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NEWS ANALYSIS: Venture investment firm Benchmark Capital has filed suit claiming that former CEO Travis Kalanick fraudulently hid critical information from the board of directors.
Benchmark Capital wants former CEO Travis Kalanick to be gone from Uber, apparently forever.
Kalanick, who gave up his position as CEO of the ride-sharing company he founded, is being charged with fraud in a civil suit filed by Benchmark Capital. The suit alleges that Kalanick fraudulently withheld critical information from Uber’s board of directors when he asked to increase the size of the board from eight to 11 members.
In that vote, Uber’s board agreed to the additional seats and also agreed that Kalanick could have the sole power to appoint those new board members. However, Benchmark also claims that Kalanick has reneged on his promise to make those new directors independent and diverse. Instead, the suit says that Kalanick appointed himself to one of those board positions and has refused to fill the others.
Benchmark’s suit lists four events that it says Kalanick hid from the board. They are Kalanick’s support for a harassing and abusive management style, the theft of trade secrets by a founder of Otto, an autonomous truck technology company that was acquired by Uber, the existence of the Grayball software to shut regulators out of the ride-sharing service, and the charge that Kalanick had received and read the medical records of a woman in India that complained of being raped by an Uber driver.
Kalanick gave up a direct management role in the company after the board voted to adopt a 10 point list of recommendations to improve corporate governance included in a report by an independent legal team that investigated the company’s management practices.
The first line of the report begins, “Review and Reallocate the Responsibilities of Travis Kalanick.”
In June Kalanick announced he was taking a leave of to mourn the death of his mother. But a few days later he announced he had resigned as Uber CEO.
In the suit, Benchmark says that it would not have voted in favor of the changes to Uber’s board if it had known of those problems and it claims that Kalanick concealed the issues in an attempt to stay on the board and eventually return as CEO. If Benchmark gets its way that board vote would be invalidated and Kalanick would be forced off the Uber board.
Kalanick resigned as CEO of Uber on June 20, and in the process, gave up his seat on the company’s board because it was reserved for the CEO. However, immediately after his resignation, Kalanick exercised his right under his agreement with the board to fill one of those three board seats and he named himself.
At this point, Uber is still without a CEO while the board tries to find someone to fill the position. Notably, Kalanick is one of the board members on the search committee for a new CEO, which may be one of the reasons nobody has stepped up to take the job.
Another reason may be the uncertainty caused by the multiple legal actions Uber is fighting including sexual harassment complaints as well as this new lawsuit by Benchmark capital.
A new development emerged on Aug. 11, a day after Benchmark filed its lawsuit. A group of Uber investors began circulating a petition asking Benchmark Capital to divest enough Uber stock so that it would no longer be eligible for board membership, effectively asking that Benchmark to remove itself Uber’s board of directors.
The angst-filled email seeks sympathy for Kalanick who they imply was forced from his position during his bereavement after his mother died last May in a boating accident on a lake in Fresno, Calif. Kalanick’s father was seriously injured in the same accident.
The shareholders are asking for a symbolic vote of the board on where they stand on the lawsuit. Meanwhile, the group is asking other shareholders to sign on to their petition. So far neither the board nor Benchmark has responded to the petition.
Benchmark Partners have a responsibility to perform due diligence to protect its investment. If the investment firm was so worried about Kalanick’s management style, his disregard for business ethics and complaints about a hostile work environment for women at Uber, the evidence has been apparent for a long time.
Instead, Benchmark appears to belatedly reacting to the public relations disaster that occurred when the details of Uber’s and Kalanick’s behavior became front page material.
Now the last female CEO candidate has dropped out and there is no end in sight for the executive search, Benchmark seems worried that Kalanick will present himself as the only choice to be CEO and his return would further damage the firm’s investment in Uber and the potential value of an Uber initial public stock offering.
The other shareholder group, headed by investor Shervin Pishevar, seems to be so worried about the sad situation that exists with Kalanick’s continued presence on the board it’s willing to indulge in yet more boardroom shenanigans to get its way. Group’s heart-rending willingness to forgive Kalanick for all his shortcomings as CEO is pathetic and its stated fear about company goodwill is apparently not strong enough consider the potential loss of public goodwill if he remains on the board or even returns as CEO.
What’s really going on here is two groups of Silicon Valley billionaires are behaving badly to try to get their own way. This virtual stomping of feet and slamming of doors is really nothing but temper tantrums among folks with more money than apparent sense. Together they are hurting Uber nearly as much as the previous management regime.
If they really were interested in the welfare of Uber and its thousands of employees and drivers, they would set aside their differences and find a way to assemble a world class management team that could put Uber’s many troubles behind it.
To do that, they as a board need to not allow Kalanick to select the next CEO or management team. They need to stop this fight that will only further erode Uber’s market value and lead to its eventual failure as a going concern. But first both sides need to act like adults.