Uber Technologies Inc's new Chief Executive Dara Khosrowshahi told employees on Wednesday the ride-services company would change its culture and may go public in 18 to 36 months.
Khosrowshahi, who led travel-booking site Expedia Inc for 12 years, made the remarks as he introduced himself to Uber's workforce on Wednesday during an all-staff meeting at its San Francisco headquarters.
His plans include rebuilding Uber's culture and growing market share as well as possibly conducting an initial public offering in 18 to 36 months, according to people who attended the meeting. It is common for venture capital-backed companies to signal an IPO at a vague time in the future.
"This company has to change," Khosrowshahi told employees, according to the Twitter feed of Uber's communications team. "What got us here is not what's going to get us to the next level."
Khosrowshahi said Uber needed to stabilize itself but also take what he called "big shots." The appointment of Khosrowshahi, who described himself as "a fighter," comes as Uber is trying to recover from a series of crises that culminated in the ouster of former CEO Travis Kalanick in June. It is also a key step toward filling a gaping hole in its top management that at the moment has no chief financial officer, head of engineering or general counsel.
In his first meeting with Uber employees, Khosrowshahi emphasized recruiting new talent - particularly a chief financial officer - as well as a chairman to help him run the board, according to tweets from Uber.
Kalanick, who attended Wednesday's staff meeting, welcomed his replacement in a statement. "Casting a vote for the next chief executive of Uber was a big moment for me and I couldn't be happier to pass the torch to such an inspiring leader," Kalanick said.
Khosrowshahi inherits a dysfunctional board that has been divided by a lawsuit filed by investor Benchmark Capital against Kalanick. The lawsuit, which seeks to force Kalanick off the board and rescind his ability to fill two board seats, has caused shareholder infighting and complicated the CEO search.
Delaware Judge Sam Glasscock on Wednesday brought that dispute closer to a resolution when he stayed the lawsuit and moved it to arbitration, which moves the legal fight out of the public eye and hands a victory to Kalanick.
"I think what we have here is a political battle that belongs in the boardroom and not the courtroom," said Donald Wolfe, an attorney for Kalanick. Glasscock stopped short of dismissing the lawsuit, as Kalanick had requested, because of concerns about the impact the dispute might have on other Uber shareholders who may also want to take legal action. The board had already selected Khosrowshahi as Uber's next CEO in a vote on Sunday. But the firm and its board did not speak publicly on the decision until Tuesday evening, as contract negotiations were ongoing.
"The board and the executive leadership team are confident that Dara is the best person to lead Uber into the future," Uber's eight-member board wrote in an email to employees sent late Tuesday that was also made public.
Khosrowshahi has been replaced at Expedia by Mark Okerstrom, the company's chief financial officer for the last six years. On a call with reporters Wednesday, Okerstrom hinted at the surprise and confusion that followed Khosrowshahi's appointment as Uber CEO. Khosrowshahi was not a publicly known candidate for the job, and he told Expedia staff he was accepting the new role two days after the first media reports on his selection.
"I think the way that this whole thing unfolded is not the way that most people would have planned it," Okerstrom said.
Khosrowshahi will remain on the Expedia board.
A battle among shareholders over Uber Technologies Inc escalated on Thursday as some investors sought to fight a lawsuit by shareholder Benchmark Capital against ousted Chief Executive Travis Kalanick.
In a letter to the Uber board of directors seen by Reuters, Shervin Pishevar, a venture capitalist with Sherpa Capital who is an Uber investor and critic of Benchmark, said he was seeking to intervene in the lawsuit filed Aug. 10.
He said Benchmark's effort to remove Kalanick from Uber's board was aimed at gaining control of the company. "If Benchmark insists on trying to use the courts to try to take over this company, we are committed to doing everything we can to try to stop this abuse," Pishevar wrote in the letter sent Thursday.
The conflict playing out in public marks a rare turn of events for Silicon Valley. It is extremely unusual for a venture firm to sue the central figure of company it has backed and equally unexpected for fellow investors to make a highly public counter-move. The legal dispute started two weeks ago when Benchmark sued Kalanick in Delaware's Chancery Court to force him off Uber's board and rescind his ability to fill three board seats.
Benchmark owns 13 percent of Uber and controls 20 percent of the voting power. After an initial investment of $12 million, its stake in Uber is now worth almost $9 billion. Kalanick holds about 10 percent of Uber stock and about 16 percent of its voting power.
