2014 $1.4 billion/Series D 18.2 Fidelty Investments 9
Aug 2013 $363 million/Series C 3.5 GV 4
Dec 2011 $37 million/Series B — Menlo Ventures 11
Feb 2011 $11 million/Series A 0.06 Benchmark Capital 6
Oct 2010 $1.25 million/Angel — First Round 29
Aug 2009 $200 thousand/Seed — Garrett Camp Travis Kalanick
2
Source: Crunchbase.
EXHIBIT 2 Uber Gross Bookings (Q1 2015–Q3 2016) ($ in millions)
$0.00
$1,512
$2,149
$3,800
$5,000 $5,400
$2,000.00
$3,000.00
$4,000.00
$5,000.00
$6,000.00
$1,000.00
*Q3 2015: data not available
Q1 2015 Q2 2015 *Q3 2015 Q12016 Q22016 Q32016
Source: www.businessinsider.com.
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Case 31 Chaos at Uber: The New CEO’s Challenge C-395
EXHIBIT 3 Uber Quarterly Net Revenues, 2012–2016 ($ in millions)
$ 1
$0
Q 1’
12
Q 1’
14
Q 2’
14
Q 3’
14
Q 4’
14
Q 1’
15
Q 2’
15
Q 3’
15
Q 4’
15
Q 1’
16
Q 2’
16
Q 3’
16
Q 4’
16
Q 1’
13
Q 2’
13
Q 3’
13
Q 4’
13
Q 2’
12
Q 3’
12
Q 4’
12
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
$1,500
$1,600
$1,700
$1,800
$ 2
$ 4
$ 8
$ 1
3
$ 1
9
$ 2
9
$ 4
2
$ 4
6
$ 5
7 $ 1
1 4 $
2 2
8
$ 2
7 4 $
3 8
9 $ 4
6 7 $ 5
6 0
$ 9
6 0
$ 1
,1 0
0
$ 1
,3 2
0
$ 1
,5 8
4
Source: www.investing.com/analysis/2017-39;s-uber-ipo-200170565.
Q 1’
12
Q 1’
14
Q 2’
14
Q 3’
14
Q 4’
14
Q 1’
15
Q 2’
15
Q 3’
15
Q 4’
15
Q 1’
16
Q 2’
16
Q 3’
16
Q 4’
16
Q 1’
13
Q 2’
13
Q 3’
13
Q 4’
13
Q 3’
12
Q 2’
12
Q 4’
12
$0
$ 4
$ 4
$ 5
$ 7
$ 7 $ 8
$ 1
2
$ 1
8 $ 5
2 $ 1
0 9 $ 1
7 5 $
2 5
0
$ 3
8 5
$ 6
0 2
$ 4
5 0
$ 5
0 0
$ 5
2 0
$ 7
5 0
$ 7
5 0
$ 7
5 0
$50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600 $650 $700 $750 $800 $850 $900
EXHIBIT 4 Uber Quarterly Losses, 2012–2016 ($ in millions)
Source: www.investing.com/analysis/2017-39;s-uber-ipo-200170565.
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EXHIBIT 5 Top 10 Privately Owned Technology Unicorns in the World (as of august 2017)
Rank Company Latest Valuation
($ in billions) Total Equity Funding
($ in billions) Last Valuation
1 Uber $68.0 $12.9 June 2016
2 Didi Chuxing 50.0 15.1 April 2017
3 Xiaomi 46.0 1.4 December 2014
4 Airbnb 31.0 3.3 March 2017
5 Palantir 20.0 1.9 October 2015
6 WeWork 20.0 4.4 July 2017
7 Lufax 18.5 1.7 December 2015
8 Meituan-Dianping 18.3 4.4 January 2016
9 Pinterest 12.3 1.5 June 2017
10 SpaceX 12.0 1.1 January 2015
Source: http://graphics.wsj.com/billion-dollar-club/?co=Uber.
UBeR’s CORPORaTe sTRUCTURe Uber followed a “founder-friendly” governance struc- ture wherein some board seats carried more voting power than others. In this kind of a dual-class share structure, one class of shares carried one vote while the other class shares came with 10 votes each or more. According to Uber’s articles of incorporation, the company had 11 board seats, 9 of which were controlled by shareholders with super-voting rights. Co-founders Kalanick and Camp along with long- time Uber employee Graves held super-voting shares and controlled a majority of shareholder votes. The trio held sway over company decisions leaving other independent directors who were mostly outsiders with fewer rights and little influence.
