Uber Has a Long Road Ahead Thanks To The Board of Directors

The venture capitalists at Benchmark turned a public relations mess into a succession nightmare. Did they do the right thing?

Uber’s former CEO, Travis Kalanick, thought he had everything under control. The legendary founder brought the company to $70 billion in market cap while it was still private. He had voting control. The board was in his pocket. It’s true there was a bit of a regulatory mess, and a few unhappy female employees, but those things come with the territory, right? Tell the board you’re putting in the right team and it’ll get fixed. Fire a few jerks. What’s not to love?

Kalanick’s colossal miscalculation wasn’t about corporate governance. He was a serial entrepreneur who understood the value of a venture capital board of directors. They help raise money, introduce partners, and stay out of your business. At the pre IPO stage, they fall asleep soon after figuring out how many billions they’ve made from the latest funding round.

During this period, a time bomb was ticking that no one heard, not Kalanick, not the board. It was the shadow side of social media’s awesome power to connect. It now has the power to upend the high and mighty with a single, well-placed post. It also is totally uninterested in any counterfactual claims, no ‘my side of the story’.

There was a second matter. As German cleric Thomas ‘a Kempis, might have said, “boards propose and the CEO disposes.” Over the past 10 years, due to the Great Recession, politicians convinced the country that banks and therefore, all of business, was to blame for the chaos. Power abruptly down shifted, and today the only thing that matters is public opinion. When it does not like what it sees an alarm goes off, and hitting the snooze button just delays the wake up call.

These two fundamental changes, social media backlash and an anti-bigness, anti-business bias, arrived at Uber’s doorstep at the same time. So Uber acted fast to put a diversion in place. Bring in a high paid consultant with progressive credentials like Eric Holder and then hold a firing squad for 20 people. In the old days that would have done the trick.

But today, corporate crises don’t come in volleys like canon fire of the Revolutionary War. They gather and attack at once like a swarm of killer bees powered by a new Queen, social media. It overwhelmed the company’s immune system and Kalanick’s base of support withered. Employees, drivers, customers, and board of directors suddenly grew short memories. His value was judged by the most recent headline and he became the face of the company’s problem, the worst outcome of all.

The board of directors had no choice but to take control, but it was clear they didn’t have a handle on things. That is one reason why the company is leaderless today and given the state of things at Uber, may be for months to come.

The succession plan for the Uber board was a simple one: grow the company’s value and you’ll never need to contemplate one. It created its own cognitive bubble and when things went awry, it burst. The board’s succession plan turned out to be simply to succeed. In ancient days, this condition was called an interregnum, the holding period between kings. These scenarios often ended in disruption of empires such as the Roman or Ottoman or World Wars or both.

This is why business leaders must start asking the right questions and evaluating if they have the right skills and if their board is on top of things so, unlike Uber, they will be better prepared for a long road ahead.

“Our Core Competency Is Knowing We Don’t Know The Future.” — Charlie Munger, partner of Warren Buffett

Uber’s Corporate Governance FAQs

Will Sheryl Sandberg become CEO of Uber Technologies? No. Why would she? What can they give her other than the title? The stars are in line in her current role as Mark Zuckerberg’s #2 and @Facebook COO. In five years she could run for President. People love the simplistic narrative of a savior CEO but just ask Ron Johnson at JC Penney and Marissa Mayer at Yahoo how well that worked out. Uber’s future due to the board’s precipitous actions is uncertain at present and it is an unhappy culture. Why take that on?

Was social media the primary factor? Yes. The new sheriff in town has an iPhone in her holster. Uber’s mistakes were serious. But without social media, problems would be solved one at a time, instead of a swarm.

Social media is a slot machine that induces people who are not ordinarily outspoken into making inflammatory statements (the bet) they would never voice in public. Groupthink impels others to follow (make side bets), media picks up (bells ringing), and turns into public display. Business leaders aren’t prepared, even those who should be.

