The Startup Law Guide
Facing increased pressure from investors, Uber’s beleaguered chief executive, Travis Kalanick, resigned on June 20 from the ride-hailing giant he co-founded. While Kalanick had already announced plans to take an indefinite leave of absence for family reasons, a brewing crisis over his problem-riddled leadership continued to grow. The conflicts culminated in investors demanding that he resign from his $68 billion startup.
A Troubled Past
The resignation comes after a long string of PR crises that had thrown the company into turmoil in recent months. The past year has seen reports of a toxic culture at Uber, which culminated in February, when former engineer Susan Fowler wrote a public blog post describing in detail a long pattern of sexual harassment at the company. The post opened the floodgates for further complaints and set off a chain of investigations.
Former U.S. Attorney General Eric Holder was brought in to investigate some of the most serious allegations, that managers failed to adequately address complaints of sexual harassment. Among Holder’s recommendations was a suggestion that the company reevaluate Kalanick’s responsibilities and give Uber’s board more independence and oversight powers.
On top of reports of an ongoing culture of bullying and sexism, plus a video of Kalanick arguing with an Uber driver, the company was facing additional legal troubles. Chief among them were a Department of Justice investigation into an intellectual property lawsuit by Google’s self-driving car division that threatens Uber’s plans to develop similar technology, and a federal inquiry into whether Uber used software to sidestep law enforcement.
Add to that the recent blow the company felt when several top executives resigned. Before Kalanick’s departure, the company was already functioning without a chief financial officer, head of engineering, general counsel, or top executives for operations, marketing, and business.
The events leading to Kalanick’s resignation went down in a downtown Chicago hotel, where Kalanick was set to interview candidates to replace the Uber vacancies. Matt Cohler and Peter Fenton, two venture capitalists from the Silicon Valley firm Benchmark, one of Uber’s largest shareholders, surprised Kalanick at the hotel and presented him with a list of shareholder demands. Among them were Kalanick’s resignation by the end of the day. The letter was signed by five of Uber’s biggest investors – Benchmark, Fidelity Investments, First Round Capital, Lowercase Capital, and Menlo Ventures.
While it was reported that Kalanick was initially resistant, he issued a statement later that day, saying: “I love Uber more than anything in the world and at this difficult moment in my personal life I have accepted the investors’ request to step aside so that Uber can go back to building rather than be distracted with another fight.”
The Road Ahead
The future remains uncertain for the global tech leader, which now needs to find a chief executive capable of steadying the ship after six months of rocky waters. The need is even more pressing given the recent exodus of top leadership.
It’s also speculated that Uber’s next leader will likely be expected to see the startup through an IPO. But Kalanick won’t be without a say in the matter. He will remain on Uber’s board and still holds considerable voting power.
What Can Startup CEOs Learn from Kalanick’s Resignation?
Kalanick’s resignation raises a lot of questions about how the CEO’s downfall could have been avoided. Whether you’re just getting your startup off the ground or have already been fortunate enough to find success, there are several important lessons that CEOs can learn from the Uber debacle.
- Don’t let ambition and success overpower good business sense. It undeniably takes a lot of ambition to take an idea and turn it into a successful business. It’s important, though, to always remember that your business is just that — a business. That means you have to make important decisions about how your company should best be run, even if they take the spotlight off you or mean that things move slightly slower than you were hoping. Also, don’t be afraid to ask for help. After all, the goal was to grow your business, and at some point any successful business becomes too large for one person to run. Surround yourself with people you trust to have sound business sense and make smart decisions. In order to stay successful, your customers still need to come first, even if it conflicts with your ego or your master plan.
- Take employee complaints seriously. If your business relies on employees to keep it running from day to day, the happiness of those employees is crucial to your success. Whether it’s a matter of morale and job satisfaction, or something egregious like a claim of discrimination or harassment, you need to take every employee complaint seriously and properly investigate it. Uber allegedly saw a long history of employee complaints that it simply brushed aside. Had Kalanick taken them seriously — before the harassment claims were made public — he could have avoided a lot of bad PR and damage to his reputation.
- Adopt a zero tolerance policy. The best way to avoid harassment and discrimination in your workplace is to make it clear that it won’t be tolerated. Part of this comes from taking allegations seriously, but having clear policies in place from the start will do a lot reduce the number of future complaints. If problems still arise, your policies for dealing with improper behavior and enforcing real consequences are key to fostering a positive work environment. Uber’s “toxic culture” was a big factor in Kalanick’s downfall, and could easily have been avoided or nipped in the bud.
- Rely on trusted professional advisors. Every business faces regulatory, legal, and ethical question on a regular basis, and the answers may not alway be as clear as you’d like them to be. That’s why you need to have an experienced business law attorney on your side to tackle the tough issues and keep you out of hot water. Nothing can sink a business faster than skirting the law or ignoring regulations. Had Kalanick taken such matters more seriously at Uber, he might still be running the company he founded.
Legal Guidance In Building Your Business
At The Gouchev Law Firm in New York, we work with businesses of all sizes, including startups and franchise businesses. Call us at (212) 537-9209 or schedule a free strategy session today to see what The Gouchev Law Firm can do for your business.
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