Kalanick who had a larger stake in the com- pany compared to Camp and Graves owned a spe- cial class of voting stock that gave him control over Uber irrespective of what percentage of shares he owned. He reportedly held approximately 10 percent of Uber’s stock, including approximately 16 percent of its voting power and 35 percent of its Class B com- mon stock. According to Davey Alba, a tech writer, “It just so happened that at the time VCs were flush
with cash, Uber was the hottest investment opportunity. So it raised gobs of money without having to dilute Kalanick’s power on the board. Investors just wanted to get a stake.”11
As of 2016, Kalanick had kept the Uber board small, leaving four board seats empty as shown in Exhibit 6. At the end of 2016 Cheng Wei, founder and chairman of Chinese ride-hailing service Didi Chuxing (Chuxing) joined Uber’s board after Uber sold its China operations to Chuxing in exchange for the company investing $1 billion in Uber.
THe CRIsIs UNFOLDs The crisis at Uber began in February 2017 when Susan Fowler, a former software engineer at Uber, went public with her account of sexual harassment, discrimination, and extensive sexism inside the com- pany. In a blog post, she described how the human resources department had ignored her complaints, which included being propositioned by her manager. Fowler wrote that even after she had lodged a com- plaint with HR and higher management, she was told the manager was a “high performer” and he would not be disciplined for his actions. Fowler’s account was allegedly so condemning that it inspired other women
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Case 31 Chaos at Uber: The New CEO’s Challenge C-397
EXHIBIT 6 Uber Board of Directors (as of 2016)
As of 2016
Travis Kalanick
Garrett Camp
Yasir Al Rumayyan
Ryan Graves
Bill Gurley
David Bonderman
Arianna Hu�ngton
Co-founder
Co-founder
Chief Executive of Saudi Arabia’s Public Investment Fund
SVP of Global Operations, Uber
General Partner at venture capital firm Benchmark Capital
Co-founder of private Equity Fund TPG Capital
Founder of media platform Hu�ngton Post
Four Empty Board Seats
Matt Cohler (replaced Gurley)
Wan Ling Martello
David Trujillo (replaced Bonderman)
Cheng Wei
General Partner at Benchmark Capital
Executive Vice President for Asia, Oceania, and sub-Saharan Africa at Nestlé
Partner at TPG Capital
Co-Founder & CEO of Chinese ride-hailing service Didi Chuxing
As of August 2017
New CEO Khosrowshahi
Garrett Camp
Ryan Graves
Matt Cohler
Wan Ling Martello
David Trujillo
Cheng Wei
Open SeatTravis Kalanick
Arianna Hu�ngton
Yasir Al Rumayyan
CEO Travis Kalanick
Garrett Camp
Ryan Graves
Bill Gurley
David Bonderman
Arianna Hu�ngton
Yasir Al Rumayyan
employees at Uber to come forward with their own stories. This eventually led to at least 200 claims of sexual harassment against the company. Fowler also wrote about the organizational chaos at Uber saying that there was a “Game of Thrones” kind of a politi- cal war raging within the ranks of the upper man- agement. According to her, projects were frequently
abandoned and Objectives and Key Results (OKRs) were changed multiple times each quarter.12
Earlier in January 2017, Uber was accused of undermining a taxi union strike at JFK airport in New York protesting United States President Donald Trump’s refugee ban.13 Subsequently, more than 200,000 users uninstalled their Uber accounts as
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use of a secret software tool called “Greyball” that used data collected from the Uber app and other techniques to identify and evade government offi- cials who were trying to clamp down on Uber in areas where its service had not yet been approved.
Analysts said the controversies took a toll on Uber’s management team as several of the compa- ny’s key executives either resigned or were forced out. Since the start of 2017, 13 high-profile executives had reportedly departed, and Uber had yet to fill many of those roles (see Exhibit 7). Key executive positions including the post of COO, CFO, president, general counsel, and senior vice president of engineering were left vacant at the company.
For quite some time, the corporate culture at Uber had been under attack. Critics alleged that the company had a “bro culture” enabled by the top management—covering up sexual harassment at the workplace and cutting ethical corners. One Uber manager, who was later fired, was said to have groped several female co-workers at a company retreat in Las Vegas. Another manager had reportedly threat- ened to beat an underperforming employee’s head in with a baseball bat. The ride hailing service was also accused of using a woman’s confidential medical record to contradict her claims that she was raped by an Uber driver in India. An internal email leaked
part of the #DeleteUber campaign triggered by Kalanick’s decision to be a part of Trump’s business advisory council. Kalanick subsequently resigned from the council.