Kalanick has called Benchmark's lawsuit "a public and personal attack" without merit and called for the dispute to be moved to arbitration, according to court filings. Pishevar and fellow Uber investor Stephen Russell have come to Kalanick's defense. In their motion to intervene in the lawsuit, Pishevar and Russell blasted Benchmark's "dirty tactics" and "public smear campaign" against Kalanick. In the document, they called Benchmark's lawsuit a "transparent" effort "to unscrupulously gain control of Uber's board of directors."
The motion was filed by Russell and Sofreh LP, Pishevar's partnership. A copy of motion was provided to Reuters by a source close to the matter. A judge must rule on the investors' request to intervene in the lawsuit.
Benchmark's lawsuit accuses Kalanick of fraud in concealing misdeeds from the board when last year he requested the board add three seats that he would have the sole right to appoint. Board members, including Benchmark, approved. The lawsuit says the firm never would have approved the request had it known about the misconduct, including details of an alleged theft of trade secrets that has led to a high-stakes legal fight with Alphabet Inc's self-driving car unit, Waymo.
The legal battle could determine who wields power at Uber as the world's largest venture-backed company looks for a new CEO to help it overcome a year of scandals, rebuild its tarnished image and turn it into a profitable business.
Kalanick was forced to resign as CEO in June, when shareholders representing about 40 percent of the company's voting power signed a letter asking him to step down, following a succession of scandals at the company ranging from sexual harassment to using software to evade regulators in certain cities. Kalanick remains on the board and is involved in the company's search for a new CEO.
Pishevar has in two previous letters called on Benchmark to step down from the board and sell the majority of its Uber stake. Benchmark, an early Uber investor, has a seat on the company's board, and Pishevar's firm does not.
BENCHMARK SAYS KALANICK IS 'CORROSIVE'
Benchmark doubled down on its allegations against Kalanick on Thursday with a new court filing that accused Kalanick of having a "corrosive influence" on the ride-services company and arguing that a Delaware court should decide Kalanick's future on the Uber board, not arbitrators.
Removing Kalanick from the board is necessary "to ensure Uber is protected from Mr. Kalanick's corrosive influence and can promptly obtain the new leadership it needs to move forward," Benchmark's court filing said, referring to Uber's search for a new CEO.
A spokesman for Kalanick said Benchmark's latest court filing relies on meritless personal attacks against Kalanick with no legal basis.
The ousted chief executive of Uber Technologies Inc [UBER.UL] rejected a lawsuit filed against him by one of the company's top investors as a "public and personal attack" without merit, according to court documents filed late on Thursday.
Venture capital firm Benchmark Capital, which says it owns 13 percent of Uber and controls 20 percent of the voting power, last week sued former Uber CEO Travis Kalanick to force him off the board, where he still has a seat, and rescind his remaining power there.
Kalanick, in the first court filing in response to the lawsuit, said Benchmark's legal action is part of a larger scheme to oust him from the company he helped found and take away power that is rightfully his. He also argued that the legal quarrel should take place in arbitration and that Delaware's Chancery Court, where the lawsuit was filed, lacks jurisdiction.
Benchmark's lawsuit marks a rare instance of a well-regarded Silicon Valley investor suing the central figure at one of its own, highly successful startups. The case has stunned the venture capital community and created a divided Uber board and infighting among shareholders, many of whom have criticized Benchmark for suing.
At issue is a change to the board structure in 2016 that expanded the number of voting directors by three, with Kalanick having the sole right to fill those seats.
In its lawsuit, Benchmark said Kalanick hid from the board a number of misdeeds, including allegations of trade-secret theft involving autonomous car technology and misconduct by Kalanick and other executives in handling a rape committed by an Uber driver in India, when he asked Uber's board to give him those extra seats.
Benchmark said it was "fraudulently induced" to agree to the change and wants Kalanick to give up control of those seats.
But Kalanick's court filing said that at the time of the board change, "Benchmark was fully aware of all of the allegations involving Kalanick." The venture firm made no mention of fraud and continued to publicly support Kalanick through May, according to the filing.
Then in June, Benchmark was part of a group of five investors who demanded Kalanick's resignation as Uber's CEO. "The Benchmark principals also handed Kalanick a draft resignation letter, and told him he had hours to sign it, or else Benchmark would start a public campaign against him," according to the court document.
