Is monoculturalism Uber's real problem?

Is monoculturalism Uber's real problem?

Sunday July 02, 2017,

5 min Read

The spate of articles post-Travis Kalanick's unceremonious sacking in a Chicago hotel room reflect the "bandwagon effect" among analysts in post-facto rationalisations of such events, where much of what should have been obvious in the first place, is repeated post the event.

Whilst deeply ingrained issues such as the "tech bro culture" and the affinity to cross the ethical and legal boundaries in the conduct of business are indeed relevant, this article would attempt to look beyond and delve deeper into the fundamental malaise of which the Uber episode is merely a symptom.

To my mind, the core issues are two-fold:

(a) the alpha white male monoculture which dominates the PE/VC industry in the US.

(b) the lack of genuine intent in driving true governance given the cozy nexus in the boards as long as profits are generated by the company and its founders.

Kalanick's behavioral traits in terms of risk-taking have been eulogised by many -- mainly led by hard-nosed PE investors and gullible employees -- as it generated unimaginable valuation multiples in less than a decade.

Whilst such traits are a necessary ingredient for those seeking to disrupt on a large scale, these can be counter productive if based on hubris accentuated by over-confidence and excessive optimism. It is a heady cocktail of traits which pave the way for judgmental biases and systemic flaws in an established pattern of decision-making bordering on being reckless whilst acting with impunity.

This was evident in Uber's actions across geographies in many areas: the illegal tagging of iPhones using the secret Greyball tool to trick law enforcement agencies and break privacy laws, sharing medical records of the raped Indian woman, the Waymo legal suit for alleged trade secret theft filed by Alphabet, etc.

In fact, in one of his early startups in 2000, Red Swoosh, Kalanick used employee deductions towards TDS, which the company was legally obliged to deposit with the IRS, for business purposes. The multi-faceted controversies which Uber faced over the last many years were symptomatic of this primary trait. Which was just fine with the investors as long as the company met its growth objectives.

The Board chose to ignore the fundamentals of their governance role and failed to provide guidance in correcting a trait which would ultimately endanger the company in many more ways than one. It is worth recollecting that for all the talk of governance and ethical behavior, investors backed Kalanick despite past investors and advisors calling him a "serial prevaricator" and "delusional".

And the prime reason for this was that Uber continued to see growing valuations. All that changed with the debacle at China where it lost billions trying to outgun Didi and posted an additional loss of $ 2.8 billion in 2016 on a revenue of $ 6.5 billion.

Once a founder, however, visionary, loses this game of financials the equation shifts in favor of the investors. This is exactly what happened to Steve Jobs in 1983 and Scott McNealy in 2007.

Till then, they are ring fenced by the very same investors and the Board and allowed to play the game on their own terms, even at the cost of questionable business practices, unethical behaviour, dubious conduct, and sometimes procreating a destructive corporate culture.

This is a reflection of the belief system encouraged and actively propagated by the PE/VC industry in the pursuits of outsized profits and to promote entrepreneurship at any cost. And core to this is the virtual absence of women in leadership positions in this ecosystem.

A study shows that startups with one woman founder or investor have about 50 percent women in the workforce as against the 15 percent to 10 percent in companies such as Twitter, Facebook, etc.

To my mind, the reason PE/VC funds function in this manner is due to the obscene levels of money at stake which they control and their need to keep this in a closed old boys club. Diversity in thinking and practices does not figure in its scheme of priorities. The primary investors in these funds, too, are from the same monoculture and hence the incentive to change is minimal.

Visionaries like Kalanick need to be encouraged for the entrepreneurial ecosystem to flourish and innovate: but this must be balanced with the benefit of sound advice, a culture which promotes restraint and a governance structure which actually provides timely guidance with active interventions.

A study shows that startups with one woman founder or investor have about 50 percent women in the workforce.

Whilst seasoned full-time advisors are a must for most founder-led startups to steady the ship as it sails into these turbulent waters, increased levels of diversity in the company and boards/investors would pave the way for a self-sustaining culture of restraint, propriety, and accountability. It is this combination which will help prevent future episodes of this nature and we must live in the hope that this will emerge as a fallout of the Uber episode.

As Mark Twain said : Good judgment comes from experience but experience comes only from bad judgments. And Uber has made many of them.

It will now need the courage to confront them and transform. Not an easy task in a company where there is effectively no second line and a corporate culture of unethical behaviour laced with poor judgment entwined in its operating consciousness.

Cultural cleansing in a corporate context is a very difficult transformation whose short-term costs are high and the process painful but there have been celebrated examples of this when the Board demonstrated the will to go through it.

I have been part of this experiment in Xerox, a legendary West Coast company too in the mid-eighties and can vouch for its effectiveness if only the leadership is decisive enough and investors have the sagacity to withstand few quarters of financial turbulence.

In the interest of Uber -- undoubtedly a Silicon Valley icon in many ways -- I hope this maturity will prevail in the Board and with its investors.