Uber-Sized Companies & the Board's Role

Billion-dollar private companies, known as Unicorns, posing investor and economic risk spur governance rethink

By Eve Tahmincioglu

The Uber drama includes several main characters. The now ousted CEO, Travis Kalanick, and the powerful investors who pressured him to leave. But also playing key roles are the board of directors, even though Uber’s a private company with far fewer legal restrictions when it comes to the boardroom.

Given that Uber now has 12,000 employees and is valued at nearly $70 billion, its far-reaching influence throughout the global economy requires strong governance, says Michael Useem, a professor of management and Director of Wharton’s Center for Leadership and Change Management.  “Uber is a big company, and even though it’s private,” he adds, it poses great “risks for investors and beyond.”

Uber is among a growing number of private companies worth $1 billion plus, often referred to as unicorns.

Boards at unicorns and private companies overall don’t face the same legal requirements of public company directors, and they also face fewer securities restrictions. But they keep pushing the investing envelope.

Uber, for example, reached out to the Securities and Exchange Commission last year to find out if it’s legal to give shares to its drivers, who are not employees but contract workers, according to a Financial Advisor article earlier this month.  

The former SEC Chair Mary Jo White had her sights on unicorns. In a speech at the SEC-Rock Center on Corporate Governance Silicon Valley Initiative last year she said:

“Rapidly growing enterprises present significant risks if the appropriate control structure is not in place. Time and again, we have seen companies go public and grow at a pace that exceeds their control structure.”

It’s unclear where the new SEC Chair Jay Clayton stands on unicorn oversight. A request for comment on the issue from was not immediately returned.

For now, much of the oversight at unicorns falls to the boards and they have to step up, Useem maintains, especially those looking to go public where investor confidence is critical.

He believes many directors are rising to the challenge.

“Boards of private companies are coming to take their charters totally seriously,” he explains. “They’re increasing their temerity to step forward and act.”

While Uber’s main investors, some of them board members, finally succeeded in ousting Kalanick, the board had been increasingly focused on CEO oversight, which is the main job of directors.

As early as February, after a blog written by a former female Uber engineer detailing pervasive sexual harassment at the firm, one long-time director Bill Gurley, who is a partner at one of Uber’s biggest investors Benchmark, starting pushing for a leadership change, according to an article in the New York Times.

(Related article: Dismantling the Silicon Boys Network)

The next month, Uber’s board established a special committee to oversee the work of an outside consulting firm hired to look at major sexual harassment and diversity issues at the firm. The much-anticipated report led by former Attorney General Eric Holder recommended appointing more independent board members and having the board oversee the company’s efforts to bolster diversity.

While Uber directors have stepped up, the speed of change may have lagged what is typical for public companies, experts say.

Unicorns are also often wrongly referred to as startups, says Johanne Bouchard, a governance and leadership advisor.

“You don’t treat a company that’s growing this fast as a startup anymore,” she stresses. “And if it’s not a startup it needs a proper infrastructure. For private companies, especially unicorns, they scale very quickly.”

She offers kudos to Uber’s board, but says there were warning signs about the CEO’s behavior as early as 2014. The boards, she adds, should have asked for the CEO to take a leave or gotten help with his behavior at that time. “He’s a bright guy, and has a vision, but he’s not perfect,” she notes.

“Unicorns are a new category,” she explains. “We have to think of ways they can be better governed without suffocating them.”