Super Pumped : The Battle for Uber (9780393652253)

by Isaac, Mike

  Meg Whitman had made up her mind: She wanted to be the next CEO of Uber. “Okay then,” she told Graves. “Let’s talk.”

  On Friday, August 25, Jeff Immelt and Dara Khosrowshahi both made their way to 345 California Street, through the concrete and gold-colored entryway, and up to the offices of Texas Pacific Group, the private equity fund founded by David Bonderman. Most of Uber’s board of directors‡‡‡‡‡‡‡‡‡‡—including Travis Kalanick—had gathered in an airy, well-lit conference room in TPG’s office on the thirty-third floor. For most of Uber’s lifespan it had been led by a man with unparalleled hustle, a super pumped visionary who pushed himself and his company to the very edge until, ultimately, he had hurtled over it. Now Uber needed something different in a leader: Uber needed a grown-up. The two male candidates would lay out their visions that Friday, while Meg Whitman would give her presentation the following day.

  Immelt went first, and he was a disaster. He seemed completely out of touch and unprepared. He seemed not to understand what went into running a sophisticated, heavily regulated three-sided marketplace. One board member called the entire spiel “a bad joke.”

  Immelt’s presentation looked even worse after Dara Khosrowshahi arrived. As Khosrowshahi fired up his laptop and began walking the board through slides, it was immediately clear to the room that he understood the fundamentals of Uber’s business. Khosrowshahi came from logistics and the world of online marketplaces; over his twelve-year run as the CEO of Expedia, he grew annual revenue from $2 billion to $10 billion. He understood the intricacies of the ride-hailing market, the complicated economics of balancing riders’ desire for cheap fares with drivers’ need to earn enough to keep them on the road. While Khosrowshahi knew Uber was a company rooted in its on-the-ground operations prowess, he appreciated the technical chops and importance of a strong engineering culture. Most of all, Khosrowshahi understood the importance of brand—and at the moment there were few brands in the business world in worse shape than Uber’s.

  At one point during the presentation, Khosrowshahi pulled up a slide on his PowerPoint deck that made everyone in the room tense up: “There Cannot Be Two CEOs,” the slide read. As Khosrowshahi looked across the room, directly at Travis Kalanick, he made clear that were he to become Uber’s new leader, Kalanick would truly have to take a hike. The former chief’s only involvement would be his board duties, but no more, Khosrowshahi said.

  Having finished for the day, the board went out for dinner together that evening to discuss the candidates’ performance. Over bottles of wine and farm-to-table entrées, board members talked about how impressed they were with Khosrowshahi. For someone who hadn’t attracted much attention over the weeks-long search, Dara had nailed his presentation, which was a pleasant surprise. Even if things went completely askew with Whitman and Immelt, they knew they had a backup candidate they could all feel comfortable with.

  One thing everyone could agree on was that Immelt was not cut out for the job. No one, in good conscience, could vote for him to be the next chief of Uber—even Kalanick and his supporters.

  On Saturday morning, August 26, Meg Whitman walked out of the elevator at the Four Seasons Hotel on Market Street, through the spacious fifth-floor lobby and into a private executive suite to meet the rest of Uber’s board members for her presentation. Whitman wore a cap pulled down tightly to shield her eyes and face as much as possible, in case there were any press camped out at the hotel restaurant or by the elevators. It was common for Silicon Valley executives to dine at MKT, the hotel eatery, and Whitman’s face was well known in the Bay Area. If anyone saw her at Uber’s offices or even at TPG, things could get ugly for her in public again.

  Whitman’s presentation was an upfront, no-bullshit display. If she were chosen for the job, she meant business. “If you think I’m the right person for the job, we need to settle a few things immediately,” Whitman said, commanding the attention of the room. “This lawsuit?” Whitman said, referencing the battle between Benchmark and Kala­nick. “We need it settled and done.”

