2017 Second Quarter
Uber and Tone from the Top
By Stan Silverman

Lessons for boards from Uber scandals

Uber is known for its very aggressive, only-the-strong-survive competitive culture. But that tone, set largely by the company’s co-founder and CEO Travis Kalanick, may have contributed to the ride-hailing powerhouse’s recent woes.

But don’t just blame the top dog. When tone and culture fall short and cause harm to Uber’s reputation and spark legal issues, it becomes a board issue.

On Feb. 19, Uber engineer Susan Fowler published a blog outlining her experiences and those of other women regarding sexual harassment within Uber. Fowler also reported that many women were leaving Uber because they faced a hostile work environment.

Then came a The New York Times report that Uber is using a program that identifies law enforcement officials hailing Uber drivers in cities where Uber had not received regulatory approval to operate. To avoid detection and to make it more difficult for law enforcement to build a case against Uber, drivers were instructed not to pick up those riders identified as law enforcement officers.

And late last month a story in unearthed reports Kalanick visited a Seoul, South Korea, escort/karaoke bar in 2014 with several employees, including a female who  complained to human resources. One could certainly challenge the wisdom of Kalanick’s decision visit the bar. For all leaders optics, as well as substance, matter.

The next chapter

All this led to a decision by Uber’s management to bring in a Chief Operating Officer to help Kalanick “write the next chapter” for the company, according to a recent article in The Wall Street Journal.

Indeed, the problems in the first chapter set a bad tone. The company’s management gave a green light to operating before receiving regulatory approval and using a tool to avoid detection, and that sends a message to employees that pushing the legal and ethical boundaries is okay.

How will Kalanick know where his thousands of employees around the world will draw the line? 

Every CEO should know that it is only through their tone at the top and organizational culture that employees will know how to conduct themselves. If the CEO can’t set an effective tone, that’s where the board must step in.

What boards should do

There are number of things that boards should do to avoid incidents that damage the reputation of the company:

  • Recognize that the skills possessed by the entrepreneurial founder are not the same skills needed to lead the company after it is established. If the founder CEO doesn’t develop leadership skills, the board needs to provide an outside coach or consider whether he or she should be replaced.
  • Assess the CEO and the culture he or she brings to the organization in addition to assessing the performance of the CEO on growth and cash flow/earnings objectives. Companies where the tone and culture are not right are often not successful over the long-term.
  • Ensure a hotline is in place to a third party independent contractor who will then send reports to the audit committee of the board for investigation and follow-up. An employee hotline is the best way for the board to learn of issues that need to be addressed. Hotlines are mandated at all public companies. They should be adopted by private companies as well.
  • Act proactively and address an issue when it becomes known, so in the event it becomes public, the CEO or the board can announce what it has been doing to address the issue, rather than appearing reactive.
  • Be capable of replacing the CEO. Directors represent the shareholders. New investors are more likely to invest in companies where the directors are independent of management and the governance process is strong.

Uber’s negative press should be a wake-up call for Kalanick and the Uber board, as well as a warning to the CEOs and boards of other young, rapidly growing entrepreneurial companies. Uber’s long-term competitiveness and how the investment community views the company depends on it. 

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