Driving Uber: What's Next with the CEO On Leave?

SMITH BRAIN TRUST – What happens to a company when a CEO takes a leave of absence?

It's a question Uber Technologies must now face, as chief executive Travis Kalanick begins a hiatus of unspecified length from the $68 billion ride-hailing company he co-founded.

The embattled CEO announced that he was stepping back in an email on Tuesday to Uber's 12,000 employees, citing the need to work on his own leadership skills and to grieve the death of his mother, who was in a boating accident that also left his father with serious injuries. 

At the same time, the board of directors announced a series of changes it would make to address the company's toxic work culture, which has been blamed for allowing sexual harassment and other misconduct to go unpunished. Among the changes is a reduced role in the company's operations for Kalanick and a heavier reliance on a chief operating officer at the company.

It's a rebuke of Kalanick and the renegade management style he embraced as Uber upended ground transportation in cities around the world.

And it could make it harder for Kalanick to come back after his leave of absence.

"If the sense among Uber employees and upper-level management is that he was put aside so that they can fix the problems that he created, then it becomes harder to come back, because of the stigma involved,” says Gilad Chen, the Robert H. Smith Chair in Organizational Behavior at the University of Maryland's Robert H. Smith School of Business.

One way or another, Chen says, "when CEOs step back or when there is a succession of CEOs, it's most often because of a crisis. It's rarely done proactively.”

For Uber, which was already facing a leadership void, the CEO's absence comes at a particularly inconvenient time.

Many of the company's top positions are sitting vacant, notably chief operating officer, chief financial officer, chief marketing officer and general counsel. Top executives for product, engineering, communications and self-driving vehicle development have left the company in recent weeks. And early this week, Uber's chief business officer Emil Michael, Kalanick's top deputy, resigned and abruptly left the company.

The glut of vacancies might complicate Uber's leadership challenges in the short term, but in the long run, it may be a blessing. This is a company that needed to do some housecleaning. 

"Uber is in trouble, because they have combined a struggling economic bet with really rotten corporate culture,” says Brent Goldfarb, associate professor of management and organization at the Smith School.

Uber has over time attracted and retained the type of people who can survive in its "cutthroat, misogynistic culture,” he says. "Systematic business routines and practices have been built that sustain this culture.”

Kalanick has a reputation as a "aggressive, fiery kind of guy,” Chen says. "And the attributes of a CEO, especially a founding CEO, seem to set the tone.”

Now Kalanick needs to find a way to change, Chen says, a way to take the best attributes from his aggressive leadership style and ditch the rest. "He's got to dig himself out of a big hole, in terms of his reputation,” Chen says.

In his email to employees, Kalanick seemed to agree, writing, "The ultimate responsibility, for where we've gotten and how we've gotten here rests on my shoulders. There is of course much to be proud of but there is much to improve."

He added, "if we are going to work on Uber 2.0, I also need to work on Travis 2.0 to become the leader that this company needs and that you deserve," he added.

The Holder investigation was launched in February after a blog post from a former Uber engineer, who said she was sexually harassed at the company and that her complaints were ignored.

In response to that blog post and more than 200 other complaints, Uber ordered the investigation. It also fired more than 20 employees, including top executives, and reprimanded dozens of others.

Uber's troubles

The fast-growing Uber has had a steady rev of bad news in recent months – sexism allegations, a massive lawsuit brought by Google over stolen technology, a video of an agitated Kalanick shouting at an Uber Black driver, the rise of the hashtag: #DeleteUber.

Uber is the world's most valuable venture-backed private company, according to Reuters, but it has yet to turn a profit, and Goldfarb adds, there's little evidence that it ever will.

People use Uber for two reasons: It's convenient, and it's cheap. "However,” Goldfarb adds, "Uber loses money on every ride.” The company's spectacular growth has come via giant investor subsidies. "Returns for these investments can only happen if they make more money – and that can only happen by raising prices.”

Uber lost $708 million in the first quarter of 2017, down from $991 million in the previous quarter.

Uber is using predatory pricing, Goldfarb explains, with a goal of driving taxis out of business, so it can raise prices without fear of competition. "Without dominance,” Goldfarb says, "it cannot raise prices and will continue to bleed cash.”

But there's always the threat of regulatory and political pushback if Uber begins to dominate and then hikes prices, he adds. "It is difficult to see a path for Uber to provide sufficient return on investors' investments.” Goldfarb says. "And certainly, users should not expect to get subsidized rides forever.”

Meanwhile, ride-hailing rival Lyft has ben slowly stealing Uber's customers and drivers.

Moving on

Kalanick's absence "will create space to begin the reckoning,” Goldfarb says. And that likely begins with a renewed focus on the core business.

"Its autonomous vehicle play is a mess – this will likely disappear. I think there was talk of Uber-drones. This is not going to happen,” he says.

"Kalanick has been very successful at getting Uber on the map as an entrepreneur,” Chen says.

Kalanick has been an aggressive, hands-on presence at the helm of the ride-hailing company, a dynamic force as Uber has disrupted the taxicab industry.

The aggressiveness, the very trait that helped Uber disrupt the taxi industry and become the giant it is today, is now being blamed for the troubles that could lead to its downfall.

"Every strength that leaders have or companies have can be a derailer,” Chen says. "The trick is learning how to capitalize on your strengths and not letting the weaknesses or the downsides of your strengths get in the way of your success.”

He suggests that Uber look to Facebook, Apple and Microsoft as examples to follow.

"These are very aggressive companies, disruptors in their industries and they found ways to capitalize on their strengths,” Chen says. "Because if you let the downsides get in the way, it can ruin a company. It can take it down.”

Chen says "time will tell” whether Uber will grow weaker or stronger after its recent crises. It remains, he says, "a very strong player” in its market.

Still, the company at times seems unable to stop hitting itself in the face, and in a meeting Tuesday came the freshest black eye.

Uber board of directors member David Bonderman made a sexist comment during a meeting with employees about adopting recommendations to improve the company's toxic and sexist workplace culture. He was responding to Arianna Huffington, who was citing data which show that having one woman on a corporate board generally improved the likelihood of having more women on the board, a nod to the company's recent addition of a second woman on its mostly male board. His remark: "Actually, what it shows is that it's much more likely to be more talking.”

Bonderman later issued an apology and resigned.