It’s been a busy week for Uber! Travis is accused of fraud, yet is trying to rehabilitate his image, and drivers are coming up with new creative ways to make more money. Today, senior RSG contributor John Ince covers the challenges facing Travis and Xchange leasing, and how some Uber drivers are creatively (illegally) coming up with ways to make a lot of extra money.
Early Uber investor sues co-founder Travis Kalanick, accusing him of fraud [Los Angeles Times]
Sum and Substance: Ever since Uber co-founder Travis Kalanick resigned as the company’s chief executive in June, there were rumors that he was plotting his return. On Thursday, Benchmark Capital Partners, one of the earliest investors in the ride-hailing company, filed a lawsuit against Kalanick with the hope of squashing any such plans. In the suit filed in Delaware Chancery Court, the Menlo Park, Calif., venture capital firm alleges that Kalanick breached his fiduciary duty and contractual obligations by stacking the company’s board with allies to shield his conduct from redress.
The suit contends this was done to “clear the path for his eventual return as CEO — all to the detriment of Uber’s stockholders, employees, driver-partners, and customers.” The suit names both Kalanick and Uber, but it seeks damages only from Kalanick himself. Benchmark alleges that in mid-2016, Kalanick committed an act of fraud when he convinced the board to approve of three new board seats for which he would have appointment power, without first informing them of a series of events he was allegedly involved in or privy to that would later lead to his forced resignation. Kalanick stepped down as Uber’s CEO in June after those controversies came to light. They included a lawsuit by Google’s self-driving-car subsidiary, Waymo, alleging theft of trade secrets; another lawsuit by a woman in India who alleged Uber obtained her medical records after she was raped by one of the company’s drivers; and widespread allegations of sexual harassment at the firm.
Benchmark, which led the charge in pressuring Kalanick to resign, cited all three cases in its suit as examples of Kalanick’s mismanagement. “Kalanick knew Benchmark never would have approved … the three new Board seats if Benchmark had known the truth about Kalanick’s prior conduct,” the suit reads. “Kalanick also understood that these matters, once revealed, would likely force him to resign as Uber’s CEO, and thus sought to grant himself a way to play an ongoing leadership role at Uber once the truth came out.”
… Kalanick furthered Benchmark’s suspicions that he was angling for a return to power when, after resigning as CEO and departing the board seat reserved for the CEO, as required, he immediately re-appointed himself to one of the three vacant board seats. The lawsuit alleges that he then refused to sign an agreement that would ensure the two vacant board seats would be filled by candidates who are “independent, experienced, unbiased, and diverse, and subject to the approval of all then-current directors other than one.”
Sources close to Kalanick said he had regretted his decision to resign, and that he was interested in returning to a leadership role at the company, but it is unclear if he had a plan to do so…. Lawsuits of this nature can take years to litigate, Handman said, and to secure even a preliminary injunction, the onus is on the plaintiff to prove that they are likely to succeed at trial, and that they would suffer some sort of irreparable harm unless a preliminary injunction is granted. … If Benchmark gets what it wants, the three board seats Kalanick allegedly controls would be eliminated, and Kalanick would be blocked from participating in any meetings, votes, or other activities with Uber’s board. Kalanick — and not Uber — would also have to pay unspecified damages and legal fees to Benchmark.
My Take: Oh my, this is getting interesting. Boardroom fights are nothing new to either Silicon Vally or the corporate world, but this one has all the markings of an all out brawl. We’ve known all along that TK is pugnacious – taking on city governments, employees, media, drivers – but here he’s getting sucker punched by his own board and his own investors, the very people who put him in business. This is not a good sign for a company already struggling with its public image. Without knowing the particulars of the case, the fact that the burden of proof is on Benchmark here leads me to believe that TK just might win this brawl.
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In fact several investors loyal to TK have sent Benchmark a letter requesting they divest their shares and remove themselves from the board. But even if TK wins, he loses the PR battle and the company’s market value takes another hit. Benchmark’s tweet last week that Uber could be ‘comfortably’ worth over $100 billion in next couple of years is looking increasingly fanciful in light of all the dysfunction here. If you were a legitimate candidate for the open CEO position, or CTO, or CFO or any other C-O spot, would you want to step into this picture and risk getting struck by a stray bullet? I don’t think so. Meanwhile, I suspect TK just might be feeling some buyer’s remorse over the agreement he’s just made with CEO PR firm Teneo, to spruce up his public image. With stories like this breaking, TK is tossing money to the wind if he hopes to get his image back. (See below)
Travis Kalanick has hired ‘CEO advisory’ firm Teneo to improve his tarnished image [Recode]
Sum and Substance: Time for some PR? I’d say so. Ousted Uber CEO Travis Kalanick has hired high-profile “CEO advisory” firm Teneo to help him manage his own embattled interests, according to several sources close to the situation. So, get ready for some positive stories on the embattled entrepreneur via open-hearted interviews (except to heartless Recode, because we always get left out of those for being too mean to delicate tech executives)!
Enter Teneo, which was founded by a trio of execs — Declan Kelly, Doug Band and Paul Keary — with close ties to Democratic power players like Bill and Hillary Clinton. They have branched out with a variety of services in 12 divisions and — via a combination of hiring big-name “formers” (former British Prime Minister Tony Blair, former NYC top cop William Bratton) — have attracted giant corporate clients such as Dow Chemical.
