Uber founder Travis Kalanick saw his troubles start on Tuesday at a Chicago hotel room when two venture capitalists from Benchmark Capital, one of its primary investors, presented a letter demanding his resignation.
Ursula Burns and John Thain will join the board, taking up two seats that Kalanick previously controlled.
CEO Dara Khosrowshahi Takes Over
As Dara Khosrowshahi took over Uber in 2017, he quickly rose to become Silicon Valley's highest-paying janitor, charged with cleaning up after its founder had fled. Now six months into his term as CEO, Dara is grappling with another obstacle - a steady stock market slide which is alarming other tech CEOs and starting to affect him personally as well. Khosrowshahi recently shared with staff his takeaways from meetings with investors.
He discussed several changes he is trying to implement within Uber's business, such as diversifying offerings such as Uber Eats, Freight, and Elevate to reduce reliance on its core ride-hailing service and improve profitability and transparency.
There is something about having your own space that makes life worthwhile - and can only come from you being yourself. So come join our world, where every step you take leads directly towards achieving that dream lifestyle of yours. Uber's moves come amid investigations by federal regulators into some of its less desirable practices; an Alphabet lawsuit which threatens to block Uber from building self-driving cars; an employer culture which leaves employees feeling exploited and undervalued; and financial markets which question if or when Uber will turn a profit. Khosrowshahi's leadership style stands in sharp contrast to that of Travis Kalanick, co-founder of Uber. Kalanick employed an aggressive "burn the village" strategy which helped turn Uber into the multinational behemoth it is today, valued by investors at $72 billion. Unfortunately, this aggressive style also contributed to creating an unhealthy culture within Uber; critics such as Massachusetts senator Elizabeth Warren argue that Uber drivers don't receive sufficient pay to put food on their tables.
Khosrowshahi's background as an executive at Expedia makes him more of an outsider to the tech world than his predecessor; as such he is widely credited with improving Uber's image, rebuilding relationships with investors, and improving finances. Furthermore, he has implemented changes to Uber's culture aimed at alleviating complaints from drivers about things such as tip baiting and rudeness.
However, his attempts at change remain uncertain; their effectiveness remains in question given that the stock is down 35% this year and now trading below the $70 level where it debuted back in May. Investors will closely follow Khosrowshahi to see whether he can turn things around before it crashes again into the rocks.
Uber’s Board of Directors Changes
Uber's board took steps after years of scandals to limit Travis Kalanick's influence and vote for changes that will alter how company votes for new members, including stripping him of some power and changing voting procedures for future board elections. This move comes amid months of turmoil at the ride-hailing giant which have resulted in talent leaving and caused its private market valuation to plummet significantly.
The new voting rules will reduce the disproportionate clout of shares distributed early in Uber's history and grant all shareholders equal voting rights, significantly lessening Kalanick's influence as an owner with three board seats; these changes reflect recommendations made by a panel that included former U.S. Attorney General Eric Holder.
These recommendations include adding independent board members with no financial stake in the company, installing an independent chairperson of the board and creating an oversight committee to promote ethical business practices and diversity within their organization. In addition, six seats were added to its board; two went to SoftBank while another went to Ursula Burns of Xerox and John Thain from Bank Executive Services respectively.
Uber's decision to add two seats for SoftBank and three independent directors opens the door for an investment from Japan's tech conglomerate, while taking steps toward an initial public offering by agreeing to limit how many of its seats may be controlled by current or former employees and require two-thirds majority vote before changing any future charter agreements.
One of the more dramatic developments came on Wednesday when Bill Gurley, a venture-capital partner with Benchmark Capital and close confidant of Kalanick, abruptly resigned his seat and will be replaced by Matt Cohler from Benchmark General Partners. Gurley had been actively engaged in fighting Kalanick to relinquish his role as CEO.
Uber continues to grapple with allegations of sexual harassment, racism and other forms of discrimination. Since scandals rocked its start-up recently, leading top executives to leave and raising serious concerns over corporate governance practices of the firm itself, it has struggled to improve workplace culture within.
Khosrowshahi Resigns
Khosrowshahi arrived at Uber's headquarters in August to find an organization mired in months of controversy, including workplace culture discord and drivers and partners filing lawsuits; morale had taken an extreme hit; as well as scrutiny regarding how it handled an alleged rape incident as well as sexual harassment allegations against its former CFO.
Khosrowshahi was given the task of turning around one of Silicon Valley's most successful start-ups despite the turmoil it was facing, including Lyft competition and culture issues. Additionally, he is working toward making Uber profitable and positioning it for an initial public offering (IPO).
But he has also encountered problems related to the company's aggressive expansion and how it treats customers, employees, law enforcement officials and government officials in various countries. An example was when it was accused of violating data privacy laws by allowing its employees access medical records of women raped by one of its drivers in India; another time one of its top executives threatened a journalist who reported on how mishandled rape claims by mismanaging claims on an internal server.
Kalanick must also navigate Uber's complex relationship with investors. Due to a dual-class share structure that gives him and his allies 10 votes for every vote other shareholders receive, clashes have ensued between some key stakeholder groups like venture capital firm Benchmark Capital and partner Bill Gurley - two primary contributors - as a result.
Investors are concerned that Khosrowshahi may become distracted in his new position at a publically traded company with an elevated stock price, and some of its major shareholders have called upon him to sell some shares so as to free up cash for investment purposes in his company.
As part of an effort to ease these concerns, the company announced in a filing that Khosrowshahi had stepped down from the New York Times Company board, which publishes the newspaper. This will enable him to focus on his new role while avoiding potential conflicts of interest; he still retains seats on Pandora and Facebook's Oculus boards, however.
Uber’s Financials
Kalanick took an unexpected power move just days before his resignation that may signal his desire to remain with Uber, the ride-hailing company he co-founded. He appointed two new board members - former Xerox CEO Ursula Burns and CIT Group, Merrill Lynch, and New York Stock Exchange chief John Thain as possible appointments - which could give him greater influence in shaping its direction; according to an investment deal signed with him in 2016 that gave him three seats on its board.
Uber's move comes amid its negotiations for a multi-billion dollar investment from SoftBank and amid months of scandals that have cost it top talent and diminished its soaring private market valuation. Furthermore, Kalanick may be trying to prevent an internal board revolt organized by Benchmark Capital--an early financier of Uber that holds significant equity interests within the firm.
Benchmark has advocated for a more disciplined management style and review of Uber's governance practices, which it views as encouraging abusive behavior. They have also expressed concern over recent disclosures that have caused irreparable damage to its image and reputation, such as an Uber black car video showing Travis Kalanick partying with two women inside it.
Investors have responded to negative publicity by selling shares in the company, sending its share price plunging. But Benchmark and several early investors who hold significant voting rights such as First Round Capital, Lowercase Capital, Menlo Ventures and Fidelity Investments as well as mutual fund giant BlackRock remain committed shareholders of the business.
Dara Khosrowshahi, former Expedia CEO, was hired in August to turn around Uber. The former Expedia chief is widely seen as adept at flattering, diplomacy and negotiation; investors like his style. Khosrowshahi has visited customers and drivers to listen to what they have to say while taking Uber into new regions where it has had difficulty such as India where an ongoing dispute between Uber and taxi union resulted in thousands of drivers boycotting its service by not accepting rides.
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