Where technology and economics collide
Last week, after an investigation by former Attorney General Eric Holder found rampant problems with sexual harassment and discrimination at Uber’s San Francisco headquarters, CEO Travis Kalanick had two choices. He could remain as Uber’s CEO and pursue reforms designed to deal with this and other problems plaguing the company. Or he could step down to make room for a new CEO whose promises to change Uber might have more credibility.
Instead, Kalanick chose a third option that’s worse for everyone but Kalanick: He announced an indefinite leave of absence and left the company to be run by a 14-member committee of senior executives. That means Uber won’t get the fresh start that a new CEO could have offered.
Instead, Kalanick’s departure will leave Uber in a broken state. The company desperately needs to rebuild its leadership team after a string of high-profile departures, but highly qualified candidates aren’t going to join a company with a leadership vacuum. Changing Uber’s culture is going to require clear messaging and consistent leadership from the top — something a 14-person committee can’t offer. And a committee structure will leave Uber crippled if it needs to make major strategic decisions.
“He said, ‘I won’t be around but I’m going to be available for the most strategic decisions,’” says Adam Lashinsky, a Fortune reporter who wrote a new book on Uber. “To me, that was code for, ‘I’m not going anywhere.’ It wasn’t even code. It was pretty clear.”
Kalanick’s absence will hamper Uber’s recruitment
For the past three months, Uber has been searching for a chief operating officer, a No. 2 who could professionalize the company and push for changes to deal with problems like workplace misogyny. In announcing the position, Kalanick portrayed this as a very senior position: “we’re actively looking for a Chief Operating Officer: a peer who can partner with me to write the next chapter in our journey,” he wrote.
Bringing in a more conventional executive with broad authority was a good idea. The challenge was that it was hard for anyone to believe Kalanick would ever really allow another executive to be his peer. Normally, the way a company would handle this would be to have the COO report directly to the company’s board. But Kalanick holds super-voting shares that give him and two other Uber insiders control over the board. So in practice, no Uber executive was going to be Kalanick’s peer — which made it difficult to recruit qualified, senior people to the position.
Kalanick’s leave of absence makes the situation even worse. Kalanick has made it clear that he intends to stay in charge of Uber in the long run. Yet in the short run, a new COO won’t have the opportunity to build a relationship with Kalanick, raising doubts about how much influence the new executive will have at the company.
And the same point applies to the many other senior positions Uber needs to fill. As the Washington Post’s Jena McGregor points out, Uber currently has open positions for chief financial officer, general counsel, chief marketing officer, senior vice president of engineering, and chief diversity officer. The best candidates for these kinds of positions are going to expect to be wooed by the CEO before accepting an offer and have regular access to the CEO afterward. They’re not going to be interested in being hired by a 14-member committee, with no clarity about when Kalanick would return or what role they would play once he came back.
Uber needs a strong CEO to change the company’s culture
Uber’s board unanimously voted to accept the recommendations of former AG Eric Holder, which included more training for managers, a better process for handling sexual harassment complaints, and a more prominent role for Uber’s head of diversity.
But actually changing Uber’s culture to be more inclusive and respectful is going to take a lot more than a vote of Uber’s board. Changing the culture of any company requires clear communication from the CEO that misogyny is unacceptable, backed up by sustained action. Rank-and-file Uber employees need to be confident that if they report misconduct to the CEO, he’ll take it seriously and hold offenders accountable.
And this is a job only the CEO can do. No member of a 14-member committee has the authority to discipline people outside his own part of the company, and having 14 different leaders will mean 14 different messages about Uber’s top priorities.
People won’t know who is really in charge, which means they won’t have much confidence that their complaints will be taken seriously. That makes it likely the company will slip back into its old patterns.
Management by committee doesn’t work
The larger problem here is that running a company by committee doesn’t work. There’s a reason almost every company has one or two executives who are clearly in charge.
The basic problem is that lower-level executives have a strong incentive to look after their own interests — like expanding their own budgets and influence within the company — over the interests of the company as a whole. As a result, executives naturally tend to advocate corporate strategies that give their own division of the company a central role, and they strongly resist changes that reduce their own influence.
The job of the CEO is to make sure the company is pursuing a strategy that is good for the company as a whole, even if it’s bad for the interests of some individual executives. But in a 14-member committee, there’s no one to play that role. Committee members will defend their own turf. They’ll also seek to avoid ruffling the feathers of other committee members out of fear of retaliation.
This is a bad situation for any company, but it’s particularly bad for Uber, which faces some huge strategic decisions in the coming years. The company is still losing billions of dollars per year, and it’s facing looming threats from self-driving car technology. It needs a CEO to respond to these challenges effectively — shutting down failing experiments and shifting resources to new projects with more potential. Instead, Uber is going to be rudderless during some of the most challenging months it has ever faced.