Does the leader have to pay for middle management mistakes? Yes. Mistakes at Volkswagen, British Petroleum Wells Fargo all demanded the CEO’s head. Perhaps it is society’s way of getting around a lack of criminal convictions for negligence. There is also an anti-authority mania going around. We used to hold CEOs in the same esteem as Generals, now we think of them as we do politicians.

Can a CEO get smarter about these things? Yes. Jeff Bezos brought in a personal coach @Amazon to help him with interpersonal skills. Mark Zuckerberg talked up Universal Basic Income at Harvard. Keep smiling.

Was firing Kalanick a sign of board dysfunction? Yes. This was a corporate governance failure. The devious way the board removed Kalanick reflected a lack of good relations at the board level, and they resorted to ‘behind his back’ scheming to pull it off. That will leave scars.

Was it a Steve Jobs and John Sculley thing? Yes. Stubborn, aggressive founders like Jobs and Kalanick require some deference especially when the message is change or leave. What was lacking at the board level was a non executive chairman with a strong relationship, clout and influence with the CEO.

Was bringing in Eric Holder a good idea? No. The Holder report (see full report below) shames the company when a few bad apples were the problem. It is injustice misapplied. The report itself is a boilerplate rehash of corporate governance recommendations that a legal intern could have written. A total waste of time and money (estimated at $10 million+).

Did the board make this too public? Yes. Board directors should refrain from any commentary during a crisis, including the one by Arianna Huffington, in a call with reporters, “put very simply, change starts at the top.” When boards go public with dirty laundry it only inflames those with an agenda to change the company for their own purposes.

Did the board have the right directors? No. Not for what the company became, an sumo sized startup with public company metrics. Given Uber’s size, this was a private company but in the mold of Bechtel. The famed architectural and design firms boasts no fewer than six former global chiefs, all hands on operators, familiar with the problems of large, complex enterprises. The Uber board ran it like a startup. In reality, it was already a very public company.

Was the company too decentralized? No. According to Jeff Bezos: “A hierarchy isn’t responsive enough to change,” he said. “I’m still trying to get people to do occasionally what I ask. And if I was successful, maybe we wouldn’t have the right kind of company.”

Were the venture capitalists guilty of hubris? Yes. In an interview, the Benchmark VC’s who fired Kalanick were quoted by Kara Swisher in Recode: “Not to toot our own horn, but being super relevant in your mid-30s and having five-plus years of venture investing is the dream scenario.” Unfortunately, their five plus years weren’t super relevant to overseeing a company with Uber’s problems.

Were Uber’s problems unique? No. Call it the law of big numbers. If you run a company like Uber with that is growing as fast, you are likely to have a matrix of problem sets. Warren Buffett says Berkshire is as big as the City of Omaha, and there are crimes in Omaha every night. It follows, he points out, that just as surely someone among Berkshire’s 330,000 employees is also doing something wrong.

Should the company have IPO’d sooner? Yes. If it were a $60 billion public company, the board would be composed of people who were more astute to complexity, social activists, and the issues that dog great companies. They would have changed CEOs earlier or had Kalanick’s back and forced him to change. Being private can delude managers into thinking their behavior is private too.

Was the board guilty of incremental thinking? Yes. This was a case of repeal and replace (the CEO) gone wrong. Eventually they had to replace but continued attempts at repeal only infected the C suite, lowered morale, and caused a rupture.

Will Kalanick’s exit help? Yes. But one could also claim that had he stayed around, the news feed would have moved past this and the result would be the same, minus a lot of distraction and volatility.

Is Kalanick the comeback kid? Yes. I’m reaching a bit here with the suggestion he might return as CEO after wandering around the wilderness like Moses. But there are several scenarios that make it realistic: the IPO could force him back or if the organism rejects a weak successor. After all, Kalanick is staying on the board and has voting control.

One of the smartest angel investors I know, Zach Coelius, says, “Why not? Anything’s possible in the case of Uber.”

Very Jobsian.