Eric Holder urges UBER vigilance on CG

Based on its most recent funding round last year, which reportedly brought the total raised to $15 billion, Uber Technologies' valuation is $68 billion.  Although the company hasn't tipped its hand, anticipation of a 2017 initial public offering (IPO) was in the air, although there were doubts that it would come off in line with the stratospheric valuation.

Since it is not currently a publicly-traded company, Uber is not required to disclose its financial results.  However, according to figures shared with Bloomberg, the company's 2016 gross bookings (total fares collected) more than doubled to $20 billion.  For the year, net revenue was $6.5 billion and the net loss was $2.8 billion.  In the last quarter of 2016, gross bookings increased 28 percent from the previous quarter to $6.9 billion, generating $2.9 billion in revenue, a 74 percent increase from the third quarter, while tallying a $991 million loss, up 6.1 percent from the same period.

Since its founding in 2009, Uber has burned through at least $8 billion, although it had $7 billion of cash on hand as of this spring, along with an untapped $2.3 billion credit facility.  But the daunting cash burn rate is not the only factor making the near future inopportune for a big IPO. 

In February, software engineer Susan Fowler Rigetti, who'd left Uber the previous December, posted on her blog a damnatory account of a male dominated workplace run amuck, rife with sexual harassment and sexism.  The allegations prompted the company to hire the law firm Covington & Burling to conduct an investigation, which included a multitude of employee interviews and online focus groups.  The four-month effort was led by partner Eric Holder, who served as U.S. Attorney General in the Obama Administration.  The executive summary of the 47 recommendations arising from the investigation was released earlier this week.

Almost simultaneously, CEO Travis Kalanick, a self-described "hustler" who built the hard-driving culture, sent an email to the company's 12,000 employees informing that he would be taking an indefinite leave of absence, dispersing his responsibilities among 14 direct reports.  "If we are going to work on Uber 2.0, I also need to work on Travis 2.0 to become the leader that his company needs and that you deserve," wrote Mr. Kalanick.

Mr. Kalanick's apparently temporary departure follows the recent "permanent" departures of the COO, CFO, CBO, CMO and Head of Engineering, among others.  Not long after Ms. Rigetti posted her "lessons learned" from working at Uber, Mr. Kalanick was caught on tape responding testily to an Uber driver who complained about suffering financially due to falling fares.  Notwithstanding any of the foregoing, the CEO taking time away would be understandable in the aftermath of losing his mother in a fatal boating accident last month.

Several of the 47 recommendations involve corporate governance, primarily aimed at enhancing board oversight and changing senior leadership.  Mr. Holder's report prods the company to:

• Enhance independence of the board

The board should be restructured to add independent members with meaningful experience on other boards.  On Monday, the company named Nestlé EVP Wang Ling Martello an independent director.  On the following day, however, the company lost one when David Bonderman, a founder of private equity firm TPG Capital, resigned after making a "disrespectful" and "inappropriate" remark to fellow director Arianna Huffington.  

• Install an independent chairperson of the board

The appointment of an independent chairman is considered a best practice by CG experts, particularly where there is a desire to enhance the level of board oversight.

• Create an oversight committee

The creation of an Ethics and Culture Committee, a standing committee of the board to oversee  efforts to enhance a culture of ethics, diversity and inclusion within the organization.

• Use compensation to hold senior leaders accountable

The Board should incorporate ethics, diversity and inclusion and other values into its executive compensation program.

• Nominate a senior executive team member to oversee implementation of any recommendations

The company should nominate a senior level executive, reporting directly to the Board, who is responsible for the assessment and implementation of the report's recommendations.

• Review and reallocate the responsibilities of Travis Kalanick

The Board should look at parceling out some of the CEOs historical responsibilities, in part or in whole.

• Use the Chief Operating Officer search to identify candidates who can help address these recommendations

The Board should see to it that a COO is hired who will act as a "full partner" with the CEO but focus on day-to-day operations, culture and institutions within Uber.

• Use performance reviews to hold senior leaders accountable

Uber should establish metrics by which its leaders will be held accountable in the performance review process, including metrics tied to improving diversity, responsiveness to employee complaints, employee satisfaction and compliance.

• Increase the profile of Uber's Head of Diversity and the efforts of his organization

The Chief Diversity and Inclusion Officer should be empowered and his visibility elevated and should report directly to either the CEO or the COO.

These recommendations are ostensibly intended solely to address shortcomings in the company's culture and, in so doing, to help repair damage to the company's reputation.  Nevertheless, getting a head start on tidying up its corporate governance policies and practices can only be advantageous for the world's most valuable startup company since an IPO is likely on the horizon.

Robert Stead