In the last three months, Uber has been battered by a seemingly endless series of scandals: perceived strikebreaking outside of JFK airport; a backlash for joining President Donald Trump’s advisory council; a loss of 200,000 users; accusations of sexual harassment; a broken human resources department; allegations of trade-secret theft; law enforcement evasion; stalled self-driving efforts; and finally a salacious story involving Uber execs, Korean escorts, and karaoke. The accumulation of incidents has painted Uber as a win-at-all-cost place with little regard for its workers’ well-being.
CEO Travis Kalanick is believed to be the seed of this mentality, which begs onlookers to inquire: Why does Uber keep him?
That question continues to linger as pundits call for his removal. Any one, and certainly any two, of these violations could have led to the company’s CEO being dismissed. Even in Silicon Valley, where the cult of the company founder reigns, the last two years has seen founders pushed out for gaming the regulatory process and creating noxious workplace environs.
Last year in particular saw several high-profile departures. Zenefit’s CEO Parker Conrad stepped down after reports of unlicensed insurance sales representatives. Cofounder Tony Fadell left Nest amid rumors he fostered a difficult company culture. Outside of Silicon Valley, Roger Ailes departed Fox News following explosive allegations of sexual harassment and abuse. And, Wells Fargo’s John Stumpf was pressed to resign when it was discovered employees were opening fraudulent bank accounts under existing clients to meet aggressive sales goals.
And yet, Kalanick remains in charge. While this doesn’t sate our hunger for public execution, it may be better for the business to have Kalanick stay put at the top.
Firing CEOs Is Bad Business
A 2002 study from the Harvard Business Review shows there is no measurable gain from firing a CEO and replacing them with a new one (particularly an outsider). The article looked at the top 500 corporations for 1997 and 1998 and found that companies that had fired their CEOs gained a trivial bump in earnings in the short term, but suffered on stock returns two years after the fact. More compelling were performance comparisons between companies that had dismissed a CEO versus those that naturally cycled one out due to retirement or illness. Companies where a CEO had been forced out trailed behind on operating earnings, asset and stock returns. The author notes, “I couldn’t find a single measure suggesting that CEO dismissals have a positive effect on corporate performance.”
Since 2012, the number of CEOs to exit top 500 companies has climbed upward slowly and deliberately, according to board intelligence provider Equilar. In 2012, 48 such CEOs departed; in 2013 that figure creeped up to 51; and in 2016, that number rose to 59. We can’t yet know what departures from more recent years will mean for each company’s future, but CEO turnover at other institutions may provide some insight.
One of the most prominent companies to cycle through CEOs is Yahoo, which is still in the process of being sold to Verizon for $5 billion. Since its start, the company has had six CEOs—all of them were ousted. No one has been able to restore Yahoo to its former glory. For much of the last 20 years, the stock price has rolled back and forth from less than $10 to just above $40 per share—less than half its 1999 value. No doubt each chief executive has made his or her own mistakes.
But it’s also possible that they didn’t have enough time at the helm to renovate the internet portal’s business. Not only do turnarounds take time to pull off, there are also market factors that are outside the control of whoever is in charge. And while six years may seem like enough time to usher in change, traditionally CEO roles have been held for longer. In 1984, more than a third of CEOs held their post for more than 10 years, according to a report from the New Yorker on why CEOs are more likely to get the ax these days. The writer, James Surowiecki, went on to point out that activist investors (like Yahoo’s Dan Loeb and Carl Icahn) are partly to blame for this phenomenon. Driven by their own mandate to seek out fat returns, these board members can hurt long-term growth.
Kalanick’s Talent For Growth
Unlike Yahoo, Uber’s problems are largely with its company psyche, not its ability to generate revenue. For all the complaints against Uber—its male-dominated company culture, flimsy human resources department, and disdain for regulators—Kalanick has kept the company going and growing.
Uber continues to draw in more riders and drivers. On a call with journalists in March, head of North American operations Rachel Holt insisted the business was doing better than ever. “In [the U.S.] we’ve grown faster in the first 10 weeks of 2017 than in the first 10 weeks of 2016. Looking at less mature regions like Latin America, trips were up 600% in February, year on year,” she said.
“It could be significantly detrimental to the company’s growth path and market expansion to have a leadership change,” says says Arun Sundararajan, author of The Sharing Economy and professor at NYU Stern Business School. “What perhaps is on the mind of the board is that he’s also driven an unbelievable pace of growth and a tremendous amount of fundraising and market leadership position in numerous countries around the world,” he adds.
Kalanick’s narrow focus on brisk expansion has succeeded in propelling the company from a fledgling Silicon Valley startup to a global company valued at $70 billion. In less than seven years, Uber has matured from a handful of employees operating in San Francisco to 12,000 workers globally (not including its network of 1.5 million drivers) offering its ride-hailing and delivery services in over 70 countries and 450 cities. Not only has Uber catalyzed strong momentum, but it’s done so while facing regulatory challenges all over the world. It has been banned several times over, in places as disparate as Newark, New Jersey, and Berlin.
And then there’s the board: Kalanick is fairly entrenched as far as CEOs go. According to a report from Backchannel, the board can’t fire him thanks in part to his allotment of super-voting shares. The only other people on the board to have super-voting shares are cofounder Garrett Camp, Uber’s SVP of global operations, Ryan Graves, and two investors. There are four empty board seats that have super-voting shares and should Kalanick face opposition he could fill them with supporters. Having a CEO with so much power isn’t always good for business, because it empowers them to act in their own interest rather than that of the company.
For Kalanick this tethering of his name to the company serves to keep him as captain in even the choppiest of waters—like Waymo’s lawsuit against Uber’s self-driving truck outfit Otto. This too could be fine. If the lawsuit upends Uber’s business as some are suggesting it might, then would a new CEO really be able to save the burning ship?
What To Do About Bad Boy CEOs
In the case of Kalanick, what is most disturbing is that his effective and ruthless business tactics have created a company with values that don’t jibe with the mores of either the tech media or the denizens of Silicon Valley. It reminds me of another complicated company, known for swallowing up market share like a mushroom cloud: Amazon.
The Everything Store has easily survived the reports about poor work culture inside its corporate offices and a lack of care for its warehouse workers and contractors. Uber isn’t ignoring the negative stories either. In fact, it’s apologized and promised to do better and is hiring a co-operator to help lead those efforts. While these are positive moves, separating Uber’s salient business practices from its appalling culture may prove more difficult. But Kalanick doesn’t have to pull this off, he only has to give the appearance of doing so.
As a colleague reminded me over dinner recently, businesses don’t have to be ethical, they only have to make bottom lines. It’s usually the government’s job to step in and prevent abuses that arise from vigorous tactics. But in an industry that regularly eschews regulation in the name of innovation, what’s to be done about bad boy CEOs?