June 21, 2017 / 9:30 AM / 3 months ago

Governance coup caps first leg of Uber's journey

Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016. REUTERS/Danish Siddiqui/File Photo

MILAN/LONDON (Reuters Breakingviews) - The list of what ails Uber is long – and has grown longer in virtual lockstep with the tenure of the ride-hailing application’s founder, Travis Kalanick. His departure as chief executive amid pressure from other shareholders in the company ends the first leg of Uber’s journey from startup to $70 billion enterprise to, eventually, public company. That the private firm was able to jettison its controlling shareholder suggests a small, but welcome, modicum of market discipline in startup world.

Uber’s woes are not all Kalanick’s doing. Its original conceit was to offer an asset-light solution to hailing taxis: Uber provides a handy GPS and payments application, drivers bear all the costs and liabilities of transportation, and Uber takes a fee. To beat back pesky livery and taxi regulations, Uber helpfully picked up the tab for drivers’ infractions. Now that municipalities have either loosened the rules, leveling the playing field for Uber and its competitors, or simply clamped down, the arbitrage trick is up. A nasty fight in which Kalanick berated a driver bemoaning the cost he had incurred in acquiring his vehicle showed that Uber’s practice of heaping liabilities on its freelancing workers was also reaching its limits.

On top of these headwinds, however, Kalanick generated a few of his own. A frat-like culture led to a probe into charges of sexual harassment and unprofessional behavior. Senior executives departed. So did TPG boss and Uber board member David Bonderman last week, after an ill-judged joke that more women on the board means “more talking”. Kalanick had planned a leave of absence, but it appears that wasn’t enough for top shareholders including Benchmark Capital.

Kalanick’s willingness to step back disrupts the tech-sector model of founders wielding executive power, aided by super-voting shares and cadres of boardroom allies. It also sets a positive example that might one day help a Snap or Facebook through bad times. The question is what he does next. If its controlling shareholder simply drives from the back seat, the company will look even less suited to public life. From the outside, though, Uber is now on a better course.

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