Why did Uber’s shareholders just force the company’s CEO to resign?


Uber

One week ago, Uber CEO and co-founder Travis Kalanick took a temporary leave of absence. His absence came around the time when numerous high-ranking executives fled the company, as did many users. An independent report suggested sweeping changes to rebuild Uber’s image and brand from a reckless startup into a more conscious company.

Last night, Travis Kalanick announced he is gone for good. The 40-year-old CEO resign after five of the company’s major investors forced him to. Kalanick will remain on Uber’s board (for now), though investors will appoint a new CEO to fix the company and prevent further damage.

This is a major event for Uber. Kalanick helped launch the company and made every important decision that led to its rise in popularity. He was also responsible for the company’s numerous setbacks and scandals. Despite his importance to the company, a handful of investors still ousted him overnight. While this might seem like a rare occurrence, how and why they removed Kalanick from power is actually rather simple.

Shareholders reserve the right to make company changes.

Like shareholders of publicly traded common stock, private shareholders and venture capitalists have voting power. The difference here is that there are only a handful of Uber investors, all with varying percentages of ownership. In this case, five major investors with a large enough say in the company had enough with CEO Kalanick and used their ownership power to force his resignation.

Travis Kalanick ruined the company’s image.

We don’t need to recap the scandals, claims of harassment, and other things Uber did that no company or person should ever do. These awful events eventually caused users to flee the service for Uber’s competitors, which caused the company to make less money. When featured in the press, the company is often spoken of in an unflattering way thanks to their toxic corporate culture and mistreatment of workers. Travis Kalanick encouraged most of this behavior and failed to prevent other unfortunate events from happening, making him a less-than-effective CEO. Thus, his forced resignation could send a signal to high-ranking ne’er-do-wells that the ride sharing startup is changing for the better, with or without them.

A more capable CEO can help the company go public.

When Uber goes public, shares owned by private investors will become much more valuable. If the company wants to go public, they have to stop losing users, earn more in revenue, and lose less money. Uber is notorious for spending oodles of cash and seeing multi-billion-dollar losses as a result. Hiring a new CEO to clean up company culture and add more users is step one on a path to the company’s recovery. It would also help Uber inch closer to an IPO.

Uber’s investors also want to go public as fast as possible. With a CEO like Kalanick courting controversy and bleeding users, becoming a publicly traded company isn’t possible right now. Installing a new CEO equipped to turn things around — and fast — will help investors realize a quicker return on their investment.

What will happen now?

Uber’s board and investors will soon place another CEO in power. This CEO must make the company profitable and repair their tarnished image. Completing such feats won’t happen overnight, regardless of how fast the company moves. Yet by having a better equipped CEO, Uber could regain users’ trust once more — while move closer to their IPO goals.


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