I conclude my blog post series on the Holder Report (Report) to the Board of Directors of Uber Technology, Inc. (Uber) where the Board asked Holder’s law firm, Covington & Burling LLP (Covington), to evaluate three issues: (1) Uber’s workplace environment as it related to the allegations of discrimination, harassment, and retaliation; (2) whether the company’s policies and practices were sufficient to prevent and properly address discrimination, harassment, and retaliation in the workplace; and (3) what steps the company could take to ensure that its commitment to a diverse and inclusive workplace was reflected not only in the company’s policies but made real in the experiences of each of Uber’s employees.
In prior posts, I explored the first two issues above and today I conclude by looking at issue 3, where it might lead going forward and what lessons can be garnered for the compliance practitioner. The public starting point for the collapse of the company was a simple blog post back in February by a former Uber employee Susan Fowler, who wrote about, “allegations of harassment, discrimination, and retaliation during her employment at Uber, and the ineffectiveness of the company’s then-existing policies and procedures.” I find this starting point to be significant in the consideration of risk management in the 21st century corporation as it is the first time a blog post wrought such changes in a corporation. To be sure, it was only the starting point but the underlying toxic culture at Uber was laid bare to the public in this most 21st century of communication tools. Every Chief Compliance Officer (CCO) and indeed senior executive and Board Director must understand that the days of corporate opaqueness are long gone. If one blogger can unleash such forces, it means that companies must be operated ethically, in compliance with laws and regulations and with transparency. Compliance also needs to be inculcated into start-ups far earlier than is usually done, where it is almost an after-thought.
One of the key questions I have been mulling over is whether Uber could have achieved its meteoric growth, mulit-billion dollar market cap valuation and industry leader without its frat-boy culture. By pushing the boundaries, Uber took on as an entrenched industry as there is literally across the globe, the taxi industry. In every city and country such industry is highly regulated and at least in the western world there are very high barriers to entry. Uber claimed there drivers were not cabbies and not subject to these barriers to market entry. When cities put regulations in place to attempt to control the company in their city, Uber simply out-maneuvered them. This is what happened in Texas where Austin set up regulations which Uber did not like so Uber simply got the more Uber-friendly Texas legislature to pass a law which said only the state could regulate ride sharing companies.
But Uber did not seem to ever get over its bad-boy attitude and grow up to act like a real company. Brooke Masters, writing in the Financial Times (FT) Companies column, in a piece entitled “In corporate culture, as with fish, rot starts at the head”, said the Report “shied away from asking the most important question: how did Uber grow to be the world’s most valuable private technology company, worth $62.5bn at the last fundraising, without addressing some of these issues?” She answered her own question with following, “as with fish, corporate rot starts at the head. Since 2009, Mr Kalanick has led the company with a hard-driving, take-no-prisoners approach to everything, from competitors and regulators to his own staff.”
After the incidents detailed in the Report and Chief Executive Officer (CEO) Travis Kalanick’s well known outbursts and public meltdowns, there was even one more event to demonstrate just how rotten Uber is at the top, even now. On Tuesday of last week, only seven minutes into the Board’s presentation of the Report, the Board’s full acceptance of the Report’s recommendations and steps going forward to Uber employees, the New York Times (NYT) reported the following exchange took place, “In front of employees, the board member Arianna Huffington talked about how having one female director typically leads to more female directors. David Bonderman, a fellow board member and a founding partner at the private equity firm TPG, replied that adding more women to the board would result in “more talking.”” The article went on to note, that the “remark left people aghast, according to those who were there”. Sexism is not much more public and repugnant than Bonderman’s remark. He resigned from the Uber Board of Directors the next day.
The starting point for the turnaround of the company was the removal of founding CEO Kalanick, who took an indefinite leave of absence after the release of the Report. Unfortunately for the company he did not appear to cede controls as he appointed no person to fill his role rather, as Masters noted, “Instead, all 14 of his “directs” will share responsibility and he remains “available as needed for the most strategic decisions”. He clearly plans to come back: “If we are going to work on Uber 2.0, I also need to work on Travis 2.0.””
Based upon the Covington investigation some 20 employees were fired world-wide, including the India country manager who had surreptitiously obtained the medical records of a woman who alleged she was raped by an Uber driver. The departure also included one of Kalanick’s closest confidants, Emil Michael, the (now former) Senior Vice President of Business at the company. Further, Uber currently has no formal No. 2, no Chief Operating Officer (COO), Chief Financial Officer (CFO), General Counsel (GC), Chief Marketing Officer, Senior Vice President of Engineering or Chief Diversity Officer. It probably should go without saying the company does not have a CCO or anyone who might be responsible for ethics at the company.
As is often the case, it is the editorial board at the FT which has some of the best advice for businesses, both in the UK and the US. In a piece entitled “At Uber, counting the cost of winner take all” the paper said, there are three groups which can influence the behavior for Uber going forward: the company’s owners, largely Kalanack and his cronies; the Board of Directors, think about Bonderman at this point; and its customers, IE., you and me. As to the final group, we can vote with our pocketbook by changing over to other ride-sharing companies such as Lyft.
Most importantly, the Uber ownership structure is a forbearer of ownership being concentrated in the hands of a few key founders. If they do not put compliance and ethics into the ethos of the company at an early phase, they cannot be forced to do so by shareholders or investors. This anomaly will make independent Boards of Directors more critical for getting such companies ready to go public. For if such companies cannot meet the requirements of a public company, everyone loses.
Private companies and their Boards must prepare earlier to meet the basic requirements of a public company.Click to tweet
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© Thomas R. Fox, 2017