In February 2017, Google’s parent company Alphabet’s self-driving arm Waymo filed a lawsuit against Uber for theft of trade secrets and intellectual property. Alphabet alleged that one of its former exec- utives, Anthony Levandowski, had decamped with 14,000 confidential files related to self-driving car technology that he had downloaded onto an external hard drive. He later started his own self-driving truck company, Otto, which Uber acquired in August 2016. Thereafter, Levandowski was appointed as the head of Uber’s self-driving car program. Alphabet claimed that Uber was using the stolen documents that Levandowski had allegedly taken to advance its self- driving technology. Though Uber fired Levandowski in May 2017, experts said the move would not protect the company from the explosive charges contained in the lawsuit.
To add to its list of problems, Kalanick was caught on a dashcam video berating an Uber driver for questioning him about the company’s treatment of drivers. The video went viral, prompting Kalanick to apologize. In May 2017, the U.S. Department of Justice launched a criminal investigation into Uber’s
EXHIBIT 7 Top executive Departures at Uber
Name of the Executive Designation
Jeff Jones Uber President
Ryan Graves SVP Global Operations
Emil Michael SVP of Business
Amit Singhal Senior Vice President of Engineering
Raffi Krikorian Senior Director of Engineering at Advanced Technologies Center
Charlie Miller Senior Engineer of Uber’s Autonomous Driving Division
Ed Baker Vice President of Product and Growth
Gary Marcus AI Labs director
Brian McClendon Vice President of Maps
Rachel Whetstone Head of Policy and Communications
Anthony Levandowski Head of Uber’s self-driving car unit
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Case 31 Chaos at Uber: The New CEO’s Challenge C-399
in 2013 said Kalanick had allegedly instructed Uber employees at a company party on the ground rules for partying and having sex with co-workers. According to some Uber employees, the culture at the company was aggressive and demanding with emphasis on hustling, toe-stepping, and meritocracy. “This is a company where there has been no line that you wouldn’t cross if it got in the way of success,”14 said Hadi Partovi, an Uber investor.
However, the final nail in the coffin was the blog post by Fowler. Calling the behavior meted out to Fowler “abhorrent & against everything we believe in,” Kalanick tweeted that “anyone who behaves this way or thinks this is OK will be fired.”15 He announced that the company would launch an independent investigation into Fowler’s claims. He hired former U.S. attorney general Eric H. Holder Jr. and his colleague Tammy Albarrán, partners at the law firm Covington & Burling LLP, to probe the matter and conduct a review of Uber’s corporate culture. On March 1, 2017, Uber’s Board of Directors unanimously approved a resolution establishing a Special Committee of the Board16 to look into the allegations. The team also involved board member Arianna Huffington and the company’s newly appointed human resources chief, Liane Hornsey.
Meanwhile, Uber investors Freada Kapor Klein and Mitch Kapor wrote an open letter to Uber’s board and investors criticizing the company for choosing a team of insiders to investigate the matter. According to them, Holder had previously worked on Uber’s behalf to advocate the company’s concerns while Huffington was on the board of the company. Hornsey reported to the executive team. “We are disappointed to see that Uber has selected a team of insiders to investigate its destructive culture and make recommendations for change. To us, this decision is yet another example of Uber’s continued unwillingness to be open, transparent, and direct,”17 they wrote. In response to the letter, the review committee said it would conduct the investigation impartially.
THe HOLDeR RePORT On June 13, 2017, Uber released the results of the highly anticipated internal investigation. Lack of oversight and poor governance were some of the key issues running through the findings of the report. The Holder report specifically identified Kalanick as part of the problem as the first line of the report read, “Review and Reallocate the Responsibilities of
Travis Kalanick.” The report in total made 47 recom- mendations including emphasizing more on diversity and companywide performance reviews, and install- ing an independent chair and oversight committee to handle ethics issues. In the area of corporate gover- nance, the report advised that the board should have greater independence and the additional board mem- bers should be directors with meaningful experience on other boards and should exercise independent oversight of Uber’s management.