  Worse for Whitman were the never-ending cascade of leaks from the boardroom. She said it reminded her of early days at Hewlett-Packard, when a dysfunctional board fed stories to the press that rattled directors and their trust in one another. “We need to seal these board leaks,” she said. “No one—no one—on this board should just be taking unilateral actions on their own. The board is splintered,” she said, the word hanging in the air for effect. “We need to be cohesive, we need the board to be as one. What we cannot have are random acts of violence against this company.”

  Whitman was tough, especially on Kalanick. She made it clear that Kalanick would not have an operational role. Kalanick was a founder and a director, but not the CEO. And for Whitman, it was going to stay that way. Moreover, if the board chose her, they would also have to enact a wholesale restructuring of company governance. Kalanick’s overwhelming power over board seats would not be tenable under her watch.

  On Sunday morning, as board members prepared for a day of deliberation, a tweet began circulating virally: It was from Jeff Immelt, who decided to take himself out of the running in public. “I have decided not to pursue a leadership position at Uber,” Immelt wrote. “I have immense respect for the company & founders—Travis, Garrett and Ryan.” People close to Immelt immediately tried to spin the move as a decision Immelt had made on his own, to avoid a dysfunctional situation. The board knew better; on Saturday evening, one board member reached out to Immelt as a courtesy. They let him know he did not have the support needed to win the position. Hours later, in order to save face, Immelt bowed out in a tweet.

  With the choice now down to two candidates, it was time for the board to deliberate and vote. It quickly became clear where the lines were drawn. As soon as Immelt dropped out, his four supporters quickly switched to backing Khosrowshahi. That left the remaining board members all stumping for Whitman. Throughout the day, the group voted anonymously using a creative method: each of them texted their choices to Jeff Sanders, a partner at Heidrick & Struggles, who had been helping the board during its search. The votes kept coming in deadlocked; neither side would budge.

  As the meetings dragged into the afternoon with little progress, Matt Cohler of Benchmark stood up in the conference room to make a speech. Benchmark had already prepared for Whitman’s ascendancy and practically assured her the job. Uber’s communications team had already prepped a memo ghostwritten for Whitman to announce her acceptance of the job to employees internally. The rollout plan was ready, all they needed to do was vote Whitman in.

  Then, some believe, Cohler made a miscalculation. The Benchmark partner gave the table an ultimatum: If the board voted for Whitman, Benchmark would drop its lawsuit against Kalanick. It read to the room as an ultimatum. This was the price of peace.

  For once, Kalanick wasn’t the only one who directors felt was acting childish. Cohler’s brinksmanship dismayed almost everyone in the room. Instead of following a fair process to determine the best candidate, Benchmark was effectively holding the board hostage to approve the candidate of their choice.

  Cohler’s speech may have cost Whitman the job. After the next secret ballot, the votes came in again, but this time it was not deadlocked. It was five to three in favor of Khosrowshahi. The group had chosen Uber’s next CEO.

  To give the process some semblance of cohesion, the board had agreed that whoever won, they would cast one final ballot and all unanimously vote for the same candidate. That way, when they finally announced the decision to the public, the board could pretend it had been united the entire time.

  In the end, none of it went according to plan. As the group contacted a spokeswoman to prepare a final statement announcing it had made its decision, word of the decision began dribbling out to the press. Shortly after five o’clock in the afternoon, reporters published stories that confirmed Uber’s new chief executive even before the board was able to call Khosrowshahi and give him th
e good news. Huffington was the one tasked with calling Khosrowshahi to officially offer him the position.

  “Hello, Dara?” Huffington said, in her unmistakable Greek accent. “Dara, I have good news and I have bad news for you.” Khosrowshahi listened, chuckling into the phone.

  “Dara, the good news is that you are Uber’s next CEO. The bad news is that it has already leaked.”

  The thing that finally severed Kalanick from his leadership of Uber wasn’t the vote to name Dara Khosrowshahi as CEO, nor was it Gurley’s lawsuit against him for defrauding investors. It was a deal that would come months later, in the form of what Gurley called “the Grand Bargain,” courtesy of SoftBank and Masayoshi Son.

