Business Level 6 Study Materials

It’s about time to talk about Uber (Part 2)

Missed what has been happening at Uber? Don't worry: heres a short summary of everything.

A while (long while) back, we wrote an article about what was happening with Uber, the popular ride-sharing service. Travis Kalanick, the previous CEO of Uber, stepped down and was replaced with Dara Khosrowshahi. However, the story has not ended quite yet. And boy oh boy, things take a turn towards the crazy. This one is a long one.

Uber and Travis Kalanick are both back in the news. And today, we will talk about what has been happening at Uber and what is happening moving forward.

Arianna Huffington becomes an influential player on the Uber Board

Arianna Huffington is a Greek-American businesswoman who was the co-founder of the American online news site The Huffington Post back in 2009. On April 27, 2016, Uber announced that Huffington was joining Uber’s board of directors.  A board of directors is a recognized group of highly influential individuals who have a voice in deciding how a company should be run and managed. While not clear at the time, it seemed that Huffington joining Uber’s board of directors would be very important the following year.

It was clear that Kalanick saw Huffington as a close friend, and as Maya Kosoff at Vanity Fair put it, Huffington was someone graced with an emotional intelligence that worked as a “yin to Kalanick’s brashly arrogant yang”. In part, Huffington would serve as an important voice in helping change Uber’s public image.

One strong example of this came reports from the Washington Post that billionaire and fellow Uber board member resigned due to a joke made at a company event on sexual harassment. According to the report, the comments came when Huffington was explaining the benefits of having more female representation on Uber’s board of directors.

“There’s a lot of data that shows when there’s one woman on the board, it’s much more likely that there will be a second woman on the board,” said Huffington, according to several people who heard the remarks.

“Actually,” Bonderman interjected, or quickly added, “what it shows is, it’s much likely there’ll be more talking.”

“Oh, come on, David,” Huffington said, in between awkward laughs. Addressing the crowd, she added, “Don’t worry, David will have a lot of talking to do, as well.”

And sure enough, Bonderman soon left the company, writing in an email that was later sent to company employees “I want to apologize to my fellow board member for a disrespectful comment,” calling it “inappropriate.”

According to Vanity Fair, however, it had apparently been Kalanick’s decision to encourage Bonderman to resign. However, at around the same time, Kalanick took a leave of absence on June 13th.

Huffington had at this point become an important confident of Kalanick and helped become the public face of a new Uber, whether it was becoming part of a three-person team that oversaw sexual harassment issues, or in defending Kalanick multiple times in public. She also apparently encouraged Kalanick to consider stepping down when he faced a revolt from shareholders (which is the next chapter in our story):

Kalanick steps down

After taking an indefinite leave of absence from the company, Travis Kalanick stepped down as CEO on June 21st. During the indefinite leave of absence, Kalanick made clear that he was leaving the company for some time, but would eventually return back to it, like many scandal-ridden CEOs of companies may choose to do. In short, he was still part of Uber, even though he was not part of the day-to-day operations. However, it looks like things would not quite happen like that. According to the New York Times, five shareholders of the company staged a shareholders revolt and forced Kalanick to resign. A shareholders revolt (sometimes also described as a “shareholders rebellion”) occurs when influential people who own parts of the company through stocks came together and demand the company take specific action, usually either forcing the company to make an important decision, reverse an important decision, or to remove the leadership of a company.

It’s important to note here that Kalanick had recently lost his mother and father in a boating accident. And had seen his position at Uber completely crumble due to embarrassing controversy after controversy. This resignation was a the last very painful icing on the cake.

Uber, however, started going into hyperdrive in changing itself around. Uber found a new CEO in Dara Khosrowshahi, the former CEO of Expedia.com (see: 6 things to know about Uber’s CEO pick Dara Khosrowshahi from The Washington Post).

Uber starts negotiating with SoftBank, and further tries to remove Kalanick.

