Silicon Valley knew well the aggressive corporate culture key to Uber's global dominance — and all about that culture's downsides.
Tech workers had seen it in lawsuits filed against the ride-hailing service, candidates turning down jobs at the San Francisco company and those fleeing the firm amid a drumbeat of scandals and critical news articles. So the 47 structural and policy recommendations handed down by attorneys to the ride-hailing company Tuesday weren't revelatory.
But for venture capitalists, the stark assessment underscores a growing concern: As company founders have amassed historic amounts of funding in the last five years, they have also attained greater control and autonomy. That has allowed entrepreneurs including Uber co-founder and Chief Executive Travis Kalanick to pursue aggressive tactics and foster cultures that trouble workers and investors — with limited checks on their power — for longer than ever before in the tech industry, observers say.
"Are we as investors giving up too much of the store to entrepreneurs?" said Jonathan Tower, who recently founded investment firm Catapult VC after working at TriplePoint Capital. "Maybe during this boom period, we've become too founder-friendly."
Had Uber been created in a different era of the tech industry, the 8-year-old firm probably would have been publicly traded by now — or at least nearing the day of an initial public offering. And many of the changes that former U.S. Atty. Gen. Eric H. Holder Jr. and Tammy Albarrán put forward would have long been in place. Those would include substantial performance reviews for senior executives, an oversight committee on the board of directors, a well-oiled human resources department and clear guidelines on romantic relationships between employees.
Such bureaucracy, which often comes as large start-ups prepare for an IPO, has long been seen as a curb on growth by entrepreneurs who prioritize fast decision-making and rapid expansion.
"You don't want to snuff out that germ of innovation at an early stage," Tower said.
But despite Uber reaching more than 12,000 employees, Kalanick — who announced Tuesday that he would take an indefinite leave of absence — has been able to delay the introduction of accountability measures typical for companies of its size. Boundless cash from investment firms around the world has given companies leeway to stay private. Venture capital fundraising alone has topped $55 billion in three straight years, according to research firm Preqin.
With no shortage of investors knocking at the door, the power of any single one has also taken a hit, according to venture capitalists. That limits the amount of oversight they can exercise.
"They are chasing the same deals, pushing up the valuations, and softening deal terms," Tower said.
Uber, like many tech companies, has different classes of shares that give some owners — founders and early employees — more voting power. Some Uber shares allow the owner to cast a single vote, while other shares come with 10 votes.
Uber is a private company, and it is not clear how many of those super-voting shares Kalanick owns, or the extent to which he and other insiders control the firm's super-voting shares. A company spokesman did not respond to questions about share structure and Kalanick's voting power.
But analysts say Uber is like other big tech companies — including Alphabet, Facebook and Los Angeles chat app maker Snap Inc. — in that Kalanick controls a majority of Uber votes either by himself or with fellow board members (co-founder Garrett Camp and early employee Ryan Graves).
Natasha Lamb, a managing partner at investment firm Arjuna Capital, said this type of share structure makes it easier for problems to fester.
Dovi Frances, who runs the SGVC start-up investment firm out of Beverly Hills and sits on six corporate boards, said he recognizes that entrepreneurs can get carried away. He tries to protect against that by passing on investment opportunities where he has doubts about leadership.
"I don't want to impose restrictions on them driven by the fear of them doing the wrong thing," said Frances, whose investments include SoFi, OpenGov and Wondermall. "I'm investing in them because I know they are going to do the right thing."
He said he spends enough time with managers of the companies in which he invests that he can spot when somebody is losing their moral balance. He also demands transparency about issues only visible deeper inside the company, such as a junior manager engaging in tawdry behavior.
"I expect senior management to bring it up, especially when it comes to sensitive issues like gender inequality," he said. "These are supercharged issues today, and I definitely want to be aware."
Why it took former employee Susan Fowler's blog post complaining of a sexist workplace to ignite an investigation into Uber's culture rather than an earlier board action isn't clear.
But Kalanick was allowed to start operating in a vacuum the second his company raised $258 million in 2013 from GV, the investment arm of Google parent company Alphabet, said Amit Shah, a partner at Artiman Ventures. That and subsequent investments probably diluted the influence of early board member Bill Gurley, a general partner at venture capital firm Benchmark. GV declined to comment, and Benchmark didn't respond to a request to comment.
"In the high times, when you're a hot company, you can get away with anything," Shah said. "It's a delicate balance — what makes Silicon Valley tick is the lack of too much structure, and the way current public-company boards have to operate is a nightmare for business."
The lack of diversity on Uber's board, which recently picked up a female member in media impresario Arianna Huffington, may have contributed to lax oversight too.
"It's something Silicon Valley has been grappling for years," Tower said of diversity. "It's moving in the right direction."
Julie Goodridge, chief executive of Boston-based NorthStar Asset Management, has asked companies including Facebook and Alphabet to change their share structures so that every share has the same voting rights. Though many outside shareholders supported that proposal at the companies' recent annual meetings, the proposals predictably failed to win a majority of shareholder votes.
That, she said, could be problematic for the companies in the long term. If Alphabet, Facebook or Uber limit the influence of many investors and shareholders, they risk missing out on valuable insight that could help them avoid reputational problems.
Lamb of Arjuna Capital noted that Google is now under investigation by the federal Department of Labor for allegedly underpaying women. Shareholders have raised the issue of a gender pay gap at the company for two years, she said.
"If the company had been more proactive, maybe they wouldn't be in this predicament," Lamb said. "Despite the fact that shareholders have expressed concerns about gender pay equity and other good governance issues, with the structure of these companies, we're not able to effect change through a vote."
Advisers to technology companies point to Uber as an extreme example and say that it shouldn't be the basis for sweeping changes in how the industry treats founders.
"The overwhelming majority of the time, the founders are the ones best equipped to make big decisions for a company," said Jonathan Greechan, co-founder of business incubator Founder Institute. "If anything, [the Uber case] just highlights that the best founders hire to fill the gaps in their shortcomings, and it doesn't seem like Uber did a great job of this — or simply didn't empower those people to properly do their job."
Investors Lamb and Goodridge said despite their misgivings, Uber may continue on the same path as Alphabet, Facebook and others with control consolidated among Kalanick and a few others. Despite that, there should be continued demand for Uber shares.
"People would totally buy Uber shares" if the company went public, Goodridge said. "A lot of people, all they care about is short-term performance."