Why it’ll be hard for Uber to fire CEO Travis Kalanick, no matter how bad things get

Where technology and economics collide

Since the start of the year, Uber has been rocked by a dizzying array of controversies, any one of which should be enough to put its CEO’s future in jeopardy: allegations of sexual harassment of women, a lawsuit over alleged theft of technology from Google’s Waymo self-driving car unit, a federal criminal investigation for allegedly misleading local regulators, and a backlash from drivers angry about low pay and poor working conditions.

On Sunday, Uber’s board met to discuss the results of an in-depth probe, led by former Attorney General Eric Holder, into the allegations of workplace misogyny. According to media reports, the board is also discussing whether to ask Uber CEO Travis Kalanick to take a leave of absence as the company tries to regain its footing.

An ordinary CEO facing this many controversies — plus billions of dollars in losses — would have to worry about losing his job. Not Kalanick, apparently. Uber’s corporate structure makes it difficult for board members to fire him.

That structure is unusual in the business world but popular among big tech companies, and it could prove a huge impediment for Uber’s turnaround.

Kalanick’s shares — and those of a few other early Uber insiders — get 10 votes per share. As a result, three men — Kalanick, co-founder Garrett Camp, and Uber’s first employee and CEO, Ryan Graves — own a minority of the company but control a majority of the voting rights. As long as Kalanick maintains the confidence of Camp and Graves, his job is secure.

A number of major technology companies — including Google, Facebook, and Snap — have the same kind of founder-controlled structure. The success of Google and Facebook have convinced many people in the technology world that it’s a good idea to insulate a company from investor pressures in this way. Advocates argue that founder-controlled companies are free to focus on the long term without worrying about pressure from Wall Street to deliver quarterly profits.

But Uber’s struggles illustrate the danger of insulating the CEO from accountability to investors. Uber has faced an exodus of talent in recent months, with at least nine prominent people leaving the company this year alone. The latest is Emil Michael, a top Kalanick deputy who announced his resignation this morning under pressure from Uber’s board.

But the natural way to address a problem like this would be to replace the CEO. Putting a fresh face at the top would send a strong signal that the company was determined to change its culture, and would make it easier to recruit new executives who might have been wary about serving under Kalanick.

But Kalanick has little incentive to fire himself. And without the power to fire Kalanick, Uber’s board doesn’t have much leverage to push him to make needed changes.

Uber is about to receive a major report on sexual harassment

At the top of Kalanick’s agenda for this week is the release of Eric Holder’s report on Uber’s workplace culture. According to media reports, the company’s board was briefed on the report on Sunday, and the findings will be released to Uber employees on Tuesday.

If Holder’s report confirms ex-Uber engineer Susan Fowler’s charges about rampant misogyny at the ride-hailing giant, Uber will face pressure to make significant changes in response. Last week, it fired 20 employees after seeing the results of a second investigation into sexual harassment at the company.

On Monday, Emil Michael announced his resignation. Michael is a polarizing figure — Kalanick faced pressure to fire him in 2014 after Michael mused (in the words of BuzzFeed editor Ben Smith) about “hiring a team of opposition researchers to dig up dirt on its critics in the media.”

According to Johana Bhuiyan and Kara Swisher of Recode (a Vox.com sister site), Michael was one of several Uber executives who visited a South Korean escort bar in 2014. He was “also involved in an incident where an Uber executive he managed directly named Eric Alexander obtained the medical records of a rape victim in India.” According to Bhuiyan and Swisher, Holder examined these and other incidents in detail. As a result, Michael came under pressure to tender his resignation.

2017 has been a difficult year for Uber

Since the start of 2017, Uber has faced a number of other controversies:

  • It is facing a federal criminal investigation over “Greyball,” software designed to mislead local regulators in order to prevent them from enforcing municipal taxi regulations. Uber reasoned that if city officials couldn’t identify Uber cars, they couldn’t write Uber drivers tickets for operating unlicensed taxi services. So it identified accounts belonging to government officials and provided them with a version of the Uber app that showed fake car information.
  • Uber was sued by Waymo, Google’s self-driving car unit, for allegedly stealing technical details for a key Waymo-designed sensor. Last month Uber was forced to fire Anthony Levandowski, a star engineer who left Waymo last year and started a self-driving truck company that Uber bought for around $700 million. Uber was forced to fire Levandowski after he invoked the Fifth Amendment rather than turn over documents he allegedly stole from Waymo. The judge has also referred the case to federal prosecutors.
  • In January, Uber agreed to pay $20 million to settle Federal Trade Commission allegations that it had overstated likely driver earnings. In May, the company admitted it had miscalculated driver pay in the New York area, costing thousands of drivers an average of $900 each. A February video showed Kalanick lecturing a driver about “responsibility” after the driver complained about declining fares — prompting Kalanick to publicly apologize. “To say that I am ashamed is an extreme understatement,” he wrote.

Looming on top of all that is Uber’s challenging business situation. The ride-hailing company lost $2.8 billion in 2016 and another $708 million in the first three months of 2017.

And there’s a real danger that Waymo, Tesla, or another rival could develop fully self-driving technology before Uber, which Kalanick himself has described as an existential threat to the company.

“If we are not tied for first, then the person who is in first, or the entity that’s in first, then rolls out a ride-sharing network that is far cheaper or far higher-quality than Uber’s, then Uber is no longer a thing,” Kalanick told Business Insider last year.

A new CEO could help Uber turn the corner

As a company, Uber still has some major strengths. It has about $7 billion in the bank. It has a globally known brand and loyal customers in hundreds of cities around the world.

But Uber also has a serious morale problem among its employees. Its bad reputation has caused some employees to head for the exits and is making it difficult for Uber to recruit replacements. That, in turn, could create a downward spiral, as an understaffed and demoralized company fails to execute well, leading to further bad press and even lower morale.

The normal thing a company does in a situation like this is to change CEOs. But to get the full benefits, the company has to actually put a new CEO in charge. That’s the only way to give wary employees and potential hires confidence that the company is turning over a new leaf.

Instead, Kalanick seems to be hoping he can get some of the benefits of a CEO change through less dramatic measures that still leave him in charge. After he was caught on video lecturing an Uber driver, he wrote that “this is the first time I’ve been willing to admit that I need leadership help and I intend to get it.” He has been looking for a chief operating officer to help him reform the company. And now Kalanick is reportedly considering a leave of absence (in addition to Uber-related stress, he is grieving the recent death of his mother in a boating accident).

But all of these plans have one thing in common: They ultimately leave the reins of power firmly in Kalanick’s hands. And a temporary leave of absence could actually create more chaos for Uber. Kalanick’s temporary replacement would be unlikely to have the clout to institute major reforms. Recruitment might become even more difficult, as would-be hires would worry about their standing once Kalanick returned.

Sourse: vox.com