Benchmark first backed Uber in 2011 with an investment of $12 million. At the $68 billion valuation that Uber achieved last year, Benchmark's stake would be worth almost $9 billion. "Resorting to litigation was an extremely difficult step for Benchmark," Benchmark said in a statement through a spokeswoman. "Failing to act now would mean endorsing behaviour that is utterly unacceptable in any company, let alone a company of Uber's size and importance."
The lawsuit comes amid discussions by outside investors, including SoftBank Group Corp, to buy a large chunk of Uber stock, although it is unclear if any transaction will occur. Benchmark's public effort against Kalanick is largely solitary, with the remaining six members of Uber's board of directors last week issuing a statement expressing their "disappointment" in the lawsuit. Uber investor Shervin Pishevar of Sherpa Capital, joined by other shareholders, sent letters to Benchmark calling for the firm to divest its shares and step down from the board.
In an unusual move, Benchmark this week wrote an open letter to Uber employees, saying Kalanick had undermined the CEO search and was seeking to "create a power vacuum in which Travis could return."
As the ride-hailing company Uber lurched from one clumsy mess to the next, it had appeared that CEO Travis Kalanick would somehow ride out the storm. His recent resignation is an admission that the company needs to explore new avenues.
I wrote recently about tech CEOs who had protected themselves from the usual pressure from shareholders, and were able to freely dictate strategy and culture. I’m happy to say that Kalanick’s departure from the top job (he will stay on the board) signals that there is indeed a line to cross where even disenfranchised investors can assert their power. It is not hard to see why: Uber is facing up to some tough decisions.
Aside from the rows around a damaging corporate culture, news that rival Lyft has increased its share of the US ride hailing market from 17% to 23% is rapidly destroying investor assumptions about this industry. Uber investors have stumped up US$12 billion in the belief that this is a winner-takes-all market. That now looks not to be the case.
This is great news for the customer as low fares are likely to persist. Uber investors had been funding incentives to both customers and drivers in the hope that both would stay put once the incentives stopped. Evidence is beginning to suggest otherwise. Uber’s 2016 losses, largely driven by the funding of incentives globally and from the development of driverless car technology, were US$2.8 billion.
So where did that winner-takes-all belief come from? Well, investors had looked at Amazon, Facebook and Google. The first mover in those cases developed a large customer base attracted by an increasing number of suppliers. In turn, suppliers found access to large numbers of customers and had no motivation to go elsewhere. The software simply does the matching.
An Uber customer wants a quick pick-up and cheap fares while the drivers want to be busy generating higher wages. So, in theory, an app which offered both at a high level, and was first to market, should attract most of the drivers and customers.
However, the app is readily copied. Many taxi firms now have their own app with similar attributes. Customers may now have several ride hailing apps on their phones which they can check for the cheapest and most rapid arrival.
Additionally, drivers are self-employed and can switch their allegiances rapidly. This is not a recipe for world domination.
Existing firms leap at the opportunity to expand. Lyft has proved that to be so by gaining US market share just as Uber’s reputation was soured by allegations of a sexist and macho culture. A major lawsuit from Google has only added to the sense of a company struggling to maintain its grip.
Uber can learn from Lyft, which has succeeded with a clear market focus, unhindered by unrelated diversification. Lyft has focused on ride hailing in the US alone. Uber has expanded globally and invested heavily in driverless car technology. Uber spent $2 billion in a Chinese market it has now exited under pressure from the local competitor Didi Chuxing.
In the Indian market, which is led by Ola, Uber was slow to adapt to very different market conditions and lost time and position. Even in the UK, Uber has faced competitive and political pressure from established taxi operators. Focus means being able to channel resources, knowhow and competitive strategy into one area. Uber has left itself open to attack on too many fronts.
That brings us to Kalanick’s odd move into driverless car technology, taking on the might (and vast resources) of Google. Many of the world’s major car companies, with their own attendant resources and technology partners, are also investing heavily. Was Uber really going to win a fight against Ford, Mercedes, GM, and Tesla?
It is likely they are all further ahead than Uber. Indeed it is difficult to see what technology Uber has to offer in this particular market. Surely this is a prime opportunity for a deal where Uber supplies the demand while the more advanced partner supplies the technology and cars.
Kalanick’s ambition has been fundamental to the rise of Uber. With his departure from the CEO role, perhaps that ambition will give way to strategic sense. Kalanick was able to cling on for so long partly thanks to investors’ desire to unearth the next tech giant, which made them indulgent of the founder’s control. The hope must be that the Uber experience encourages investors to tighten the reins on tech executives. The job for the next CEO will be to convince investors and customers that it is worth sticking around to see how this all ends.