Saturday, June 17, 2017

Uber, a reprise

More Uber miscellany this week:

Last week, I posted about Uber and publicness – namely, that Uber is a private company that nonetheless is conducting itself as though it has public obligations.  Of course, right after I posted things got exponentially more interesting: Uber’s board met in a marathon session to discuss the results of an internal investigation of its corporate culture, resulting in the dismissal of the CEO’s right-hand man and the CEO/founder/powerful shareholder taking an indefinite leave of absence, Uber publicly announced the recommendations generated as a result of the internal investigation, and an Uber director resigned after making a sexist comment at the employee meeting intended to address workplace sexism.

There’s an awful lot to unpack here: Uber, the legendarily valuable startup, is now operating without a CEO, CFO, or COO (Twitter joke:  “I guess this is the closest it’s ever been to a self-driving car company”); the recommendations, which are telling in what they don’t tell (alcohol and controlled substances should not be consumed during business hours, yikes!); the fact that all of this was sparked by a blog post by an ex-employee detailing her sexual harassment and – amazingly enough – she was believed (one Forbes writer even recommended her for a Pulitzer); sexism that cannot be contained for the length of one employee meeting; the fact that Uber apparently is hemorrhaging talent and can’t hire more

But mostly, just to reiterate the point I made last week, to me the truly extraordinary thing is that all of this is happening at a private company - and one that still provides an exceptionally popular service.  Nonetheless, Uber felt obligated to publicize the results of an internal investigation regarding its corporate culture, and regularly updates the news media on its governance structure.  Ordinarily, the whole point of staying private, roughly speaking, is to avoid this level of public scrutiny.  Yet as companies stay private longer – and attract more and more capital, often from “public” investors (large mutual funds, pension funds, etc) – apparently, they are feeling the obligations of publicness.  Or Uber is; we’ll see how much of a precedent it sets.

The other issue I wanted to discuss concerns this article in the New York Times, describing Uber’s, umm, unusual employee buyback plan.  Uber has begun offering to buy back certain employee shares, because – in the absence of an IPO – employees have no other way to cash out.  As I understand it from the article, for some employees, Uber requires that if the employees sell any portion of his/her shares back to the company, the employee must also agree to sign over the voting rights of all of his/her remaining shares to Travis Kalanick (the CEO/founder) personally.

Now, with all appropriate disclaimers about how I haven’t read the employee agreements, and I’m relying solely on one news article that lacks specifics, I say – huh?

Uber is using corporate resources to allocate additional votes to the founder personally?  Which – presumably – he can then use to vote to advance his personal interests?  After all, outside of specific fiduciary duties for controllers, shareholders are free to cast their votes for their own idiosyncratic reasons; for example, Kalanick could vote against a merger proposal merely because he wanted to keep control, even if the proposal would be in the best interests of Uber shareholders generally.

It's not like I expect to see any fiduciary duty lawsuits - for one thing, the amounts involved may be minimal, and I assume Uber has somewhat close relationships with its stockholders - but it's fairly textbook that corporate resources cannot be used to buy more power for the personal use of the controllers.  The fact that this was (apparently) permitted seems to be another data point suggesting that Uber has deep governance issues it needs to address.

http://lawprofessors.typepad.com/business_law/2017/06/uber-a-reprise.html

Ann Lipton | Permalink

Comments

I'm curious if you have thoughts on Uber's price discrimination (https://twitter.com/linamkhan/status/877152104120328193) and it's "publicness."

Posted by: Matthew Bruckner | Jun 20, 2017 8:12:57 AM

Well, it's interesting - when the idea of publicness was developed by Hillary Sale, I think the idea was about internal governance more than services provided. That said, the more ridesharing seems more like a utility, the more things like this might be deemed intolerable. I.e., Lyft has a new shuttle that's been described as a recreation of the public bus, and Uber was trying to get residential buildings to avoid creating parking spaces - thus locking in a demand for its services. If they become too indispensable to daily life, I think they risk being treated as a utility which would have different kinds of public obligations.

Posted by: Ann Lipton | Jun 20, 2017 9:03:23 AM

Thanks, Ann, for all the uber-useful Uber information. Just a footnote. I do think that Hillary Sales's work encompasses the services provided in some sense, so your reference is apt. I see her work as doing two things: redefining the public company and relating that redefinition to corporate governance. It's the former that you all are focused on here. Public utilities (and I also think that reference is apt here) engender engagement by the populace, the media, bloggers, and government. It's that kind of publicness about which Sale writes. So, I think you're dead-on right in your comments.

And look at the reverberations it is having and is likely to continue to have on corporate governance at Uber . . . .

Posted by: joanheminway | Jun 20, 2017 9:35:17 AM

Yeah, you're right - I mean, if nothing else I think that companies that deal directly with consumers (as opposed to pure wholesalers) are more likely to take on that publicness-sense. The public feels like they have more of a relationship with them, and can more easily apply pressure via spending decisions.

Posted by: Ann Lipton | Jun 20, 2017 9:39:10 AM

The Holder recommendations on diversity and inclusion seem much more extensive than what the SEC requires of public listed companies. Yes, Uber's board did ask for guidelines on diversity but it makes one wonder if its a PR exercise to repair the tarnished reputation.

Posted by: Akshaya Kamalnath | Jul 2, 2017 11:03:49 PM

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