The same day, Kalanick in an email to employ- ees announced that that he was taking time off to mourn his mother, who was killed in a boating acci- dent. Kalanick said the company would be run by an executive committee and that he would be avail- able if needed. Uber’s SVP and business leader Emil Michael, a close confidante of Kalanick who had reportedly been pressured to resign following the investigation, also left the company. In addition, at least 20 other employees were fired as a result of a separate investigations related to sexual harassment and discrimination by law firm Perkins Coie.
Uber’s board unanimously decided to adopt all the recommendations for improving corporate gov- ernance including sexual harassment prevention and improving workplace diversity. However, during the meeting, Uber board member David Bonderman made a sexist remark18 and had to resign thereafter. David Trujillo, a partner at the private equity firm TPG Capital, replaced Bonderman. Also, Uber appointed Nestlé executive Wan Ling Martello (Martello) to the board. She was the second woman after Huffington to serve as an Uber Director.
INVesTORs ReVOLT When Uber became embroiled in a series of legal and ethical scandals, the investors who until then saw little wrong with Kalanick’s aggressive antics became suddenly combative. They felt that their investment in Uber was at risk and started agitating for change at the top as the #DeleteUber campaign and Fowler’s complaints gained traction. Exhibit 8 illustrates the impact of the scandals on Uber’s market share. The Board of Directors, who were under fire themselves, decided to replace Kalanick but that was easier said than done. According to Richard Mahony, an expert in communication strategy and investor relations, “[Kalanick’s super-voting shares] has made the task of removing him much more complicated. It took a former
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connections) at last found their voice, he had little choice but to step down. Quite simply, he needs their money.”20
Kalanick, however, continued to serve on Uber’s Board of Directors. “I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors request to step aside so that Uber can go back to building rather than be distracted with another fight,”21 he said in a statement. A day after his resignation, Gurley, who pushed Kalanick to leave, resigned from the Uber board. He was replaced by his colleague, Matt Cohler, also a partner at Benchmark Capital.
CORPORaTe GOVeRNaNCe FIasCO Experts attributed the root of Uber’s problems to weak corporate governance marked by a rapid chase after growth, the cult of Kalanick, and the company’s failure to address workplace issues. They felt that Uber’s Board of Directors did not care about gover- nance issues and let Kalanick run the company the way he did as long as profits were generated and
attorney general and a nearly constant stream of media leaks to pry Mr. Kalanick out of his seat.”19
Five of Uber’s major investors—Benchmark Capital, First Round Capital, Lowercase Capital, Menlo Ventures, and Fidelity Investments—which together controlled 40 percent of the company’s votes and owned more than a quarter of Uber’s stock, demanded Kalanick’s resignation. In the letter titled “Moving Uber Forward,” the investors wrote to Kalanick that he must immediately leave. On the other hand, some Uber board members including Camp and Huffington extended support to Kalanick as they believed that his leadership was necessary for Uber to survive in the aggressive taxi industry. Huffington even attested to Kalanick’s willingness to change. The shareholders’ unrest, however, made it untenable for Kalanick to stay on at the company. Finally, after hours of negotiations and consultations with his confidants, Kalanick agreed to step down on June 21, 2017. According to Fast Company’s Ainsley Harris, “Kalanick held on to Uber’s reins in the face of scandal after scandal—sexual harassment, discrimina- tion, obstruction of regulatory enforcement, privacy vio- lations. But when shareholders (with checkbooks and
EXHIBIT 8 Impact of senior Leadership scandals on Uber’s U.s. Market share
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00% Before #deleteuber
campaign (Week up to Jan 29)
20.9% 21.3%
79.1% 83.5%
After #deleteuber campaign
(Week up to Feb 19)
Following Susan Fowler Story
(Week up to Feb 24)
Uber Lyft
78.7%
16.5%
Source: TXN Solutions.
