Economics / Organizational Strategy / Technology

Inside the Search for the New Uber CEO

Uber’s new CEO, Dara Khosrowshahi

 

On August 28th, Uber announced that their new CEO would be former travel company Expedia’s CEO, Dara Khosrowshahi. This comes after a two and a half month search after Travis Kalanick, the founding CEO, stepped away from normal operations on July 13th. The ridesharing company is the most valuable private company on Earth, worth over $70 billion. It employs over 12000 people, in addition to hundreds of thousands of contracted drivers. Ride bookings have been steadily increasing, and have been up 16% in the last quarter.1 It’s autonomous car program has been underway in Pittsburgh since 2015 and has since expanded to San Francisco and Phoenix, showing that Uber is at the cutting edge of commuter technology.2  Despite this, Uber is still an unprofitable company, reporting losses of $645 million in the second quarter of 2017. Based on this, the position should have been easy to fill by the best talent the world has to offer. Any CEO presiding over Uber when it finally becomes profitable, as well as the potential for an IPO to make Uber a publicly traded company, stands to gain an immense amount of power, money, and prestige. This begs the question: Why did it take two and a half months to decide?

For all of the success Uber has seen in the last few months, it has also suffered through a deep sea of scandals, ranging from toxic workplace culture, creating programs to blacklist people and authorities to evade detection, and allegations of intellectual property theft from Google’s autonomous car program. Any new CEO would have to rehabilitate a public image that clearly has seen better days. With baggage that heavy, it was not a surprise that the pool of candidates had shrunk considerably. For those that remained, the question became “How can we pick a candidate that can satisfy the demands of the factions within the board?”.

It was no secret that Mr. Kalanick had not wanted to step down from his position. He retained a seat on the board, and kept a group of loyalists with him that still believed in his controversial style of management, which could be seen as both the result of Uber’s success as well as the reason why it is stuck in it’s current PR quagmire. Even after leaving his position, he still maintained a deep interest in the daily operations of Uber, and during the search for CEO, he has said that he was “Steve Jobs-ing it”, referencing Steve Jobs’ return to Apple after being pushed out.4 A potential part of this plan would be to dilute the power of the other board members by accepting investment funding from Softbank, a Japanese conglomerate that has also invested in other ridesharing services around the world.5 This conflict of interest had caused Mr. Kalanick to be largely shut out from the CEO selection process.

Among the board members opposing Mr. Kalanick’s return, their most promising candidate was shut out before they were even able to have a vote. Meg Whitman, CEO of Hewlett Packard Enterprise and responsible for the rise of eBay was interested in the position and had met with several of the board members to discuss the option. Her track record is amazing, and with that comes caveats that she would require of the board to take her on as CEO. The most disagreeable of her requirements was a desire to restructure the board. Unlike other tech companies, the Uber board holds an unwieldy amount of power and often uses that to meddle in daily affairs of the company, as shown by Mr. Kalanick’s actions after stepping down. She wanted to limit their powers, which in it’s own was a deal breaker.6 Once news of her candidacy leaked and the rumor mill started up, she posted on twitter that “Uber’s CEO will not be Meg Whitman.”, and that was the end of that.

Further conflicts on the board arose in early August when Benchmark, a capital firm in Silicon Valley, sued Mr. Kalanick for fraud in an to attempt to remove him from the board. They alleged that when he increased the size of the Uber board from eight to eleven seats earlier that year and then appointed himself to one of the seats, as well as by hiding scandals within Uber itself from the board, he had manipulated investors in order to retain power in the company.7 As of August 30th, the case was decided in favor of Mr. Kalanick.

The choosing of Mr. Khosrowshahi is the result of a compromise of those on the board that wanted someone who can reform the company without degrading their power. However, this does not mean he is a weak candidate. From his leadership in Expedia, he has quadrupled the company’s travel bookings and is known for his deal making skills.8 A steady hand may be what Uber needs in these trying times for the company, and in the coming months we will see if Mr. Khosrowshahi is able to accomplish that. When the stakes are the fate of a 70 billion dollar company, what we do know is that this will probably not be the last of the drama we hear about Uber.

 

Sources:

1.       https://www.reuters.com/article/us-uber-profitability-results/uber-second-quarter-bookings-increase-loss-narrows-idUSKCN1B32FW

2.      https://www.wired.com/story/uber-crisis-self-driving-pittsburgh/

3.      https://www.nytimes.com/2017/06/06/technology/uber-fired.html

4.      https://www.recode.net/2017/7/30/16066332/uber-ceo-search-travis-kalanick-meg-whitman-steve-jobs-board

5.      https://www.nytimes.com/2017/07/30/technology/uber-search-for-new-ceo-kalanick-huffington-whitman.html

6.       https://www.recode.net/2017/8/27/16211424/whitman-uber-ceo-kalanick-limited-founder-role

7.      https://www.cnbc.com/2017/08/10/benchmark-sues-travis-kalanick.html

8.      https://www.economist.com/news/business-and-finance/21727855-he-must-tackle-huge-losses-lawsuits-and-meddling-predecessor-uber-picks-dara

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