Uber Is Divided Into Two Factions. They’re Both Wrong
The Uber investors who turned a blind eye to the company’s misdeeds for years are fighting a group that’s still in denial. This won’t end well.
By Max Chafkin
Bloomberg Businessweek
Bloomberg Businessweek
August 15, 2017
Forget the blockbuster trade-secrets lawsuit, the flaming SUV, and the many, many recent flubs, foul-ups, and unforced errors of the past six months. Uber is hiring.
Last month, my colleague Eric Newcomer reported that the troubled ride-hailing app maker had whittled down a pool of chief executive candidates into a shortlist that included former GE CEO Jeff Immelt as well as Meg Whitman, the current CEO of Hewlett Packard Enterprise (the HP without the printers). Lots of other high-level jobs are available, too.
Several weeks have passed since then, and Uber appears no closer to replacing former CEO Travis Kalanick. Whitman tweeted her regrets; Immelt is maybe still game. At some point, though, somebody will agree to run what still has to be regarded as one of the world’s most promising startups.
The trouble is that whoever takes over Uber will really be in charge of two companies. There’s the one made up of people who say they’re horrified by the scandals—including accounts of a culture of sexual harassment, possible obstruction of justice, and alleged theft of trade secrets—and who blame Kalanick. And then there’s the other Uber, which includes some investors and 1,400 or so employees who, rather amazingly, remain loyal to their iconoclastic former CEO and think he deserves a chance to turn the company around.
The fissure between these two cohorts, which has been forming for months, cracked wide open last Thursday when Benchmark Capital, Uber's main venture backer and one of Silicon Valley’s top VC firms, sued Kalanick. Benchmark seeks to strip the former CEO of three board seats he was awarded last year. Those seats could allow Kalanick, who we’ve been told has been trying to engineer his return, to undo his ouster and play a role at Uber.
This is all very strange. While boardroom spats are common at public companies, they’re almost unheard of in the rarified stratum of venture capital that Benchmark occupies, where “founder-friendliness” has been seen as almost obligatory. Even weirder are the circumstances. When investors awarded the board seats to Kalanick in June 2016, he already enjoyed de facto control thanks to his ownership stake—about 35 percent of Uber’s common stock, according to the complaint—and close friendships with several board members.
With that in mind, it’s not at all clear why investors saw fit to hand Kalanick even more power when they did. The suit says directors gave him the seats because they were tricked by his “material misstatements and fraudulent concealment.”
Kalanick’s spokesman has called last week’s allegations “without merit,” and, as Matt Levine pointed out, Benchmark’s argument seems self-serving. “The basic point [of the suit] is that Benchmark voted to give Kalanick more board seats because it thought he was a good CEO, but that he was secretly concealing the truth, which is that he was a bad CEO,” Levine wrote. “More likely, Kalanick failed to tell the board that he was a bad CEO, not as part of a devious fraud, but because he genuinely—and with some justification!—thought he was a good CEO.”
More importantly, I’d argue, Benchmark is being disingenuous when it implies there was no reason to question Kalanick’s leadership abilities at the time it voted to give him the board seats. The VC firm’s lawsuit cites a half-dozen news articles that speak to Kalanick’s leadership failures, but not a single one that was published before this year. That’s highly misleading.
It’s true that Uber’s past six months have been full of shameful revelations, but the previous years weren’t so great either. Let’s start with the tip-of-the-iceberg stuff: Long before Susan Fowler’s blog post detailing a corporate culture rife with sexual harassment, 2014 brought the GQ profile in which Kalanick referred to the company as “Boob-er” and the sexist marketing campaign in France that prompted an apology. Anyone paying close attention—such as, say, an Uber director—should have been asking questions by then.
