The lessons of Travis Kalanick’s fall

Uber co-founder Travis Kalanick’s rise and fall, played out in the public eye, have been spectacular. The circumstances make it tempting to cast him as the central figure in a modern morality play. Certainly, there are cautionary lessons here about hubris, sexism and greed. But Kalanick and Uber’s troubles are part of a larger picture—one that is less amenable to neat ex post facto explanations.

Kalanick may not have had a role to play in every misstep at Uber, but the ultimate responsibility is his. The toxic culture of sexism and harassment that permeated the company—outed by former employee Susan J. Fowler in February and since corroborated by over a hundred other female Uber employees—could not have existed without Kalanick and the C-suite turning a purposeful blind eye. Kalanick, after all, was complicit in the misuse of the medical record of the Uber customer raped by the driver here in India in 2014. And the two company-wide investigations that were sparked by the allegations found structural problems, such as a lack of internal controls, that are directly attributable to top management.

Despite none of these problems being new, Kalanick’s ouster as chief executive officer (CEO) happened only now for a reason: the negative publicity was finally starting to affect the bottom line. The backlash from Kalanick’s joining US President Donald Trump’s economic council; his being seen as undermining a taxi strike against Trump’s immigration ban, resulting in a #DeleteUber campaign that led to nearly 200,000 app deletions; the viral video of him arguing with an Uber driver who complained about low pay; these hurt Uber with the public seeing Kalanick as the embodiment of everything they perceived to be wrong with the company. The latest round of scandals were the last straw. According to the Financial Times, a report by Second Measure, a research company that uses anonymized credit card data, stated that Uber’s US market share had declined from 84% at the beginning of the year to 77% at the end of May, allowing competitor and distant second Lyft some breathing room.

Prior to this, Uber’s board acted, by all accounts, as cheerleaders. Little wonder the “cult of the founder” is now coming in for criticism. Like Uber’s problems with sexism and rule-breaking, it runs deep and wide, encompassing much of Silicon Valley, enabled and encouraged by investors. The argument once made by Ben Horowitz, co-founder of venture capital group Andreessen Horowitz, that founders aspire to leave a lasting legacy and are therefore more likely to be completely committed in the long-run than career CEOs, is now accepted wisdom.

Thus, there is forbearance for founders like Kalanick who can grow the company rapidly even if it means breaking the rules. Changes in funding patterns have contributed. A decade ago, capital for growth beyond a certain point would have meant going public, which in turn would have meant more transparency and oversight. That is no longer necessary with the rapid growth of capital targeting the late-stage sector in the US. Venture capital is no longer the only game in town; from pension funds to sovereign wealth funds, they all want a slice of the pie.

Given this, changing company culture will not be easy. It will take more than the symbolism of rechristening the central conference room known as the “War Room” to the “Peace Room” or dropping some of the company’s 14 core values such as “being always on” and “toe-stepping”. As Benjamin Edelman has provocatively argued in Harvard Business Review, Uber’s “cultural dysfunction… stems from the very nature of the company’s competitive advantage: Uber’s business model is predicated on lawbreaking. And having grown through intentional illegality, Uber can’t easily pivot toward following the rules.”

After all, arguably the biggest problem facing Uber right now is the lawsuit filed by Alphabet’s self-driving business, Waymo, alleging trade secret theft. And Edelman notes that Uber’s “use of non-commercial cars was unlawful from the start. In most jurisdictions, longstanding rules required all the protections described above, and no exception allowed what Uber envisioned.”

If this dynamic—upstart entrepreneurs venturing into regulatory grey areas and breaking laws to take on state-backed monopolies such as taxi unions that have left consumers poorly served—sounds familiar, that’s because it has precedent. Today’s tech moguls are, in many ways, the spiritual heirs of the entrepreneurs who turned the US into an industrial powerhouse over the course of the 19th century’s second half. The robber barons—from Leland Standford and Andrew Carnegie to John D. Rockefeller and Henry Ford—were opportunists who had a distaste for government regulation and would have liked nothing better than to be able to build monopolies unfettered. And Carnegie’s advice to “cut the prices, scoop the markets” describes Uber’s business strategy as well as it did his own.

It took decades for the government to come to terms with the changes the robber barons wrought and craft regulatory regimes that found the right balance between allowing entrepreneurship and curbing law-breaking. That same process is being repeated now from New York to New Delhi, if perforce swifter. Uber’s problems point to the downsides of the creative destruction that accompanies the birth of new industries until that balance is found.

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