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Uber CEO pays a price for breaking the rules

Uber was the bad boy of Silicon Valley — a company modeled after brash co-founder and Chief Executive Travis Kalanick that always got into trouble but never seemed to pay the price.

What outsiders saw as arrogant and abrasive behavior — Uber’s fights with and attempts to circumvent regulators and Kalanick’s no-holds-barred take on competition — insiders lauded as the secret sauce to Uber’s $69-billion valuation and growing success.

But this corporate culture is now seen as Uber’s biggest liability, with an investigation the San Francisco ride-hailing company commissioned into its own workplace culminating in Kalanick’s announcement Tuesday that he would take an indefinite leave of absence.

“The ultimate responsibility, for where we’ve gotten and how we’ve gotten here rests on my shoulders,” Kalanick, 40, said in a memo to employees, acknowledging a humiliating year in which the company was accused of , mishandling the medical records of a passenger who was raped by an Uber driver in India, using trade secrets allegedly stolen from a Google-owned self-driving car firm and covering up claims of sexual harassment.

The reason Kalanick gave for his leave of absence, though, was personal — his mother was killed in a boating accident last month, and his memo said he was taking time off to grieve.

“Recent events have brought home for me that people are more important than work, and that I need to take some time off of the day-to-day to grieve my mother, whom I buried on Friday, to reflect, to work on myself, and to focus on building out a world-class leadership team,” he said.

Kalanick’s leave coincides with the release of a series of recommendations from former U.S. Atty. Gen. Eric H. Holder Jr. and his firm, Covington & Burling, which was hired in February after former Uber engineer Susan Fowler alleged in a blog post that she’d been the victim of sexual harassment in the workplace, and that Uber’s managers had attempted to cover it up.

It marks a pivotal moment for Uber and its board of directors, who have in the past stood by the embattled CEO as he weathered controversies such as being caught on video berating an Uber driver, or his participation on President Trump’s economic advisory panel.

The leave of absence of a founder is particularly unusual for a Silicon Valley technology company, where founders are often viewed as untouchable visionaries who are too smart, talented or important to be without. Those who go on leave typically cite medical reasons, such as when Steve Jobs stepped away from Apple because of health issues.

For a company that has long been reluctant to hold its executives’ feet to the fire, the recommendations and Kalanick’s leave are, at the very least, an acknowledgement that many of Uber’s problems come from the top, according to business and branding experts.

“If Travis Kalanick didn’t go on leave after all of this, the effort at a reset would have felt more like lip service than substance,” said Jeremy Robinson-Leon, a principal at public relations and strategy firm Group Gordon.

Uber’s board of directors — which includes Kalanick, co-founder Garrett Camp, Senior Vice President of Operations Ryan Graves and media mogul Arianna Huffington — voted unanimously on Sunday to approve all 47 of Covington & Burling’s recommendations.

The recommendations, which were made available to the public Tuesday, included reviewing some of Kalanick’s responsibilities, urgently hiring an experienced chief operating officer, prioritizing the company’s diversity efforts, bringing on more independent board members and reformulating its 14 cultural values to be more inclusive (and eliminating values such as “Always Be Hustlin’ ” and “Meritocracy and Toe-Stepping”). They call for the adoption of practices that are standard at many companies, such as mandatory manager training, a robust complaint process, and tightened rules around alcohol consumption in the workplace and romantic relationships between managers and their employees.

“In some ways, it’s surprising that those recommendations had to be made,” said Daniel Handman, an attorney at Hirschfeld Kraemer who specializes in workplace discrimination and harassment cases. “And in some ways, just given the way Uber grew to be this behemoth overnight, it’s not surprising they hadn’t thought through these things.”

It’s not uncommon for start-ups to overlook implementing basic rules and policies to keep the workplace safe, Handman said. What’s unusual is that Uber continues to behave like a start-up despite having more than 12,000 employees, being the most valuable privately held tech company in the world, and having raised more than $13 billion in funding (more than four times what Los Angeles tech firm Snap Inc. had raised by the time it went public in March).

“As a board of directors, you don’t want to disrupt the creative process,” said Handman, explaining why some boards might choose to be hands-off, even when a company is failing to operate in a mature fashion. “The problem here is after a while, the warts began to show, and as these problems became more prominent, [the board] had to exercise the discretion which they hadn’t in the past. That’s what this Covington report is.”

Employment attorneys described the recommendations as comprehensive and in line with the measures one might find at a Fortune 500 company. The challenge now, though, will be turning the recommendations into action.

It typically falls on the CEO or chief operating officer at a company to implement recommendations from an investigation, according to Carl Tobias, a professor of law at the University of Richmond. The problem? Kalanick is going on leave, and Uber hasn’t yet hired a COO.

An Uber spokeswoman confirmed that Kalanick’s direct reports would fill in for him while he is away and that he will be available to help with “strategic decisions.” But that’s a list of 14 people, including David Richter, the new senior vice president of business; Frances Frei, the new senior vice president of leadership and strategy; Liane Hornsey, chief human resources officer; Joe Sullivan, chief security officer; Thuan Pham, chief technology officer; Salle Yoo, chief legal officer; Jeff Holden, chief product officer; and Jill Hazelbaker, senior vice president of policy and communications.

Meanwhile, the company is still without a chief marketing officer, head of engineering or general counsel.

“It would be a lot to implement those recommendations at a company that seems right now to be in turmoil and doesn’t have a lot of people at the top,” Tobias said.

Even if the company implements the recommendations, though, some are still skeptical about whether a company modeled on its CEO can change — and whether the CEO himself can change.

Susan Fowler, the former Uber engineer whose blog post about sexual harassment at the company sparked the Holder investigation, took to Twitter to say that the report was “all optics” and that the company still had not apologized to her for not taking seriously her initial complaints.

A leaked recording that Yahoo Finance obtained from Tuesday’s staff meeting also raised questions about how seriously the board itself took the recommendations after board member David Bonderman, a partner at private equity firm TPG, interrupted Huffington while she was speaking to make a joke about women talking a lot. Bonderman resigned from the board late Tuesday, saying his “comment came across in a way that was the opposite of what I intended, but I understand the destructive effect it had, and I take full responsibility for that.”

Any company can superficially check boxes, according to Michael Zammuto, chief executive of peer review company Completed. What is harder to measure is whether a founder — especially one who believes that his or her way of doing things had led a company to success — has truly changed.

“If a founder doesn’t buy into it, if they only do the bare minimum to make a problem go away, that’s very dangerous,” Zammuto said.

And it’s not just a matter of company morale. As Uber continues to burn through cash in the quest to attract more drivers and passengers, and as it looks to raise additional funds in the future — either from private investors or the public market — it will have to convince outsiders that it has cleaned up its act and is a safe bet.

“These sorts of roadside bombs of crises they keep stumbling on can come from anywhere,” Zammuto said. “And if it happens a few months from now, it could be more damaging.”

tracey.lien@latimes.com

Twitter: @traceylien

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UPDATES:

6:40 p.m.: This article was updated to include news of board member David Bonderman’s resignation.

4:30 p.m.: This article has been updated to include context about Uber’s rise and analysis from business and branding experts.

12:30 p.m.: This article was updated with information about controversies and successes at Uber.

11:15 a.m.: This article was updated to include details of the report into allegations of harassment inside Uber.

10:25 a.m.: This article was updated to include Travis Kalanick’s memo to employees.

This article was originally published at 10:05 a.m.

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