Learning From Uber’s Mistakes

Written

Learning From Uber’s Mistakes

What fast-growing startups — and their boards — must understand about building culture.
People gather to protest outside the Uber offices in Queens, New York. | Reuters/Brendan McDermid
Uber's missteps provide valuable lessons to other fast-growing startups. | Reuters/Brendan McDermid

Not many company-bashing hashtags go viral, but #deleteuber became a social media sensation in 2017 as the ride-sharing service infuriated regulators in cities from San Francisco to New Delhi, and became known for a toxic, fraternity-like atmosphere that devalued women and tolerated sexual harassment.

After months of scandal, management missteps, and a consumer boycott that reportedly saw hundreds of thousands of users delete their Uber apps, the company’s board of directors stepped in and fired co-founder and CEO Travis Kalanick.

Uber’s precipitous fall from grace was detailed in an article for Stanford’s Closer Look Series by David Larcker, a professor of accounting at Stanford Graduate School of Business, and Brian Tayan, a researcher at the business school. “Over time, competitive, operating, and governance problems popped up like a game of whack-a-mole,” they wrote.

The company’s terrible year is something of a case study in poor corporate governance and holds numerous lessons for other companies, particularly fast-growing startups, Larcker says. “Uber is an example of a company that started small with a good idea, grew rapidly, became disruptive, and grew into a monolith. But along the way, [management] didn’t pay enough attention to how they wanted to do business from a cultural and ethical standpoint.”

Here, Larcker discusses the lessons of the Uber debacle and what other fast-growing startups should know to avoid a similar setback.

Uber grew explosively; is fast growth a particular problem in this context?

Really fast growth can become disruptive. You are focusing more of your attention on the product and service you are providing. When you’re very successful, it can be hard at a board or management meeting to say, “Let’s stop and look at claims or issues,” when the world is moving at light speed. But at some point you have to do a gut check and say, “We are really successful, but what problems are being caused by the way we’re doing things?”

How important is the CEO’s personality and behavior in influencing the collective behavior in an organization?

Culture is embedded throughout an organization, so it’s not just about replacing a person or two. You’ve got to show you’re very serious by bringing in experts to assess the situation, and you’ve got to put concrete processes in place.
David Larcker

Founders are revered and their personality is embedded in the company’s culture, especially when the CEO is charismatic. Founders have different personality types, some conducive to developing a good culture. But on the other hand, you have some people who are not that type, and you need to worry about that if you’re on the board. When the CEO is a founder, the board has to be especially diligent about asking questions. You’ve got to have the instinct to tell you how this person will behave and what you need to look out for.

Were Uber's board members too close to Kalanick? Is there a lesson here about how independent directors should be?

That’s an interesting question to raise, but you can’t jump to the conclusion that those people are not independent. They have the same duties and loyalties as others on the board. Just because you have people who are connected somehow, it doesn’t mean that the culture or the ethics of the company are somehow inappropriate.

What can a board do to recover after a series of disasters?

You need to bring in outside experts, and you have to be pretty transparent about what you find and what the corrective actions will be. Not the least of which you have to admit there was a problem and you have to own it. [Uber hired two law firms and former U.S. Attorney General Eric Holder to investigate the allegations and the company’s culture, and make recommendations for change.]

How does a corporate culture change?

Culture is embedded throughout an organization, so it’s not just about replacing a person or two. You’ve got to show you’re very serious by bringing in experts to assess the situation, and you’ve got to put concrete processes in place. You need to hold town meetings and say, “This isn’t how we’re doing business anymore.”

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