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investors and the board members asking Benchmark Capital to withdraw the lawsuit, divest its shares, and step down from Uber’s board. According to them, the tactics of Benchmark Capital were “ethically dubious and, critically, value-destructive rather than value enhancing.”27 They accused Gurley of holding Uber hostage to a public relations disaster by demand- ing Kalanick’s resignation. Calling it a “fratricidal” move against Kalanick, the investors said the lawsuit could harm Uber’s valuation, risk the company’s abil- ity to raise funds, and hinder the search for a new CEO. They wanted Kalanick to make a comeback at Uber in an operational capacity. Commenting on the fallout, Heather Somerville, a technology reporter, wrote, “The division and hostility emerging among Uber investors and directors opens a new front in a highly unusual public battle for Silicon Valley. It is rare for a venture firm to sue the central figure of a valuable portfolio company, and equally unexpected for investors to make a counter-move to push out a fellow investor backing the same company.”28
According to some analysts, with the power play and ego battles among Uber’s Board of Directors, the company had been pushed to the point of a cri- sis. They felt that both the pro-Kalanick and pro- Benchmark factions were fighting for short-term personal gains and risking damage for everyone involved, including Uber’s employees and share- holders. On August 10, 2017, Graves, Uber’s lon- gest running executive, announced that he would be stepping down from his role as SVP of global operations at Uber but would continue to remain on Uber’s board.
The search for Kalanick’s replacement also left the Uber board deeply divided as they squabbled over the choice of CEO. Meg Whitman,29 CEO of tech giant Hewlett-Packard, and Jeffrey R. Immelt,30 former CEO of General Electric, were the front run- ners for the CEO’s post. While Kalanick and his loy- alists Huffington and Yasir bin Othman Al-Ruayyan also an Uber board member supported Immelt, Team Benchmark Capital, including Cohler and Graves, favored Whitman. Later, Immelt pulled out from the race allegedly because he did not have the necessary support from Uber’s board. Meanwhile, Whitman, a strong contender, started negotiating for condi- tions including limiting Kalanick’s clout and poten- tially reshaping the Board of Directors were she to accept the job. She showed strong affiliation toward Benchmark Capital that wanted Kalanick’s removal.
growth achieved. According to Jean-Louis Gassée, Editor of Monday Note, a tech and media blog, “Uber’s investors had one goal—the IPO—and one strat- egy: create a market position so dominant that it would eliminate the competition and, as a result, provide the pricing power that would support a stratospheric IPO price. As for tactics, investors left the matter to Kalanick while looking elsewhere.”22
Critics contended that Uber’s board had failed to institute a corporate governance framework that focused on the legal, regulatory, institutional, and ethical environment of the company. They added that the continued silence of board members had encour- aged employees to commit and engage in criminal conduct, opened the door to corporate wrongdoing, and contributed to more lawsuits.23 Only when the scandals reached too far and investors realized that they could lose their money if Uber’s valuation was marked down, had the board woken up and fired Kalanick, they said.
UBeR’s BOaRDROOM DRaMa Amidst a series of scandals, Uber’s Board of Directors found themselves divided. On August 10, 2017, investor Benchmark Capital, which held a 13 percent stake in Uber and spearheaded Kalanick’s ouster, filed a lawsuit against him for fraud, breach of contract, and breach of fiduciary duty. The investor wanted him removed from the Uber board. According to Benchmark Capital, Kalanick had concealed mate- rial information from investors when he created three new board seats and expanded Uber’s board from 8 to 11 directors in June 2016. Kalanick gave himself control to appoint members to those seats, it alleged. Benchmark Capital felt that Kalanick had covered up for the company’s failings and his own mismanage- ment before the Board of Directors in order to retain and increase his own power on the board. It called him a toxic force at Uber and held him responsible for its cultural failings. Kalanick’s spokesman said the lawsuit was peppered with lies and false allega- tions. However, on August 31, 2017, a Delaware judge stayed the lawsuit and sent the case for arbitration, moving the legal battle out of the public eye.
Meanwhile, some pro-Kalanick investors includ- ing Shervin Pishevar, Managing Director of Sherpa Capital;24 Ron Burkle, co-founder of Yucaipa Companies;25 and Adam Leber, an investor who managed Maverick Records,26 sent an email to Uber
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changing the way we do business, putting integrity at the core of every decision we make and working hard to earn the trust of our customers,”31 he said in a com- pany blog post.
THe ROaD aHeaD Despite a tumultuous 2017, Uber’s business continued to grow. In the second quarter of 2017, Uber raked in $8.7 billion in gross bookings, a 17 percent increase from the previous quarter and a 102 percent increase year-over-year.32 The company also curbed losses. In the second quarter of 2017, adjusted net loss fell almost 9 percent quarter-over-quarter to $645 million com- pared to $708 million in the first quarter. The com- pany’s adjusted net revenue amounted to $1.75 billion, a 17 percent growth compared to the first quarter of 2017. Buoyed by holiday travel, Uber’s adjusted losses narrowed to $741 million in the fourth quarter of 2017, compared with $1.02 billion during the third quar- ter.33 Meanwhile, gross bookings and net revenue both rose 61 percent year on year, reaching $11.1 billion in bookings and $2.2 billion in net revenues, a record level for the company. Exhibit 9 presents a summary of Uber’s financial performance for 2017.