  In December, Son reached a deal with Khosrowshahi and Uber’s board, in which SoftBank would purchase some 17.5 percent of Uber’s overall shares in what was called a tender offer, a way for outsiders to buy stock from existing shareholders in the company. The SoftBank shares would come from a group of people, including employees who were long waiting to sell but couldn’t due to Kalanick’s restrictions. They would come from investors like Benchmark, First Round, Lowercase, Google Ventures, and other early Uber investors. Most importantly for Son, SoftBank would purchase those shares at a steep discount from Uber’s valuation earlier in the year. Son and Khosrowshahi settled on a purchase price of $33 per share, pegging Uber’s valuation at about $48 billion—a steal for SoftBank. That meant that the scandals of the previous twelve months had knocked about $20 billion off Uber’s private market value.

  To keep the price propped up on paper, investors did some sleight-of-hand maneuvering. SoftBank would purchase $1.25 billion in additional, newly issued shares at Uber’s previous existing valuation of $68.5 billion. The premise was absurd; the secondary market clearly valued Uber’s shares at far lower than they were before Uber’s 2017 from hell. Yet in the eyes of the market, the maneuver worked; Uber’s valuation would remain at $68.5 billion.

  The grand bargain would also add an additional six new seats to the company’s board, two of which would go to SoftBank, while the remaining four would go towards independent directors and a new board chairperson. Six is an enormous number of seats to add to a company’s board of directors, but most observers felt it was necessary. Adding that many new independent seats provided a counterbalance to Kalanick in case he began another fight for control.

  As the terms of the “Grand Bargain” were being negotiated, Kalanick tried exactly that. In September, he used an old portion of Uber’s charter that allowed him to name two new directors—Ursula Burns of Xerox and John Thain of Merrill Lynch—to the company’s board. It was a pure preemptive strike; he had given the rest of the board just five minutes’ notice before announcing the move to the public.

  Gurley could only laugh. He knew if the board could negotiate its way to completing the deal with SoftBank, Kalanick’s stunt would be in vain.

  “Today’s move is a futile, last-ditch effort as the door closes on Kalanick’s dark reign,” Gurley texted, a few drinks in, to a close friend in the hours that followed Kalanick’s board appointments.

  Gurley had added a final, important provision in the SoftBank deal. For years, Kalanick held an enormous amount of stock that carried with it ten-to-one voting rights. By enforcing a “one share, one vote” rule, the agreement severely curtailed Kalanick’s influence over the company and his ability to use his stock to sway the company’s direction. The revocation of supervoting power, combined with additional board seats for neutral directors, finally gave the board the leverage it needed to unlock the death grip Kalanick had held on the company for nearly a decade.

  By December 28, 2017, Gurley’s grand bargain was signed. Kalanick had lost. Gurley had finally won.

  After the CEO decision that last Sunday in August, the next forty-eight hours were a blur for Khosrowshahi and the board. The leak was devastating. The board had worked so carefully to keep its weekend deliberations secret. This was supposed to be a moment to turn over a new leaf, yet instead it fractured trust at the top.

  It took two days to finalize the negotiations. While the whole world knew Uber wanted Khosrowshahi as its next chief, he still hadn’t agreed to take the job; he could extract steep concessions from the company as conditions for his acceptance. He wound things down at Expedia, enhanced his new contract, and prepared to meet his new company. Khosrowshahi negotiated himself quite a package as a result; if he was able to take Uber public by the end of 2019—roughly two years from his hiring—at a valuation of $120 billion, Khosrowshahi would net a personal payday of more than $100 million.

  After the requisite contracts were signed and he said his goodbyes to employees at Expedia’s offices in Seattle, Khosrowshahi boarded a flight to San Francisco on Tuesday to visit his new employer.

  Huffington immediately began to orchestrate the succession. She proposed that she would introduce Khosrowshahi at an employee all-hands meeting on Wednesday, and interview him on stage, live­streamed to all of Uber’s 15,000 employees so that they could begin to get to know their new leader. And to make it seem like the executives were beginning to settle their disagreements, she asked Kalanick to appear on stage with him the next day. Huffington was good at this kind of thing; she loved the pageantry of it, passing the torch of Uber from one leader to another. Kalanick agreed to the meeting.

