Car-Crash Governance at Uber

Even before Uber’s board met this weekend to consider putting CEO Travis Kalanick on leave, this company fascinated me. It should fascinate every compliance professional, really—since Uber demonstrates so many ways that things can go wrong through inattention to governance, ethics, and compliance.

A full litany of Uber’s problems is available from a New York Times article published Sunday. The list is long. We have a corporate culture permissive of sexual harassment, compounded by an HR department that tried to cover up managers’ harassing conduct rather than discipline the harassers. That led to an explosive accusation from one of Uber’s female engineers earlier this year, and a months-long investigation from former attorney general Eric Holder.

We don’t yet know what Holder’s report says, or how the board will act upon it. We do know that whatever the report says, it did not come cheap.

We also have gaping holes in the senior executive ranks around Kalanick. Uber’s president of ride sharing, head of finance, head of communications, and vice president of product development have all resigned since March. The ride sharing chief, Jeff Jones, lasted only six months and specifically departed because he disagreed with Uber’s culture. The company wants to hire a chief operating officer to help Kalanick, but hasn’t found one yet.

And don’t forget the litigation over an Uber employee stealing trade secrets from his former employer, Google, about self-driving cars. Or Kalanick’s berating of an Uber driver, caught on tape. Or Kalanick’s guidelines for behavior at an Uber company party several years ago, explaining the preferred manner to have sex with fellow employees—which, for the first time, made me thankful that I have a toddler and a mortgage and am too old for that nonsense.

Sure, the company loses money hand over fist, but that’s a financial problem rather than a compliance one, and par for the course in Silicon Valley. And yes, if Uber ever does go public, we might see all manner of poor controls once we get a good look.

For now, however, Uber is already a managerial mess of a company without talking about the money. That’s what makes it such an astonishing case study for corporate ethics and compliance officers. It is a big, glaring, nightmare of an example, something no self-respecting board wants to see in its own business—and you can fill a whole afternoon talking about how to prevent it, without ever mentioning financial performance.

The Uber Lessons

So what can compliance officers say about Uber? A few lessons come to mind.

Corporate governance matters long before the IPO. Republicans talk these days about relaxing the rules for small companies to go public, and a thoughtful plan to achieve that would be great. But let’s not kid ourselves, either: plenty of young companies have no business going public even if they are growing like weeds, because their attention to governance and culture is terrible. Uber is Exhibit A.

For example, imagine that Uber had gone public in 2013, instead of closing that string of monster investment rounds: $361 million in 2013; $1.2 billion in 2014; $3.5 billion last year. For a while, retail investors would have made a fortune riding Uber’s valuation to nosebleed heights—but what about now? The news of 2017 would have killed Uber’s share, and activists would already be waging campaigns to have Kalanick deposed and the company merged with Ford or Avis or somebody.

Retail investors don’t want high risk and high reward; they want stability. A strong board, that can nurture a CEO and check his ego when it grows too big, gets you there.

Let’s hope the Securities & Exchange Commission remembers that point, too, as it seeks to loosen the rules for IPOs. The idea isn’t all peaches and cream.

Strong CEOs need strong boards, not boards with privileges. One possible outcome to this weekend’s board meeting is, regrettably—nothing. Kalanick and several allies on the board have super-voting shares, with enough control to ignore any recommendations from Holder and calls for Kalanick to take a good, long nap. Four seats on Uber’s board are empty.

Before we get to the problems that brings, let’s acknowledge: Kalanick is impressive. Yes, he sounds like an arrogant ass, but he had a vision for Uber and he built it. Uber operates around the world, and gave the transportation industry a needed shove into the future. It is one of only three companies, along with Google and Xerox, whose name has become a verb. That takes talent.

But the part about being an arrogant ass—that can put brand value in a difficult spot, which is where Uber finds itself today. The stronger a personality the CEO has, the more the board needs the freedom and willingness to exercise authority over him. Otherwise the tone he sets at the top becomes deafening, and nobody can hear other voices urging caution or warning of failure. So employees merrily follow the CEO and his cacophonous tone over a cliff.

Preventing that means attention to corporate bylaws, board charters, voting rights, articles of incorporation, and the like. Those aren’t subjects normally in the compliance officer’s purview. But you can get the ear of the board, and the nominating & governance committee. Whisper about this stuff, because it matters.

The other dorky stuff matters, too. Corporate ethics and compliance is about much more than what’s legally defensible when a regulator shows up. (If the latter is your view, work in the legal department.) It’s about supporting a corporate culture that does consider what’s morally upright, and what resonates with the company’s core values.

To do that, however, the company needs to identify what its values truly are, and what supporting them truly entails. I haven’t seen evidence that Uber and Kalanick did that until things reached a critical state. Or if Kalanick is an amoral Ayn Rand fan-boy, as he suggested in the past, maybe his values just aren’t in step with most people’s.

For example, one acquaintance on LinkedIn said he still uses Uber but dislikes doing so. Kalanick’s behavior and influence infected the culture there, so many consumers are uncomfortable with Uber even though it’s a fabulously convenient product. (Pop quiz: Should companies discourage employees from using Uber, because of the poor values it has come to portray? Discuss.)

The good news is that most CEOs (the ones I’ve met, anyway; and I’ve been privileged to meet many over the years) do sincerely care about corporate culture and ethics and the morality of “doing the right thing,” even if the letter of the law allows something lesser.

The bad news is that this stuff—debating moral values; putting the brakes on runaway growth to talk about culture; navel-gazing in the boardroom to ask “what is this company about, anyway?”—takes valuable time, and feels weird. Talking about strategy and expansion plans and merger targets is fun. Talking about corporate culture is awkward.

But it matters, to an enormous amount. I pity the people who don’t consider that. And I hope Uber considers that before it’s too late, and we all take Lyft home.