The lawsuit also cites Uber’s use of a program, Greyball, whereby Uber allegedly worked to mislead police and regulators. That was a bombshell, but it also wasn’t entirely without precedent. For years, Uber had employed questionable tactics in battles with regulators and applications of user data. Benchmark partner Bill Gurley, who sat on the board at the time, was almost certainly aware of “God view,” which attracted a $20,000 fine in New York State as well as controversy in the press. That scandal took on a more sinister tone in late 2014, when one of Kalanick’s top deputies, Emil Michael, suggested at a dinner with journalists that Uber might seek to publish embarrassing information about the personal lives of Uber critics.
Michael apologized, and in the years that followed, Kalanick sought to rehabilitate his image. Gurley knows this too, because he was instrumental in that image campaign, frequently praising Kalanick in interviews and on Twitter. When I was writing a story about Kalanick in 2015, Gurley told me the CEO’s past missteps made him similar to Mark Zuckerberg and Bill Gates. These were, he said, “young entrepreneurs who were allowed to kind of say anything and do anything,” and Kalanick had matured. (Gurley didn’t respond to a request for comment for this column.) Today, of course, Gurley’s take seems like a terrifically bad misjudgment, at best.
The other side of this battle is no more sympathetic. On Friday, a group of Kalanick allies led by the investor Shervin Pishevar mustered to try to remove Benchmark from the board, criticizing the firm’s “fratricidal” behavior. Pishevar’s group is offering to buy out three-quarters of Benchmark’s stake, which would remove the firm’s voting rights and, assumedly, end the litigation. Uber, which did not comment for this story, is said to be considering this offer.
“Naturally, we share your concerns about the problems that the Company has confronted in recent months,” the investors wrote, “but we are greatly concerned about the tactics employed by Benchmark to address them, which strike us as ethically dubious and, critically, value-destructive rather than value enhancing.” In other words, the embarrassment caused by Benchmark’s lawsuit is more damaging than the alleged breaches that prompted it.
That’s nuts—and it’s also a tell. Pishevar’s group, like Benchmark, claims it’s doing what’s best for Uber, and I’m sure the investors think they are. But greed and opportunism seem to be at play, too, and this scramble for control makes clear just how badly Uber needs something else: Outsiders who aren’t tainted by its past.
Forget the blockbuster trade-secrets lawsuit, the flaming SUV, and the many, many recent flubs, foul-ups, and unforced errors of the past six months. Uber is hiring.
Last month, my colleague Eric Newcomer reported that the troubled ride-hailing app maker had whittled down a pool of chief executive candidates into a shortlist that included former GE CEO Jeff Immelt as well as Meg Whitman, the current CEO of Hewlett Packard Enterprise (the HP without the printers). Lots of other high-level jobs are available, too.
Several weeks have passed since then, and Uber appears no closer to replacing former CEO Travis Kalanick. Whitman tweeted her regrets; Immelt is maybe still game. At some point, though, somebody will agree to run what still has to be regarded as one of the world’s most promising startups.
The trouble is that whoever takes over Uber will really be in charge of two companies. There’s the one made up of people who say they’re horrified by the scandals—including accounts of a culture of sexual harassment, possible obstruction of justice, and alleged theft of trade secrets—and who blame Kalanick. And then there’s the other Uber, which includes some investors and 1,400 or so employees who, rather amazingly, remain loyal to their iconoclastic former CEO and think he deserves a chance to turn the company around.
The fissure between these two cohorts, which has been forming for months, cracked wide open last Thursday when Benchmark Capital, Uber's main venture backer and one of Silicon Valley’s top VC firms, sued Kalanick. Benchmark seeks to strip the former CEO of three board seats he was awarded last year. Those seats could allow Kalanick, who we’ve been told has been trying to engineer his return, to undo his ouster and play a role at Uber.
This is all very strange. While boardroom spats are common at public companies, they’re almost unheard of in the rarified stratum of venture capital that Benchmark occupies, where “founder-friendliness” has been seen as almost obligatory. Even weirder are the circumstances. When investors awarded the board seats to Kalanick in June 2016, he already enjoyed de facto control thanks to his ownership stake—about 35 percent of Uber’s common stock, according to the complaint—and close friendships with several board members.
