Uber Searches For Harmony After Board Limits The Power Of Its Former CEO
On Aug. 30, media mogul and Uber board member Arianna Huffington posted a happy photo to her Twitter account. In the picture, Uber employees, who had spent the last eight months watching the company’s dirty laundry aired in public, smiled for the camera hoping that the moment marked a new beginning. Front and center in the photo, Uber’s cofounder and former CEO Travis Kalanick stood side by side with Dara Khosrowshahi, the man who had replaced him at the helm of the embattled $69 billion ride-hailing company.
Now, a little more than a month later, the united front on display in that photo has been severely tested. After Khosrowshahi proposed that the board limit early shareholders’ voting power and Kalanick surprisingly appointed two new board members last week, the company’s directors voted to fundamentally change Uber’s corporate structure. On Tuesday, the directors, led by Khosrowshahi, moved to decrease the power of Kalanick and other early executives and investors by removing certain voting privileges from their Uber shares.
The move to remove some shares’ “super-voting” privilege, which gave owners 10-to-1 voting power, is Khosrowshahi’s most consequential move since he became Uber’s CEO, wresting control away from Kalanick and making a proposed sale of shares that will be worth billions of dollars to Japanese telecom giant SoftBank and others more palatable to selling shareholders. For Kalanick, who was enraged after these provisions were introduced last week, an agreement to dial back his percentage of votes was seen as a compromise, as he was able to keep control of three board seats that had been at the center of a lawsuit from an early investor.
“Today, after welcoming its new directors Ursula Burns and John Thain, the Board voted unanimously to move forward with the proposed investment by SoftBank and with governance changes that would strengthen its independence and ensure equality among all shareholders,” a spokesperson for Uber’s board said in a statement. “We look forward to finalizing the investment in the coming weeks.”
While Khorowshahi has worked to portray Uber as a company cleaning up its image and building internal harmony, the board’s debate over corporate governance proposals made for a contentious weekend with Kalanick. Uber’s former CEO, who voted for Khosrowshahi to succeed him, was furious last week when the company’s new leader introduced a set of initiatives with shareholder Goldman Sachs on Thursday that seemed largely intended to hamstring him. They proposed the removal of super-voting privileges, a provision that made it harder for past executives to be named CEO and a 2019 deadline on the company to go public.
On Friday, Kalanick responded by filling two vacant board seats with Burns, the former Xerox CEO and Thain, the former CEO of Merrill Lynch. An Uber spokesperson called the power move “a complete surprise” on Friday, given the fact its former chief executive had controlled those seats but left them empty for more than a year, and that they are currently at the center of a lawsuit from investor Benchmark Capital against Kalanick over alleged fraud. (That suit, which was brought in a Delaware court, was recently sent to arbitration.)
“I am appointing these seats now in light of a recent Board proposal to dramatically restructure the Board and significantly alter the company’s voting rights,” Kalanick said in a statement last week.
The posturing continued throughout the weekend as Uber and its new CEO course corrected for the surprise move and Kalanick prepared to dig his heels into retaining a grip on the company he had led for more than six years. According to a source close to Kalanick, the two spent the past 36 hours discussing terms and possible compromises, with Khosrowshahi juggling the corporate governance questions with a trip to London to speak with the city’s transport commissioner, who had revoked the company’s taxi license last month.
After meeting with British regulators, Uber’s new CEO dialed into the meeting, which took place after lunchtime in San Francisco. Burns and Thain also joined, having seen their surprise appointments confirmed on Monday, and all 11 members unanimously voted to move Uber to a “one share, one vote” system, which is contingent of closing of the deal with SoftBank.
While Kalanick relented on the proposal about super-voting shares, which will see lead to his vote total drop from 16% to 11% of all outstanding shares, he convinced Khorowshahi and the rest of the board to avoid a provision that would have created roadblocks to him being renamed CEO. He also avoided a provision that could have potentially stripped him of two of the three board seats he controlled and negotiated a deal with Benchmark who said it would drop its suit against Kalanick once the SoftBank deal was approved and all new corporate laws were implemented.