An Uber lesson

Start-ups can't give short shrift to corporate governance

Travis Kalanick has stepped down as the CEO of Uber, the popular taxi-hailing app, after a shareholder revolt of sorts. Last week, Mr Kalanick had offered to go on an indefinite leave of absence from Uber, which he had founded in 2009, leaving the day-to-day management to a committee of executives. But that was clearly not enough to placate irate shareholder-investors. According to reports, five investors, who together own 40 per cent of the shareholders’ votes in Uber, demanded Mr Kalanick’s resignation. He will, however, continue to serve on Uber’s board of directors. The exit is yet another instance of how a start-up ignored corporate governance in its pursuit of growth and valuation, and flouted ethical norms while hiding behind notions of disruption and innovation.

 
The trouble inside the company came out in the open early this year when a former engineer claimed that she was sexually harassed and discriminated against at Uber, and how the human resource department repeatedly rebuffed her plea for redress. This opened the floodgates for more such complaints and added fuel to the #DeleteUber campaign on social media. The work culture at Uber, valued at $70 billion, has been under question for a while. Several labour organisations insist that Uber uses unfair labour practices. They point out that Uber classifies its drivers as independent contractors and not employees, which deprives them of sundry benefits. There have also been cases of sexual assault on passengers, which some activists have said happened because of insufficient background checks on drivers. Uber has countered this by saying its checks are sufficient and that it is not liable for the actions of contractors. In some cases, it has settled cases without admitting any wrongdoing.

 
That’s not all. There have been accusations that employees have used some features on the app to track the movements of celebrities, politicians and journalists. Earlier this month, a woman who was raped by her Uber driver in Delhi in 2014 filed a lawsuit against the company and its three executives, including Mr Kalanick, for obtaining and mishandling her medical records. Uber is also being investigated in the United States for using a feature in the app to deceive regulators who were trying to block its service. Uber undertook some rearguard action, it had removed several people and started the hunt for a COO, but clearly the investors wanted more than that.

 
Silicon Valley start-ups are known to challenge conventional wisdom all the time. That is the culture on which they thrive. However, this cannot happen at the cost of good corporate governance. But the trouble is, and this is not happening for the first time, that nobody seems to care about governance issues as long the company keeps making money and its valuation keeps soaring. Things change dramatically when investors and shareholders realise that they may be hit with losses. For instance, if Uber’s valuation is marked down, investors could lose billions of dollars. Now, all of a sudden, Uber’s shareholders have gone into a huddle asking for better oversight by means of “truly independent directors”. But much of this grief could have been avoided if corporate governance received adequate attention earlier. That is the lesson from Mr Kalanick’s exit to everyone, especially start-ups.