Even Uber's Current Crisis Won't Kill Founder Worship in Tech

Aggressiveness is more highly valued than caution, especially in tech, where investors and entrepreneurs tend to consider themselves intellectually and financially superior.

Unless Uber truly implodes - losing its investors their billions - significant change is unlikely to be demanded - or to occur - because everyone hopes that whatever an individual's faults and a company's blemishes, it could be the next Apple or Google. JL 

Davey Alba reports in Wired:

Hubris runs deep. You will have to have not just more implosions akin to Uber’s, but more punishment meted out before real change occurs. Founder worship is too deeply embedded in the Silicon Valley culture to change the way founders are treated. As with so much in the tech industry, it seems, the possibility of investing in the next Google or Facebook makes even Uber's tale not cautionary enough.

Uber is a mess. The company's nine-member board made public the findings of a wide-ranging investigation conducted by the law firm of former US Attorney General Eric Holder following allegations earlier this year of a company culture out of control. Uber fired more than 20 employees after another law firm looked into staff complaints of sexual harassment and discrimination dating as far back as 2012. Uber’s C-level ranks are thinning, too: currently, the company has no COO, CFO, or CMO. And, senior vice president of business Emil Michael—CEO Travis Kalanick’s second-in-command—announced he was departing.

Even with a sky-high worth of nearly $70 billion, the situation at the world’s most valuable startup is dire, and the blame has filtered all the way to the top. But will Silicon Valley learn from Uber's mess—specifically when it comes to giving company founders so much power? Maybe it will give startup founders and venture capitalists pause. But "pause" is not a speed anyone in the Valley likes to stay at for long.

Because of Uber's corporate structure, only Kalanick himself can really decide if he stays or goes. And the Valley has been largely welcoming of such arrangements, imbuing founders with a near-mythic ability to see a company's future clearly and weather the worst crises. The founders of both Google and Facebook enjoy majority control of their respective companies, and look how successful they are! But Uber’s woes ought to challenge the assumption behind the value of the founder. Perhaps the growth-hacking, hyper-aggressive approach to building a company with a headstrong founder at the helm might not be the only way."If nothing else, you will see more caution, at least for the moment, in how founders present themselves in public," says Aswath Damodaran, a professor of finance at NYU's Stern School of Business. "That said, though, hubris runs deep. You will have to have not just more implosions akin to Uber’s, but more punishment meted out before real change occurs."

Founder First

Uber's board held a seven-hour meeting to weigh the recommendations of Holder's report. Among the topics reportedly discussed: Should Kalanick take a three-month leave of absence? Because of the way Uber is set up, that decision will ultimately be up to Kalanick. Uber’s board, like so many others across the tech industry, has a “founder-first” structure—Kalanick and a few allies hold a majority of Uber’s so-called super-voting shares. As such, they have outsized sway over company decisions. Kalanick’s position is essentially secure: He could return as CEO if he did take a leave of absence, or he could even resist taking the leave at all. In short, Kalanick doesn’t really have to do anything Kalanick doesn’t want to do.

This brand of founder power isn’t uncommon in the industry. Just look at Facebook, Twitter, Google, and (more recently) Snap. Thing is, it doesn’t have to be that way—and both young entrepreneurs and venture capitalists could take a lesson from Uber's travails. Founders tend to place growth above all else, and to a certain extent for good reason: pure survival. But more balanced boards can help set more balanced priorities. "When these companies are starting up and get VC funding, very little of the funding goes to setting up culture," says Micah Alpern, a principal at management and consulting firm A. T. Kearney. "It’s not the normal focus."

With a less founder-centric structure in place on the board, companies might make better decisions to shape healthier cultures. Alpern describes a system in which venture capital firms themselves could have specialists who work with portfolio companies to help with building healthy company cultures as they grow. "It might not work if the company is made up of three or four people," Alpern says. "But when the company is getting up to 50, 60 or in the hundreds of employees, VC firms could require this."

Of course, the roots of Uber's problems are easy to see in hindsight. According to Evan Rawley, a professor at Columbia Business School, structuring Uber to concentrate so much power in its founder makes sense in the context of the company's origins. "Whenever VCs are flush with cash and desperate for investment opportunities, they are going to be more willing to give control to founders," he says. It just so happened that at the time VCs were flush with cash, Uber was the hottest investment opportunity. So it raised gobs of money without having to dilute Kalanick's power on the board. Investors just wanted to get a stake.

But in so doing, they agreed to terms that by almost any reasonable measure are a bad bet for backers. "The introductory course on corporate governance at any business school will tell you that this is not a good structure for shareholders," says Arun Sundararajan, a business professor at New York University. "Ideally, you need to have an independent board or a board with sufficient power. ... This is a structure with more risk."

But Sundararajan also hedges: the conventional wisdom doesn’t always apply to specific exceptional companies—companies like Uber. Founders are likely to believe that the longer they control a company, the better for the company. And sometimes they're right. "So much of this is shaped by the nature of business and the personality of the founder," he says.

In Uber's case, that personality seems largely responsible for both Uber's dramatic rise and the peril in which it finds itself. Even if that reality doesn't scare founders and investors into a more balanced power-sharing arrangement, it could lead to other changes. At the very least, boards and senior management might finally realize they need real human resources departments to ensure nascent companies evolve internally in ways that don't lead them to the brink. "This is a good illustration of how, if you place growth above everything else, it can lead to long-term repercussions for the company," says Sundararajan.

But if practices change, the deals struck in the Valley likely won't, industry experts agree. Says NYU’s Damodaran, "I am afraid founder worship is too deeply embedded in the Silicon Valley culture to change the way founders are treated." As with so much in the tech industry, it seems, the possibility of investing in the next Google or Facebook makes even Uber's tale not cautionary enough.