Kalanick resigns as Uber chief executive

Travis Kalanick, co-founder of Uber, resigned as the company’s chief executive on 20 June 2017, as a company spokesperson confirmed that same night, California time. He left after hours of talks with his investors, who had sent him a letter titled “Moving Uber Forward”, signed by five of the most prominent of them, including Benchmark, asking him to step aside immediately. The board of directors confirmed it in the early hours of the 21st.

What had happened before

The resignation came nine days after another decision by the board. On Sunday 11 June the directors met for almost seven hours at the Los Angeles office of the law firm Covington & Burling and unanimously adopted all the recommendations of the review of the company’s culture led by the former US attorney general Eric Holder, a partner at that firm. The company was in the midst of a crisis over allegations of sexual harassment and discrimination which, according to the press, had already led to more than twenty employees being dismissed after an outside investigation. The recommendations were made public on 13 June, in a thirteen-page document.

According to the press, they included appointing an independent chairman of the board, creating a board oversight committee, reallocating some of Kalanick’s duties, giving more weight to a chief operating officer and tightening internal controls. That same day Kalanick announced a leave of absence for personal reasons, as his mother had died in a boating accident weeks earlier and his father had been injured, and wrote that ultimate responsibility for the company’s situation rested with him. Board member David Bonderman also resigned, after apologising for a remark he himself called inappropriate at an all-staff meeting.

What was known on 22 June

Kalanick said he was accepting the investors’ request so that Uber could go back to building instead of being distracted by another fight. The board said he keeps his seat, that he had always put Uber first and that it looks forward to continuing to work with him.

Uber, valued at around $70 billion according to the press and with more than $11 billion raised, was left without a chief executive. According to TechCrunch, it also had no chief financial officer, chief operating officer or chief marketing officer. No successor had been announced, nor a timetable for choosing one.

What it teaches companies led by a founder

The case is not only about technology. Many companies, large or family-owned, depend on a founder with a great deal of decision-making power, and this episode shows the limits of that model when leadership and internal culture clash. Three corporate governance questions apply to any business: who keeps the top executive in check, who decides whether he or she stays, and what happens if he or she is gone overnight.

The first is the make-up of the board: whether it has independent directors with real weight and whether the chairman is a different person from the chief executive, as Covington & Burling recommended to Uber. The second is succession: a plan, however simple, for a temporary or permanent absence of the founder, and a clear division of duties between general management, operations and finance. The third is internal channels: that employees’ complaints can reach the board without passing through management.

In a family business or one with founding partners, these questions are usually settled in the family protocol or the shareholders’ agreement. It is worth checking that those documents provide for what happens if the founder leaves management but stays on as a shareholder or director, which is exactly Uber’s situation this week. Your adviser can tell you how it applies in your case.

Concentrated power works until it does not; corporate governance exists for the day it stops working.