In February 2018, Uber settled its legal dispute over trade secrets against Waymo in a deal that gave Alphabet a 0.34 percent stake in Uber, worth about
As a result, some of the Directors who were report- edly put off by Whitman’s tactics swung decisively in favor of Khosrowshahi who until then had not even been in the reckoning. They felt that Khosrowshahi was a stronger candidate and came with fewer disad- vantages. Finally, on August 29, 2017, Uber’s board voted unanimously to appoint Khosrowshahi, an Iranian American who had led Expedia for 12 years, as Uber’s new CEO.
And just when the public thought that Uber would not get any worse, in November 2017 the com- pany announced that it had discovered a major data breach as part of a board investigation into its busi- ness practices. Uber had concealed a massive cyber- attack that took place in October 2016 that affected around 57 million driver and customer accounts whose personal data had been stolen. The company revealed that it had paid the hackers $100,000 to delete the stolen data and prevented the news from going public. The deal was allegedly arranged by the company’s chief security officer Joe Sullivan under the watch of Kalanick. Khosrowshahi said he had only learned of the breach after he took over as CEO of Uber in September 2017 and publicly apol- ogized for the hack. “None of this should have hap- pened, and I will not make excuses for it. While I can’t erase the past, I can commit on behalf of every Uber employee that we will learn from our mistakes. We are
EXHIBIT 9 summary of Uber’s Quarterly Financial Performance, 2017
–1
–2 Q1
* Includes stock-based compensation
Q2 Q3 Q4
1
2
3
0
$bnNet revenue
Adjusted ebitda
Net income*
Source: Financial Times reporting; Uber https://www.ft.com/content/a0f2af96-1117-11e8-940e-08320fc2a277.
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EXHIBIT 10 Uber’s Cultural Norms
Under Kalanick Under Khosrowshahi
1. Customer obsession (Start with what is best for the customer).
2. Make magic (Seek breakthroughs that will stand the test of time.)
3. Big bold bets (Take risks and plant seeds that are five to ten years out.)
4. Inside out (Find the gap between popular perception and reality.)
5. Champion’s mind-set (Put everything you have on the field to overcome adversity and get Uber over the finish line.)
6. Optimistic leadership (Be inspiring.) 7. Superpumped (Ryan Graves’s original Twitter
proclamation after Kalanick replaced him as CEO; the world is a puzzle to be solved with enthusiasm.)
8. Be an owner, not a renter (Revolutions are won by true believers.)
9. Meritocracy and toe-stepping (The best idea always wins. Don’t sacrifice truth for social cohesion and don’t hesitate to challenge the boss.)
10. Let builders build (People must be empowered to build things.)
11. Always be hustlin’ (Get more done with less, working longer, harder, and smarter, not just two out of three.)
12. Celebrate cities (Everything we do is to make cities better.)
13. Be yourself (Each of us should be authentic.) 14. Principled confrontation (Sometimes the
world and institutions need to change in order for the future to be ushered in.)
1. We build globally, we live locally. We harness the power and scale of our global operations to deeply connect with the cities, communities, drivers, and riders that we serve, every day.
2. We are customer obsessed. We work tirelessly to earn our customers’ trust and business by solving their problems, maximizing their earnings, or lowering their costs. We surprise and delight them. We make short-term sacrifices for a lifetime of loyalty.
3. We celebrate differences. We stand apart from the average. We ensure people of diverse backgrounds feel welcome. We encourage different opinions and approaches to be heard, and then we come together and build.
4. We do the right thing. Period. 5. We act like owners. We seek out problems and we solve
them. We help each other and those who matter to us. We have a bias for action and accountability. We finish what we start and we build Uber to last. And when we make mistakes, we’ll own up to them.
6. We persevere. We believe in the power of grit. We don’t seek the easy path. We look for the toughest challenges and we push. Our collective resilience is our secret weapon.
7. We value ideas over hierarchy. We believe that the best ideas can come from anywhere, both inside and outside our company. Our job is to seek out those ideas, to shape and improve them through candid debate, and to take them from concept to action.
