Uber needs to learn how to play by the rules

Innovative young companies such as Uber often decide that they should be exempt from the old rules

Is there a company in America more in need of adult supervision than Uber?

The fast-growing ride-hailing firm can't seem to go anywhere without stomping on toes. It attracts complaints from local regulators like a deer attracts ticks. Executives have been known to invade customers' privacy by tracking their Uber travels; one openly threatened personal retaliation against a troublesome journalist. (Not seriously, the executive said.)

Uber has tried to tone down the frat-like adolescence. It hired former Obama campaign advisor David Plouffe this summer just as accusations emerged that the company was interfering with its main competitor, Lyft, by booking and canceling rides. But it has retained an air of arrogance that presumably filters down from co-founder and CEO Travis Kalanick, and is fueled by its rapid growth to hundreds of cities and more than 50 foreign countries and by its stratospheric $40-billion valuation in the private market.

Uber and other firms in its sector, such as Lyft, fill a need unmet in many cities by medallion taxi services: transportation that can be hailed electronically and respond nimbly with flexible pricing to conditions of surging demand — bad weather or theater districts after the curtain falls, say. But they can't fully replace fixed-rate cab services, in part because not everyone can afford a premium price. Nor do they deserve a break on safety or reliability standards.

Innovative young companies, especially in the tech sector, often decide that they should be exempt from the old rules. They're changing the world, you see, and the old rules are for chumps. This mind-set prompted Groupon, for example, to substitute its own home-grown business metrics for the reliable profit-and-loss standard used by the rest of the world, because its method of hawking discounts to consumers was unique. This argument went over great at first; Groupon shares hit $28 soon after its initial public offering in 2011. Then investors realized that the firm hasn't been able to generate "profits" under the conventional definition. In recent months Groupon has dipped south of $6.

You hear the same line of chatter from Uber, which is "evolving the way the world moves," according to its website.

But regulators still think this sort of evolution should play by the rules. Last week Los Angeles County Dist. Atty. Jackie Lacey and San Francisco Dist. Atty. George Gascon sued Uber for a host of alleged misdeeds, including misleading passengers about the quality of its background checks of drivers, failing to let state authorities evaluate its fare-calculating program for accuracy and illegally operating at airports.

What really irked the district attorneys was Uber's truculent approach to oversight, which their lawsuit described as "ignoring laws and regulations that get in the way of the company's rapid expansion into the market, and then aggressively fighting any regulatory enforcement efforts."

The California lawsuit followed by one day an action filed by the city of Portland, Ore. Uber started operating there despite warnings that it would be violating municipal codes. The laws are aimed at ensuring that vehicles for hire carry adequate insurance and are equipped with security and fare meters.

Uber says Portland's rules don't apply to its business model. "We believe that there are no regulations that imagine the kind of service that is made available via this technology platform," company spokeswoman Eva Behrend told me.

That "technology platform" is Uber's smartphone app, through which customers order their rides and registered drivers respond. Uber's argument is that it's merely a broker matching passengers and drivers. That would be marvelous for Uber if it were so — the company could reap its millions of dollars in income per month simply for helping average Joes to turn their automobiles into income-producing assets by hiring themselves out to stranded passengers.

Yet Uber does much more than that. It also accepts responsibility, at least nominally, for screening drivers for traffic and criminal violations. The company provides some liability insurance. It sets fare policies —sometimes cutting fares to gin up business, or jacking them up during high-demand periods — and keeps 20% for itself. It resembles the manager of a swarm of independently owned cabs, which must meet its standards or lose access to its growing customer base.

The question raised by the California district attorneys and Portland is whether Uber does enough to protect its customers. The California lawsuit challenged Uber's assertions that its background check "leads the industry." The opposite is true, the lawsuit says: Uber doesn't require a fingerprint ID, which would ensure that its background checks matched the actual drivers. In major California metro areas, taxi drivers are screened through California and FBI criminal databases. Uber said it is continuing talks with the district attorneys.

The company also successfully opposed legislation in Sacramento this year that would have brought the screening of ride-sharing drivers closer into line with that of taxi drivers. Assemblyman Adrin Nazarian (D-Sherman Oaks) says he'll introduce the measure again next year. The company also opposed a bill by Assemblywoman Susan Bonilla (D-Concord) that raised insurance requirements for Uber, Lyft and other so-called transportation network companies. On its blog, Uber described Nazarian's bill as a "flagrant attempt to stymie innovation and competition by an antiquated industry," and Bonilla's as "a back-room deal by insurance companies and trial attorneys."

Bonilla described the company's approach to negotiation as sheer insolence. "They rolled in thinking they were going to stonewall the process," she recalls. "It was a bad approach that burned so many bridges in the building." Uber even sent political fliers into Bonilla's home district, accusing her of being anti-innovation and anti-technology. The bill passed and was signed into law by Gov. Jerry Brown.

The California lawsuit may be the product of the same belligerence: The district attorneys settled similar allegations with Lyft for $500,000. Lyft agreed not to lie about its background checks, not to let its drivers operate at airports where the company doesn't have a permit, and to submit its fare technology to state regulators to evaluate its accuracy.

Uber's business development has been smart, but its resistance to cooperating with local authorities is anything but.

Do passengers really want to take rides from drivers with criminal histories or frightful traffic records? Do they want to learn after an accident that their driver's insurance policy won't cover their injury? Can they trust Uber to meet the most rigorous standards without oversight?

The record is discouraging. Just this week, Uber was banned in New Delhi after one of its drivers was accused of raping a female passenger. Uber CEO Kalanick acknowledged that "clear background checks" were lacking.

Uber is bound to learn, sooner or later, that fighting with local authorities is a lot more expensive than finding common ground, and that customers actually feel more comfortable when there are independent eyes on a company's behavior.

Michael Hiltzik's column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at latimes.com/business/hiltzik, reach him at mhiltzik@latimes.com, check out facebook.com/hiltzik and follow @hiltzikm on Twitter.

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