How Uber Can Reset Its Corporate Culture

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Wharton's John Paul MacDuffie and the University of Michigan's Cindy Schipani discuss Uber's future.

Following a months-long investigation that revealed a toxic workplace culture, Uber needs to make changes – fast. The ride-hailing company’s board has agreed to follow through on the 47 recommendations made in the report from former U.S. Attorney General Eric Holder. For now, Uber is being run by a group of 14 senior executives while CEO Travis Kalanick takes a leave of absence.

But creating a healthier environment inside the company and regaining the trust of employees, investors and customers in the approximately 570 cities in which it operates will be a long road. Uber commissioned the report after a former employee complained of sexual harassment in a blog post she published in February. Already, it has fired 20 employees over charges including harassment, discrimination and inappropriate behavior, and agreed to lessen Kalanick’s control over the company when he returns.

“The founders always have a huge influence on the company, and here it is clear that Travis Kalanick was perhaps the formative influence on the culture,” said Wharton management professor John Paul MacDuffie, who is also director of the school’s Program on Vehicle and Mobility Innovation. He noted that Kalanick and his staff were not “very responsive” to issues of impropriety that cropped up intermittently. He welcomed the recommended changes outlined in the report and Kalanick’s decision to step aside for now. “All of these are signals of trying to shift away from that strong initial imprint of the founder and say that at this stage of Uber’s development, they need to be a different company.”

Cindy Schipani, professor of business administration and business law at the University of Michigan’s Ross School of Business, rated the report as comprehensive, but was cautious about what concrete action it may ultimately lead to. “In the end, any report is only as good as the paper it is written on, unless the players in the game take it seriously,” she said. “Unless they get a leader with strong integrity who believes in wanting to change the culture, it’s not going to make a difference.”

MacDuffie and Schipani discussed Uber’s future on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

“It’s been a bit of a perfect storm for Uber,” said MacDuffie. The company is now also dealing with a lawsuit where Google’s Waymo has accused it of stealing trade secrets related to Lidar technology for driverless vehicles, and a U.S. Justice Department investigation of accusations that it used software to help drivers evade transportation regulators and other government officials in areas where it was not yet approved to operate. “It’s a pattern that affects their reputation and their brand, especially when people say they’re not going to use Uber and will patronize rivals like Lyft and other competitors simply because of these different signs of bad behavior,” he added.

According to MacDuffie, the troubles at Uber represent a major opportunity for Lyft to gain ground from being a distant competitor. He noted that Lyft has tried to differentiate itself in this area, both in the way it recruits drivers and pays them, and via policies like allowing customers to tip. Uber’s experiments with driverless vehicles are also not going to endear itself any better with drivers, he added.

“In the end, any report is only as good as the paper it is written on, unless the players in the game take it seriously.”–Cindy Schipani

The Holder report’s key recommendations include a recast of Kalanick’s responsibilities and for him to share his powers with a chief operating officer; an expanded board with independent directors; a zero-tolerance policy for discrimination and harassment complaints; performance reviews; mandatory coaching for senior Uber leaders; and more attention to diversity within its ranks.

It didn’t help that at the very board meeting held on Tuesday to consider the report’s recommendations, Uber’s board member David Bonderman made a sexist remark, for which he later resigned. When Huffington Post founder and Uber board member Arianna Huffington referred to the recent appointment of senior Nestle executive Wan Ling Martello as a board director, Bonderman said with more women board members “it’s much more likely to be more talking.” He later described his remarks as “careless, inappropriate, and inexcusable,” as the Wall Street Journal reported.

Bonderman’s remarks “reflect a set of attitudes at not just Uber but also in Silicon Valley,” said MacDuffie, adding that research, too, contradicts them. “In board meetings or other meetings, men dominate air time and men interrupt women all the time, and that’s true even when the number of women increase,” he said. “[Bonderman is] flat wrong empirically, [and his comments] revealed a deep bias that was inappropriate to the moment.” Added Schipani: “That was poor judgment if not something worse.”

Making the Culture Shift Work

Among the departures in the wake of the report were Uber’s senior vice-president Emil Michael and Asia-Pacific president Eric Alexander, who is accused of inappropriately handling the rape case of an Uber passenger in India. In addition to Martello, two other women joined Uber in the past week: Frances Frei, a Harvard Business School associate dean and professor, as senior vice president of leadership and strategy; and Bozoma Saint John, an Apple executive, as chief brand officer.