8. We make big bold bets. Sometimes we fail, but failure makes us smarter. We get back up, we make the next bet, and we go!
Source: https://www.uber.com/en-IN/newsroom/ubers-new-cultural-norms/.
$245 million. The settlement also included an agree- ment to ensure that Waymo’s confidential informa- tion was not incorporated into Uber technology, which Waymo said was its main intent in bringing the lawsuit. As part of his cultural overhaul at Uber, Khosrowshahi introduced eight new cultural norms for Uber, replacing the 14 values first introduced by his predecessor Kalanick, in 2015, as shown in Exhibit 10. Khosrowshahi also made some changes internally, including hiring a new set of executives. In October 2017, he appointed Tony West, a former federal prosecutor, from PepsiCo as Uber’s new Chief Legal Officer. Barney Harford, the former CEO of online travel site Orbitz, who has been working as a
senior adviser to Khosrowshahi at Uber since October 2017, was named Chief Operating Officer at Uber.
Uber’s valuation of nearly $70 billion as shown in Exhibit 11 left some analysts wondering if and when the company would go public. However, some analysts were concerned that all the scandals and internal strife could result in Uber’s market value going down. Following the company’s scandal- ridden year, four mutual fund companies marked down their investments in Uber by as much as 15 percent for the quarter ended June 30, 2017.34 However, in January 2018 a group of investors35 led by SoftBank Group Corp36 acquired a 17.5 percent stake in Uber, thereby providing the much-needed boost to the
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C-404 PaRT 2 Cases in Crafting and Executing Strategy
controversy-ridden company. The deal brokered by Khosrowshahi, included a large purchase of shares from existing Uber investors and employees at a dis- counted valuation. SoftBank became Uber’s largest shareholder with a stake of 15 percent. As part of the terms of the deal, Uber would expand its board from 11 to 17 members including four independent direc- tors and limit voting power of some early sharehold- ers. Benchmark had also agreed to drop its lawsuit against Kalanick upon completion of the deal.
Analysts said that, going forward, Khosrowshahi would have to face some daunting tasks, including
prepping Uber for the long-awaited IPO. According to them, another challenge for him would be work- ing with his predecessor. The company still bore the imprint of Kalanick, who remained a major share- holder and a board member of Uber, all of which would give him significant influence over Uber’s future. The question, according to some analysts, was whether with Kalanick on the board, Khosrowshahi would be able to make the decisions that he needed to make.37
As Uber set out to incorporate the basic tenets of corporate governance, a key task for Khosrowshahi would be dealing with an uptight board whose divi- sions and rivalries had reached epic proportions and ending the bitter war among the Board of Directors. Some key challenges before Khosrowshahi were: fixing Uber’s culture and helping evolve some of its own core cultural practices to foster growth and improve stakeholder relationships; working with a splintered board and ushering in corporate governance reforms; and regaining the confidence of its investors, employees, and customers. Sanket Vijayasarathy, a tech journalist, “[G]iven the timing of his entry, Khosrowshahi had a lot of fires to douse, which by no means is an easy task. The silver lining to this was that despite the events of the past year, Uber financial situation was still good. The company is still in a good position today, and the recent cyber-attack may hurt the company further, but not so much as to cause a collapse. This still gives time for Khosrowshahi to turn the company around.”38
EXHIBIT 11 Uber’s Market Valuation
2009 2010 2011 2012 2013 2014 2015 2016 0
10
20
30
40
40
60
70
Valuation
Funding
$
Source: CB Insights.
eNDNOTes 7 Seth Fiegerman, “Uber CEO Says Company Plans to Go Public in 2019,” November 9, 2017, http://money.cnn.com. 8 Kalanick was a college dropout whose first business venture went bankrupt. He sold his second start-up Red Swoosh, a content- delivery company to Akamai Technologies for $20 million. 9 Camp was an entrepreneur who had sold his company StumbleUpon, a Web discovery engine, to eBay for $75 million in 2007. 10 https://uberestimator.com/cities. 11 Davey Alba, “Even Uber’s Crisis Won’t Kill Founder Worship in Tech,” June 13, 2017, www.wired.com. 12 Julia Carrie Wong, “Uber’s ‘Hustle-Oriented’ Culture Becomes a Black Mark on Employees’ Résumés,” March 7, 2017, www.theguardian .com.
