Negotiating seamless leadership transitions

The drama surrounding the departure of Uber’s longtime CEO points to the value of negotiating leadership shifts in a way that minimizes disruption.

By on / Leadership Skills

Travis Kalanick, until recently the CEO of ride-hailing service Uber, helped grow the company from the seed of an idea in 2009 into a global firm valued at nearly $70 billion. He cemented his power by becoming Uber’s single biggest shareholder, negotiating for a seat on Uber’s board, and filling other board seats with his supporters. But this past summer, amid a series of scandals at the company, Uber investors and board members pushed Kalanick out of power, a decision that launched a chaotic and distracting battle for control of the company’s board and its future.

In organizations, changes in leadership can be straightforward—often taking the form of a dismissal and negotiated settlement package—but they can also be filled with upheaval, uncertainty, and stress. We review the recent leadership shake-up at Uber with the goal of identifying ways in which organizations can negotiate less disruptive transitions.

A crisis of confidence

In February 2017, a recently departed Uber engineer named Susan Fowler published a blog post that outlined a culture of sexual harassment and gender discrimination at the company that she said Uber’s top leaders condoned. Then the New York Times published an exposé of rampant misbehavior and abuse within the company. Employees began filing lawsuits against Uber managers, alleging harassment and abuse.

At a companywide meeting, Kalanick apologized to employees for allowing a toxic workplace culture to flourish and launched an internal investigation of employees’ harassment complaints, according to the Times. The investigation led to the firing of 20 employees and an initiative aimed at improving Uber’s culture.

But it was only one of many crises facing Uber. The company was fighting an intellectual-property lawsuit filed by Waymo, a self-driving car business, and also was dealing with several federal investigations into its business practices. Stories of Kalanick’s brash, abrasive personality had also circulated in the news, along with a video of him berating an Uber driver.

“One by one, executives, board members, investors, and even close friends slowly fell away” from Kalanick as a result of the scandals, writes Mike Isaac in the Times.

A surprise demand

With his base of support disintegrating by the day, Kalanick announced in mid-June that he would take an indefinite leave of absence to grieve the unexpected death of his mother and to make plans to improve Uber’s leadership. Yet immediately after announcing his leave, Kalanick began “working the phones” to force out a board member who had made a sexist comment at an Uber employee meeting, according to the Times.

Some of Uber’s major investors decided they needed to act decisively to reduce Kalanick’s role. In particular, Silicon Valley venture-capital firm Benchmark, one of Uber’s largest and earliest shareholders, had soured on Kalanick. The previous year, Kalanick had negotiated with Benchmark for the ability to create and control three new seats on Uber’s eight-member board. He appointed himself to one of the seats and left the other two vacant. Now Benchmark reportedly regretted that move.

On June 20, while Kalanick was in Chicago, two Benchmark representatives, Matt Cohler and Peter Fenton, showed up and surprised him with a list of demands from their firm and four other Uber investors, which included ordering him to resign by the end of the day, the Timesreports. Caught off guard, Kalanick called Uber board member Arianna Huffington for advice; she reportedly said he should consider acquiescing.

Kalanick then holed up at a hotel with Cohler and Fenton to negotiate his next move. At first he balked at stepping down, but after several hours, he agreed to do so.

Having kicked Kalanick out of the executive suite, Benchmark sued him for fraud to try to eliminate the board seats he’d negotiated.

A three-person race

With Uber in need of a CEO, an executive search firm narrowed the contenders down to three candidates. On Friday, August 25, Uber’s board began interviews with them. The two front-runners were former General Electric CEO Jeffrey R. Immelt, whom Kalanick backed, and Hewlett-Packard CEO Meg Whitman, who was favored by several Uber executives and board members. Expedia CEO Dara Khosrowshahi was a distant third-place candidate. But by Sunday morning, the Times reports, some board members had grown concerned that Immelt would be little more than a proxy for Kalanick. Facing dwindling support, Immelt withdrew from the race.

Whitman reportedly viewed Kalanick as a disruptive force and recommended taking steps to reduce his influence on Uber.

As the lead candidate, Whitman reportedly began negotiating for the control she believed she would need to successfully lead Uber out of its turbulent period. Like some Uber investors and board members, she reportedly viewed Kalanick as a disruptive force and recommended taking steps to reduce his influence on the company, beginning with changes to the board’s governance. However, many board members were put off by her suggestions, according to the Times. The board gave Khosrowshahi a closer look and, on Sunday night, voted unanimously to offer him the job, which he accepted.

Another plot twist

A few weeks later, on September 28, Khosrowshahi and one of Uber’s investors, Goldman Sachs, proposed the types of governance changes that Whitman had recommended, namely reducing the power of Kalanick and other board members with outsized voting rights (including Benchmark) in favor of a “one share, one vote” rule. Khosrowshahi and Goldman Sachs also asked for greater power to appoint board members, limits on the ability of former Uber officers (such as Kalanick) to return as CEO, and a 2019 deadline for the company to go public.

