Values and Valuation: Why Uber CEO Travis Kalanick Was Forced To Resign

Values rarely impact valuation. Neither in Silicon Valley nor anywhere else. But that could be changing. Travis Kalanick's brash leadership went from being an asset to a liability which threatened the potential payout in which so many had invested. In the end, the five VC and mainline wealth management firms who owned the largest stake in the company decided that market perceptions had moved. His leadership style had become not just a distraction but detrimental to its future prospects.

The question is whether this is becoming a larger factor in corporate and investor decision-making or a one-off. That Uber director David Bonderman was also forced to resign - as were a number of senior Uber executives - for a variety of offensive comments or behaviors suggests it is becoming more of issue. Social media and a global economy have made matters once regarded as 'soft' and previously subsumed by financial considerations to top of mind. Successful enterprises will learn and adapt. Because in the end, values challenged financial valuation. And $70 billion is a lot of value.  JL

Mike Isaac reports in the New York Times:

Five of Uber’s major investors demanded that the chief executive resign immediately. The investors included one of Uber’s biggest shareholders, the venture capital firm Benchmark. His taking time off was not enough for investors who have pumped millions of dollars into the company, which has seen its valuation swell to nearly $70 billion. Investors could lose billions of dollars if the company were to be marked down in valuation.

Travis Kalanick stepped down Tuesday as chief executive of Uber, the ride-hailing service that he helped found in 2009 and built into a transportation colossus, after a shareholder revolt made it untenable for him to stay on at the company.

Mr. Kalanick’s exit came under pressure after hours of drama involving Uber’s investors, according to two people with knowledge of the situation, who asked to remain anonymous because the details were confidential.

Earlier on Tuesday, five of Uber’s major investors demanded that the chief executive resign immediately. The investors included one of Uber’s biggest shareholders, the venture capital firm Benchmark, which has one of its partners, Bill Gurley, on Uber’s board. The investors made their demand for Mr. Kalanick to step down in a letter delivered to the chief executive while he was in Chicago, said the people with knowledge of the situation.

In the letter, titled “Moving Uber Forward” and obtained by The New York Times, the investors wrote to Mr. Kalanick that he must immediately leave and that the company needed a change in leadership. Mr. Kalanick, 40, consulted with at least one Uber board member, and after long discussions with some of the investors, he agreed to step down. He will remain on Uber’s board of directors.“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,” Mr. Kalanick said in a statement.

How Uber’s Brash Approach Is Beginning to Backfire

The company, with its co-founder Travis Kalanick, is known for its brash, aggressive approach. That approach has taken a toll.

Uber’s board said in a statement that Mr. Kalanick had “always put Uber first” and that his stepping down as chief executive would give the company “room to fully embrace this new chapter in Uber’s history.” An Uber spokesman declined to comment further.

The move caps months of questions over the leadership of Uber, which has become a prime example of Silicon Valley start-up culture gone awry. The company has been exposed this year as having a workplace culture that included sexual harassment and discrimination, and it has pushed the envelope in dealing with law enforcement and even partners. That tone was set by Mr. Kalanick, who has aggressively turned the company into the world’s dominant ride-hailing service and upended the transportation industry around the globe.

Mr. Kalanick’s troubles began earlier this year after a former Uber engineer detailed what she said was sexual harassment at the company, opening the floodgates for more complaints and spurring internal investigations. In addition, Uber has been dealing with an intellectual property lawsuit from Waymo, the self-driving car business that operates under Google’s parent company, and a federal inquiry into a software tool that Uber used to sidestep some law enforcement.

Uber has been trying to move past its difficult history, which has grown inextricably tied to Mr. Kalanick. In recent months, Uber has fired more than 20 employees after an investigation into the company’s culture, embarked on major changes to professionalize its workplace, and is searching for new executives including a chief operating officer.

Mr. Kalanick last week said he would take an indefinite leave of absence from Uber, partly to work on himself and to grieve for his mother, who died last month in a boating accident. He said Uber’s day-to-day management would fall to a committee of more than 10 executives.But the shareholder letter indicated that his taking time off was not enough for some investors who have pumped millions of dollars into the ride-hailing company, which has seen its valuation swell to nearly $70 billion. For them, Mr. Kalanick had to go.

The five shareholders who demanded Mr. Kalanick’s resignation include some of the technology industry’s most prestigious venture capital firms, which invested in Uber at an early stage of the company’s life, as well as a mutual fund firm. Apart from Benchmark, they are First Round Capital, Lowercase Capital, Menlo Ventures and Fidelity Investments, which together own more than a quarter of Uber’s stock. Because some of the investors hold a type of stock that endows them with an outsize number of votes, they have about 40 percent of Uber’s voting power.

Benchmark, Lowercase, First Round, Menlo Ventures and Fidelity did not respond to requests for comment.

But on Twitter, Mr. Gurley of Benchmark, one of the earliest supporters of Mr. Kalanick at Uber, said of the executive, “There will be many pages in the history books devoted to @travisk — very few entrepreneurs have had such a lasting impact on the world.”

Mr. Kalanick’s resignation opens questions of who may take over Uber, especially since the company has been so molded in his image. And Mr. Kalanick will probably remain a presence there since he still retains control of a majority of Uber’s voting shares.Taking a start-up chief executive to task so publicly is relatively unusual in Silicon Valley, where investors often praise entrepreneurs and their aggressiveness, especially if their companies are growing fast. It is only when those start-ups are in a precarious position or are declining that shareholders move to protect their investment.

In the case of Uber — one of the most highly valued private companies in the world — investors could lose billions of dollars if the company were to be marked down in valuation.

Uber, which has raised more than $14 billion from investors since its founding in 2009, has a wide base of shareholders apart from the ones who signed the letter. Uber’s investors also include TPG Capital, the Public Investment Fund of Saudi Arabia, mutual fund giants like BlackRock and wealthy clients of firms like Morgan Stanley and Goldman Sachs.

In the letter, in addition to Mr. Kalanick’s immediate resignation, the five shareholders asked for improved oversight of the company’s board by filling two of three empty board seats with “truly independent directors.” They also demanded that Mr. Kalanick support a board-led search committee for a new chief executive and that Uber immediately hire an experienced chief financial officer.

Mr. Kalanick is stepping down as Uber works to improve its relationships with some of its constituencies. Earlier Tuesday, the company emailed its drivers, who work as contractors, to let them know they would soon be allowed to take tips, which drivers had not been able to accept previously. The tipping change was among several new initiatives announced for drivers.

“Over the next 180 days we are committed to making driving with Uber better than ever,” the company said. “We know there’s a long road ahead, but we won’t stop until we get there.”