Saturday, April 8, 2017

"Why Uber Won’t Fire Its CEO"

From Backchannel, Apr. 4: 

The rise of super-voting shares in Silicon Valley has given founders the ultimate job security.
As the calamities amass at Uber, many people — including me — have called for new leadership. Usually, the job of hiring and firing a CEO falls to a company’s board of directors. Yet in a March 21 phone call with the press, board member Arianna Huffington said that Uber’s board had not even discussed the matter.

They had no reason to. At Uber, like at many of tech’s hottest startups, the board has little influence over who fills the top job. The only person who can decide Uber needs a new CEO is its cofounder and current CEO, Travis Kalanick.

That’s due in part to the dual-class share structure that savvy tech founders have come to embrace in recent years. Essentially, in one class, a share carries one vote; in the other class, shares come with ten votes each or more. These super-voting shares allow founders and some early investors to maintain control over decisions the company makes, even if their ownership in the company is significantly reduced. Founders increasingly pair this strategy with smart management techniques when setting up a board to guarantee control in perpetuity.

According to Uber’s articles of incorporation, the company has 11 board seats, nine of which carry super-voting shares. As of now, the company has filled only seven of those spots. Two outside investors hold super-voting seats. The others fall to Kalanick and two of his allies: Garrett Camp, a cofounder who is a non-executive chairman of the board, and early employee Ryan Graves. Kalanick has chosen to leave four super-voting seats empty, according to The Information. Were board members to counter Kalanick, he could simply fill the empty seats.

This degree of control is not uncommon for the unicorn startup in 2017 — but it is a new phenomenon in tech companies generally. Less than two decades ago, founders were more likely to find themselves at the mercy of their investors and other board members. Conventional wisdom held that startup CEOs should make way for a professional CEO as a company grew. When investors negotiated investments, founders gave up portions of their stakes within companies, and by the final rounds, they often no longer controlled the board. Founders who were not performing could get the boot. Thus in 1985 when Steve Jobs clashed with John Sculley, Sculley brought the disagreement to the board, which authorized him to fire Jobs....MUCH MORE
Related: 
"Facebook's Investors Criticize Marc Andreessen for Conflict of Interest