Speaking to Bloomberg, Council of Institutional Investors executive director Ken Bertsch said the board’s proposal was not a good example of corporate governance but was understandable, given that it was dealing with “excessive power for the former CEO, who has the potential to undermine the authority of the new CEO.”

A vote on the proposal was quickly scheduled, along with a vote on whether to approve a $10 billion sale of existing Uber stock to Japanese conglomerate SoftBank Group. Some Uber investors on the board said they would not agree to sell their shares to SoftBank unless the board voted to reduce Kalanick’s power.

The next day, Kalanick fought back with a surprise move, filling the two extra board seats he had previously negotiated from Benchmark with his own picks, former Xerox CEO Ursula Burns and former Merrill Lynch CEO John Thain. Both were highly regarded, making it difficult for Kalanick’s adversaries to object. But in a letter to Uber employees, Khosrowshahi called Kalanick’s power play “disappointing” and “highly unusual.”

Meanwhile, Uber faced yet another crisis, this one external: The city of London, one of Uber’s biggest markets, revoked Uber’s operating license because of concerns about the company’s culture, driver background checks, and other issues.

A compromise agreement

On October 3, with Khosrowshahi phoning in from London, where he was trying to win back Uber’s taxi license, Uber’s board convened and voted in favor of a compromise version of the new CEO and Goldman Sachs’s proposal, theTimes reports. Kalanick and other early investors’ voting rights were reduced in favor of a one-vote-per-share formula. The board resolved to take Uber public by 2019. In addition, the board voted to add six new seats, two reserved for SoftBank and the others to remain independent, for a total of 17 members. The measure that would make it difficult for Kalanick to be reappointed CEO was dropped, although the board voted to require two-thirds approval of any new chief executive. In addition, Benchmark said it would drop its lawsuit against Kalanick.

Having made enough changes to satisfy the company’s early investors, the board voted unanimously to move forward with the share sale to SoftBank as well. Following the meeting, Kalanick struck a note of cooperation, saying he thought the new governance framework would “serve Uber well,” according to the Times. As for Khosrowshahi, with the internal turmoil having died down (at least for now), he may actually be able to focus on running Uber’s business—restoring the London operating license, settling the Waymo lawsuit, establishing a more functional corporate culture, and taking the company public.

3 guidelines for smooth leadership transitions

For companies seeking to negotiate peaceful leadership transitions, as well as leaders looking to set themselves up for success, the following lessons from Uber’s saga should stand out:

1. Negotiate curbs on power from the very start. “The mess Uber finds itself in right now—from its lawsuit over Waymo to its sexually toxic culture to its general mode of thumbing its nose at sensible corporate norms and practices—is all on Kalanick,” writes tech-news website Recode. “He both deserved to be removed as CEO and seemed to do everything possible to make it an inevitability.”

The fact that Kalanick, in the name of improving Uber’s governance, was able to sow chaos even after resigning speaks to the fact that he became too powerful over the course of his tenure with the company. Benchmark, for example, allowed him to negotiate for extra board seats.

When possible, wise leaders try to negotiate employment terms and decision-making rules that avoid giving one person too much control over the organization. After all, the visionary leader of today could lose sight of the organization’s best interests tomorrow. In addition, it’s important to negotiate the terms of a leader’s departure to prevent trouble from cropping up once he or she is gone.

2. Negotiate your role. During the interview process, savvy leaders negotiate not only for the position they want to hold but also for tools they believe they need to succeed in their role, writes Jeswald Salacuse in his book Real Leaders Negotiate! Gaining, Using, and Keeping the Power to Lead Through Negotiation (Palgrave Macmillan, 2017). Meg Whitman tried to do just that when negotiating with Uber’s board for the CEO position, but the directors apparently didn’t see the merits of this strategy. If an organization’s leaders don’t understand the value of negotiating your role before you come on board, they could be setting you up for failure, and the job may not be a good fit. Interestingly, after he was hired, Khosrowshahi asked for the same types of controls on Kalanick’s power that Whitman tried to negotiate.

3. Negotiate your departure. In Real Leaders Negotiate! Salacuse offers advice for leaders who are being threatened with a loss of power on steps they might take to retain it, such as strengthening their existing alliances, forming new ones, blocking challengers, letting go of power gradually rather than all at once, and playing a role in choosing their own successor. Kalanick demonstrated all these leadership skills, but there’s another skill that Salacuse recommends that Kalanick didn’t excel at: understanding when the time comes to bow out gracefully. When your team has lost confidence in your ability to lead, for the good of the organization and your own reputation, it’s time for you to accept reality and negotiate a peaceful departure.

Related Posts

Comments

Leave a Reply