However, “culture is a very hard thing to change,” said MacDuffie. Uber must replace some people, change its incentive structures and impart training “to signal that behaviors have to be different,” and do that “in a concerted effort with a lot of consistency in all the messaging.” Added Schipani: “[Uber’s] employees would look closely at the behaviors of the senior leadership, not just what is written or what they are told to measure.” She noted that while Uber didn’t have the standard set of rules that many other companies have, it will benefit from recommendations urging training to be aware of unconscious biases, and to recognize and reduce them.

According to MacDuffie, the new leadership at Uber will have to walk away from some of the troublesome practices of the past. He noted that many early investors have been worried about these scandals causing Uber to lose its first-mover advantage and see its valuation eroded. He predicted much internal debate at Uber of those strategic issues.

In addition to cleaning up the internal culture of how employees are treated, Uber’s management also needs a cultural shift in other areas of ethical violations, said MacDuffie. Kalanick brought “a very aggressive growth strategy and a willingness to push into markets regardless of regulatory barriers or other concerns, get a footprint and deal with regulatory problems later,” he added. “They have largely succeeded in that in many places and laws have been changed … to allow them to exist even though they would have been illegal to start off.” For example, in 2014 alone, as many as 17 U.S. cities passed laws that made Uber’s services legal after many municipalities questioned its legality, according to a Wall Street Journal report.

But MacDuffie was skeptical about whether Uber will be able to ease its break-neck pace. “Have they gotten far enough with that so that they can behave less aggressively now and follow the existing laws?” he asked. “That would be a huge change in their culture. I would guess than many … would say, ‘We don’t think we should back away from that approach; that’s what made us great.’”

Schipani said that Uber should be applauded for being aggressive on the regulatory front in an effort to build demand for its services. “They made consumers aware of a need that they had that they might not have realized before. They created new markets. They have been very disruptive. I don’t blame them for being aggressive in pushing the limits on those issues.”

At the same time, Schipani said unethical behavior is inexcusable. “These sexual harassment claims are not rocket science; they are things that folks should know better going into it, even if you are an aggressive person when it comes to the product that you want to sell,” she noted.

“In Silicon Valley, there is still the narrative of the heroic tech CEO who sticks it out and continues to lead the firm to glory.”–John Paul MacDuffie

Kalanick’s Future

Schipani said it is time for Kalanick to seriously consider stepping away totally from the CEO’s role. “Good CEO-founders recognize when it’s time for them to give the reins over to someone else — that they can no longer be effective after a certain period of time,” she said. “It might be time for this CEO to think about that.”

MacDuffie agreed. “It is part of the narrative we have for some of the most successful startups: They reach a point where the founder and the founding team aren’t the right leadership to go forward, not necessarily because of some scandal, but because of some other crisis or some different needs in the company’s next stage of growth,” he said.

However, that trajectory has not been the norm at many technology companies, in part because many venture capital firms prefer to invest in companies that still have the founders around because of their technical vision and relationships, said MacDuffie. He recalled that Steve Jobs was forced out of Apple in 1985, and Apple became great only when he came back in 1997. “In Silicon Valley, there is still the narrative of the heroic tech CEO who sticks it out and continues to lead the firm to glory,” he said. “The board will be wresting with those different visions of what Uber’s future should be.”

Kalanick has said he is taking time off because of his mother’s passing in a boating accident last week that also left his father seriously injured. However, MacDuffie said that based on the findings and recommendations of the report, Kalanick could have been asked to take time off to regroup himself in any event. “He strikes me as the kind of CEO who would not want to step aside even briefly, and this personal tragedy probably made it a more logical thing for him to do,” he said.

Lessons for Other Firms

Schipani is hopeful that Uber’s current troubles will “open up the eyes” of other companies to steering clear of unethical behavior. She noted that the report calls for Uber HR executives to be well-trained on the legal consequences of certain ethical issues. They should be similarly sensitive to issues that affect corporate culture and are unethical, even if they don’t become legal issues, she said.

For many customers, the perception that Uber doesn’t treat its drivers very well could hurt, said MacDuffie. He pointed to a video recording of an argument Kalanick had with an Uber driver in February. The driver complained about falling rates for drivers. Kalanick had berated the driver for not taking responsibility for his problems. He apologized later that month in a note to his staff, to the driver and the driver community, and displayed a rare show of remorse. “It’s clear this video is a reflection of me — and the criticism we’ve received is a stark reminder that I must fundamentally change as a leader and grow up,” he said in the note. “This is the first time I’ve been willing to admit that I need leadership help and I intend to get it.”

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