According to a 2016 New York Times story on the firm, which has attracted some controversy itself: “Teneo bills itself as the chief executive’s best friend. Its pitch is that, with Teneo’s help, C.E.O.s can become not just business leaders but ‘thought leaders and global ambassadors,’ according to its website.” Indeed, right on its homepage now is a bromide that would appeal to Kalanick, who has been mired in trouble for his dysfunctional management of the car-hailing company: “50% of a company’s reputation is created or lost by its CEO. Where’s reputation management on your agenda?”
Also intriguing for the aggressive entrepreneur, whom many sources said has been trying to figure out ways to regain his old job from which he was fired after a revolt of major shareholders: “Teneo frames its offerings to C.E.O.s like this, according to several former employees: You can’t trust your board of directors, who could fire you. You can’t trust your lieutenants, who want your job. Which is why you need Teneo.”
Um, perfect for Travis, I’d say.
My Take: When you’re a billionaire like TK, what’s a few hundred thousand a month to fix your public image? Reportedly Travis is plunking down between $100,000 and $300,000 as a monthly retainer for this firm’s efforts to rehabilitate his public persona. From that perspective, it shows just how costly that altercation he had with that driver was when the video went viral. In case you forgot, Travis said, “you know what … some people just won’t take responsibility for their own shit.” Well, it looks like TK is now taking responsibility for his own shit and it’s costing him more monthly than most of us drivers will make in our entire career as Uber drivers.
Uber considering options for Xchange Leasing, including sell-off [TechCrunch]
Sum and Substance: Uber is considering its options regarding what to do with its Xchange Leasing program for providing subprime car leases to drivers on its service, according to a source familiar with the program. The Wall Street Journal reported that it planned to close the operation earlier on Tuesday, and we’ve confirmed that it’s looking at a number of options for how to proceed, including an outright sale of the business to outside parties.
Uber and its board decided that Xchange was in need of significant changes given its current operating realities, and the WSJ report claims that it is causing “unsustainably high losses” for Uber. The Xchange program was introduced by Uber two years ago as a way to help provide vehicles to potential drivers who couldn’t necessarily secure one through more traditional means. Our source says that Uber still wants to ensure vehicles have a cost-effective way to secure vehicles, but says the company also realizes it has to be done in a way that is sustainable from a financial standpoint.
This is similar in motivation to Uber’s deals with Didi and Yandex in terms of finding a strategic way to stem outbound cash flow, the source claims. As mentioned, an outright sale of the leasing operation is one possible outcome, and outside parties have already shown interest in such a sale according to our source. It could also involve scaling back the geographic footprint of Xchange to just a few of the cities where Uber operates. The options on the table could involve layoffs, but might also involve bringing Xchange employees in-house to fill vacancies at Uber proper. Uber has also partnered with external companies for short-term rental and leasing options for cars used to ferry passengers, and it sounds like offloading its own ownership of these vehicles is the preferred path, in order to defray the cost requirements that come with owning and operating a fleet.
My Take: Regular readers of this roundup will be aware that I’ve often expressed my skepticism about Uber’s driverless car initiative. That skepticism is based on many of the same reasons behind this move. Why in the world would Uber want to have all the hassles, risks and expenses of owning a fleet of cars? Uber’s business model is all about externalizing costs like insurance, fueling, maintenance, storage, parking etc – and pushing them off on the drivers.
So with this corporate decision, we see that Uber executives are facing up to the reality of both car leasing business (today) and potentially problems of the future reality of driverless cars. Either way, Uber doesn’t want to deal with car ownership. Finding a way for others to assume these costs and risks has always been integral to Uber’s corporate strategy.
‘Uber’-branded drug bust is probably the last thing Uber needs right now [The Verge]
Sum and Substance: “Getting an Uber” took on a new meaning today after federal drug enforcement agents announced the arrest of four men running a drug mill on Central Park West who were allegedly selling baggies of fentanyl and heroin stamped with the popular ride-hailing app’s logo. Gothamist has most of the details on the bust, but according to the DEA, the suspects were found in possession of “two large ziplock bags containing approximately three kilograms of a suspected fentanyl and heroin combination from inside a hall closet, as well as 1,100 individual dose glassine envelopes that had been filled with powder and stamped with the brand name ‘UBER.’”
The street value of the drugs is estimated to be $3 million, but it could be “millions more” depending on the potency. The drugs are being sent to the DEA’s labs for testing. … Photos provided by the agency indeed show large stacks of baggies emblazoned with Uber’s logo rubber-banded together. But Uber wasn’t the only brand name coopted by the suspects. Other stamps featured logos like McDonald’s, Panda Express, and Animal Planet, as well as more generic names like “Viper,” “Rebel,” and “Time Bomb.”
One of the suspects arrested, Richard Rodriguez, was described as an Uber driver by the DEA. A spokesperson for Uber declined comment until Rodriguez’s identity could be confirmed. It wouldn’t be the first time Uber would be associated with drugs: earlier this year, dealers in Manhattan and the Bronx were posing as Uber drivers to sell cocaine and heroin, even using fake Uber placards in their vehicles. While Uber obviously has little control over how its image is or isn’t used by people who choose to sell illicit substances, it certainly doesn’t need this kind of publicity right now, …
My Take: A New York drug dealer is now branding his packets with Uber coverings. If you think about it, the Uber ride is actually an ideal way to consummate a drug deal. Both parties have privacy and it’s darn convenient. The dealer just has to be sure that he’s got the right passenger – otherwise it’s big trouble with a capital “T.”
Readers, what do you think of this week’s round up? Will Travis’ image rehab work, or do you think he’s permanently out at Uber?
-John @ RSG