In September of this year, Uber began negotiating with SoftBank, a Japanese multinational telecommunications company, as well as Benchmark Capital to invest up to $10 Billion ($10,000,000,000) in Uber. It would represent the largest private stock sale ever (as I write this, it has not been officially settled yet).

However, things are not that simple. Although Kalanick had stepped down as the CEO, he still had immense influence in part due to the number of shares of stocks he had. Which in part meant that he had a lot of voting power on the board of directors, despite being essentially out of the company. He owns approximately 16% of the voting shares on the board of directors, making him still the most powerful voice on the board of directors.

Uber and SoftBank agreed to a guarantee in writing that SoftBank would reject putting Kalanick back as the CEO, as well as block his appointment as chairman of the board or head of one of its subcommittees, or a group of people focused on specific problems within an organization, according to Bloomberg News. What this means is that although Kalanick still has influence in the company, both Uber and SoftBank would try to limit his power as much as possible.

As you can imagine…Kalanick was not too happy about this.

Kalanick strikes back

In response to these new developments with SoftBank, Kalanick decided to act. On September 29th, Kalanick appointed Xerox chairwoman Ursula Burns and former Merrill Lynch CEO John Thain to the company’s board of directors. The appointment of Thain and Burns filled in two vacant seats left by Kalanick was seen as acting in bad faith; Benchmark Capital alleged that Kalanick promised to give up those seats back in June when he stepped down, but never followed through on that promise.

All of this new drama in the public light was a major headache for new CEO Dara Khosrowshahi, who had been working hard on repairing Uber’s reputation since coming to power. Stating it was a “complete surprise,” Khosrowshahi said that he was disappointed by Kalanick’s decision.

In response, it was reported that the Uber board of directors planned on meeting to discuss among other things, completely reforming how the board of directors operated in order to cut Kalanick’s power. It was willing to go with the most extreme option; blowing itself up.

A deal is reached; Uber will have an IPO in 2019.

And now here we are; on October 3rd a “grand bargain” was reached. In it, SoftBank would take a 17% stake (or the percentage of its stock that you can own) in Uber. All members of the board now have one vote, which cuts Kalanick’s ability to influence the company through is voting power. There will now be 17 members of Uber’s board of directors. Uber will go public in 2019, so people can buy and trade Uber stocks. And lastly, any new CEO must have two-thirds of the board’s support on any decision that he or she makes, until Uber goes public in 2019, according to Business Insider.

All of this seems to have left many people happy. Kalanick stated that “…the Board came together collaboratively and took a major step forward in Uber’s journey to becoming a world class public company,”

However, it seems one shareholder was not. Shervin Pishevar declared this deal was terrible, saying it was “essential robbing loyal employees, including the more than 200 early founding Uber employees and advisors, of their hard earning shareholder rights worth billions in value”. Pishevar declared that he would be filing a lawsuit against Uber soon. 

So it seems the story of what’s going on at Uber is not quite over. I guess an Uber episode part three might be in the future.

Vocabulary

board of directors – (phrasal noun) a group of individuals within a company or organization who have special powers to control the organization
to interject – (v.) to quickly insert. Often used when talking as in “If I could interject,” meaning “if I could add an important fact or detail in”
indefinite leave of absence – (phrasal noun) a long period of separation from one’s company or place of work. Although one still works there, they will continued to be paid. This might be because of health concerns or behavioral issues that cannot be solved in the short term
definite leave of absence – (phrasal noun) similar to an indefinite leave of absence, however there is a set period of absence.
scandal-ridden – (adj.) to have lots of scandal
shareholders revolt / shareholders rebellion – (phrasal noun) when shareholders of a company overthrow management of a company or force a company to revise it’s decisions making process.
hyperdrive – (adj.) to work extremely hard
subcommittee – (n.) a smaller committee in an organization that is dedicated to fixing or addressing problems.
stake – (n.) the percentage of a company’s stock that one can own.

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