With that in mind, it’s not at all clear why investors saw fit to hand Kalanick even more power when they did. The suit says directors gave him the seats because they were tricked by his “material misstatements and fraudulent concealment.”
Kalanick’s spokesman has called last week’s allegations “without merit,” and, as Matt Levine pointed out, Benchmark’s argument seems self-serving. “The basic point [of the suit] is that Benchmark voted to give Kalanick more board seats because it thought he was a good CEO, but that he was secretly concealing the truth, which is that he was a bad CEO,” Levine wrote. “More likely, Kalanick failed to tell the board that he was a bad CEO, not as part of a devious fraud, but because he genuinely—and with some justification!—thought he was a good CEO.”
More importantly, I’d argue, Benchmark is being disingenuous when it implies there was no reason to question Kalanick’s leadership abilities at the time it voted to give him the board seats. The VC firm’s lawsuit cites a half-dozen news articles that speak to Kalanick’s leadership failures, but not a single one that was published before this year. That’s highly misleading.
It’s true that Uber’s past six months have been full of shameful revelations, but the previous years weren’t so great either. Let’s start with the tip-of-the-iceberg stuff: Long before Susan Fowler’s blog post detailing a corporate culture rife with sexual harassment, 2014 brought the GQ profile in which Kalanick referred to the company as “Boob-er” and the sexist marketing campaign in France that prompted an apology. Anyone paying close attention—such as, say, an Uber director—should have been asking questions by then.
The lawsuit also cites Uber’s use of a program, Greyball, whereby Uber allegedly worked to mislead police and regulators. That was a bombshell, but it also wasn’t entirely without precedent. For years, Uber had employed questionable tactics in battles with regulators and applications of user data. Benchmark partner Bill Gurley, who sat on the board at the time, was almost certainly aware of “God view,” which attracted a $20,000 fine in New York State as well as controversy in the press. That scandal took on a more sinister tone in late 2014, when one of Kalanick’s top deputies, Emil Michael, suggested at a dinner with journalists that Uber might seek to publish embarrassing information about the personal lives of Uber critics.
Michael apologized, and in the years that followed, Kalanick sought to rehabilitate his image. Gurley knows this too, because he was instrumental in that image campaign, frequently praising Kalanick in interviews and on Twitter. When I was writing a story about Kalanick in 2015, Gurley told me the CEO’s past missteps made him similar to Mark Zuckerberg and Bill Gates. These were, he said, “young entrepreneurs who were allowed to kind of say anything and do anything,” and Kalanick had matured. (Gurley didn’t respond to a request for comment for this column.) Today, of course, Gurley’s take seems like a terrifically bad misjudgment, at best.
The other side of this battle is no more sympathetic. On Friday, a group of Kalanick allies led by the investor Shervin Pishevar mustered to try to remove Benchmark from the board, criticizing the firm’s “fratricidal” behavior. Pishevar’s group is offering to buy out three-quarters of Benchmark’s stake, which would remove the firm’s voting rights and, assumedly, end the litigation. Uber, which did not comment for this story, is said to be considering this offer.
“Naturally, we share your concerns about the problems that the Company has confronted in recent months,” the investors wrote, “but we are greatly concerned about the tactics employed by Benchmark to address them, which strike us as ethically dubious and, critically, value-destructive rather than value enhancing.” In other words, the embarrassment caused by Benchmark’s lawsuit is more damaging than the alleged breaches that prompted it.
That’s nuts—and it’s also a tell. Pishevar’s group, like Benchmark, claims it’s doing what’s best for Uber, and I’m sure the investors think they are. But greed and opportunism seem to be at play, too, and this scramble for control makes clear just how badly Uber needs something else: Outsiders who aren’t tainted by its past.
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