1 Kara Swisher, “‘I Have to Tell You I Am Scared’: Dara Khosrowshahi Says in a Memo to Expedia’s Staff That He Has Finally Been Hired at Uber,” August 29, 2017, www.recode.net. 2 One of the world’s leading online travel companies. 3 “The Uber Episode: Is Monoculturalism the Real Problem?” June 30, 2017, www.livemint .com. 4 A US-based venture capital firm responsible for the early stage funding of successful startups including Dropbox, Twitter, Uber, Snapchat, and Instagram. 5 Carolyn Said, “History of Uber’s CEO Pick Praised,” August 29, 2017, www.pressreader .com. 6 An innovative program in which law students provide legal work for early stage Tech and BioTech startups.
13 On January 27, 2017, Trump signed an executive order for a temporary ban on refugees and a suspension of visas for citizens of seven Muslim-majority countries. 14 Leslie Hook and Hannah Kuchler, “Uber’s Turmoil Compounded by David Bonderman’s Sexist Quip,” June 14, 2017, www.ft.com. 15 Danica Kirka, “Uber to Investigate Sexual Harassment Claim by Engineer,” February 20, 2017, www.chicagotribune.com. 16 The investigation team conducted over 200 interviews with current and former employees of Uber who shared a broad range of perspec- tives. Covington interviewed individuals with knowledge of Fowler’s allegations, employees who reported workplace environment-related complaints, employee representatives of Uber’s diversity groups, and present and for- mer members of the Senior Executive Team.
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23 Davey Alba, “Even Uber’s Crisis Won’t Kill Founder Worship in Tech,” June 13, 2017, www.wired.com. 24 San Francisco-based venture capital firm. 25 An American private equity firm. 26 A U.S.-based music company. 27 Heather Somerville, “Uber Investors Seek to Oust Benchmark After ‘Destructive’ Lawsuit– Report,” August 11, 2017, www.cnbc.com. 28 Ibid. 29 Meg Whitman, a tech veteran, is one of the most respected corporate executives in the world having led companies like eBay. 30 Jeffrey R. Immelt was the chairman of GE from 2001 until August 1, 2017. 31 Mike Isaac, Katie Benner, and Sheera Frenkel, “Uber Hid 2016 Breach, Paying Hackers to Delete Stolen Data,” November 21, 2017, www.nytimes.com. 32 Johana Bhuiyan, “Uber is Curbing its Losses and Growing its Business While it Searches for a New CEO,” August 23, 2017, www.recode.net.
17 Mitch & Freada Kapor, “An Open Letter to The Uber Board and Investors,” https:// medium.com, February 24, 2017. 18 As the board was discussing the addition of a new female board member, Huffington said that the presence of one woman on the board would eventually lead to more. To this, Bonderman retorted “actually what it shows is that it’s much more likely to be more talking.” After the meeting, Bonderman apologized and later announced his resignation from the board. 19 Richard Mahony, “Uber’s Shareholder Revolt,” June 14, 2017, www.mahonypartners.com. 20 Ainsley Harris, “Uber’s Ousted CEO Travis Kalanick Discovered the Limits of Founder Control—The Hard Way,” June 21, 2017, www.fastcompany.com. 21 Sam Byford, “Travis Kalanick Resigns as Uber CEO,” June 21, 2017, www.theverge.com. 22 Jean-Louis Gassée, “Travis Kalanick’s Bosses Share Just as Much Blame for the Uber Calamity,” June 28, 2017, https://qz.com.
33 Leslie Hook, “Uber Pares Quarterly Losses and Lifts Revenues,” February 14, 2018, www.ft.com. 34 Trevor Hunnicutt, “Unhappy Uber Investors Mark Down Value of the Scandal-Ridden Ride-Sharing Company,” August 23, 2017, www.independent.co.uk. 35 The investor group led by SoftBank includes Dragoneer Investment Group and Sequoia Capital. 36 SoftBank Group Corp. is a Japanese multinational conglomerate that together with its subsidiaries provides information technology and telecommunication services. 37 Marisa Kendall, “Uber’s Ex-CEO Isn’t Really Leaving. Can the Company Change Anyway?” June 28, 2017, www.santacruz sentinel.com. 38 Sanket Vijayasarathy, “Uber Hacking Scandal Proves Ghost of Ousted Travis Kalanick Still Haunts The Ride-Hailing Company,” November 23, 2017, www.india today.in.
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