  The board knew Wednesday would be a feeding frenzy for the press. Before the big event, leadership thought it would be a good idea to have one last supper together, a chance for everyone at the top of Uber to get to know one another.

  On Tuesday evening, Uber’s board of directors and executive leadership team met to eat at Quince, the Michelin-rated restaurant in the Jackson Square neighborhood of San Francisco. In a spacious private room at the back of the restaurant, the group of twenty peppered their new CEO with dozens of questions. Months of anguish melted as executives allowed themselves to laugh and loosen up around one another. Wait staff poured glasses of Bordeaux and Riesling from enormous glass decanters.

  By the end of the night, many in the group were hammered. People were giving impromptu speeches, opening up about grievances they’d had and intended to settle that evening. It was the last night they might have together before an entire new cycle of scrutiny from the press and the public, as Kalanick faded into the background while Khosrowshahi rose to prominence.

  Kalanick, to his credit, spent much of the evening being magnanimous, choosing not to dominate the conversation, as was his tendency. He was reserved but not quiet, friendly though not overjoyed. Whatever anguish he harbored he was able to hide it well, spending the night in good spirits with his former subordinates.

  Apropos of nothing, Joe Sullivan, Uber’s chief security officer, stood up at the table to make a toast. With a glass of red in one hand, the tall, awkward Sullivan turned toward his new boss and told him what he believed they were all feeling at that moment.

  “Dara, I just wanted to say we’re glad you’re here, on behalf of all of us,” he said. “We came to this company because we thought it was changing the world. We wanted to be a part of that. And we still do—we want Uber to be iconic,” Sullivan continued. He was drunk, he later admitted, but with that came honesty that Sullivan hadn’t shared with executives in some time, given the back-biting, cutthroat atmosphere over one incredible, horrible year.

  “We hope you’re not a two-year CEO,” he said, looking directly at Khosrowshahi. “We hope you’re the one.”

  Sullivan raised his glass. “Cheers,” he said.

  The room answered: “Hear, Hear!”

  Chapter 31 notes

  ‡‡‡‡‡‡‡‡‡‡ Two board members were out of the country, and had to dial in to a conference line that morning.

  EPILOGUE

  Over the next eighteen months, Uber’s new chief executive Dara Khosrowshahi would systematically undo nearly everything his predecessor had stood for.

  Gurley’s “Grand Barga
in” had worked. Kalanick’s power over the company had been diminished. In exchange for permanently removing Kalanick, Khosrowshahi had effectively accepted a $20-billion hit to Uber’s valuation.

  Khosrowshahi’s first job was to repair relationships with its hundreds of thousands of regular drivers after years of abuse and neglect. By the time Khosrowshahi was voted in, Uber was halfway through its “180 days of change” campaign to improve relations. Led by two executives from Kalanick’s reign—Rachel Holt and Aaron Schildkrout—the campaign involved an extended listening tour and apology, as well as new features and improvements drivers had been requesting for years. One of the most meaningful changes was something Kalanick had personally prevented: the ability to tip drivers. After Kalanick was ousted, the feature was implemented, earning the company an enormous amount of goodwill.

  Khosrowshahi also began recruiting his own lieutenants. Where Kalanick had Emil Michael, Khosrowshahi hired Barney Harford, an Expedia executive and longtime trusted colleague, as Uber’s chief operating officer.§§§§§§§§§§ Where Kalanick managed all of the company’s finances himself, Khosrowshahi hired Nelson Chai, a former Merrill Lynch executive, as the new CFO, who investors hoped would help get Uber back to a place of fiscal responsibility. Ronald Sugar, a former chief executive of the defense contracting firm Northrop Grumman, joined Uber’s board of directors as its independent chairman, another position that was vacant until Khosrowshahi started at the company. And by hiring Tony West, a former associate attorney general at the Department of Justice, Khosrowshahi made clear that Uber was going to take its legal and compliance obligations seriously. For the first time in its nine-year history, Uber had installed proper corporate governance—mechanisms and officers that Bill Gurley had long desired.