How Extreme Risk-Taking Pushed Uber to the Brink

somehow reform governance and just somehow make peace. So this is not just an investment, This is about healing the wounds of the past. Yeah, it's it's the kitchen sink, just sort of of reforms to try and prepare the new CEO, Dara Kazra Shah. He to sort of empower him to actually run the company and not have all this in fighting constantly. I am Brad Stone and I'm a Mary Newcover. And this week on Decrypted, we're bringing you an update on Uber, which was the ultimate Silicon

Valley success story just a few months ago. But as you probably know, a series of high profile crises have brought this once mighty company to its knees. Today, Uber is facing five criminal probes from the Justice Department on topics ranging from bribery to price discrimination to theft of intellectual property. There's also facing dozens of civil lawsuits, including one from Alphabet, the parent company of Google, that's set

to go on trial in December. So we'll ask how things that Uber went so badly wrong, and we'll introduce you to two Uber executives who behind the scenes, signed off on and supervised some of the company's most controversial programs. Finally, as a new CEO takes the reins, we'll see what lies ahead for the company. Stay with us. So, Eric, we're gonna work our way up to this portentous board

meeting on October three. But you know, first, Uber goes into this moment with a reputation as an absolute corporate pirate, right, a lawbreaker. How did it develop that reputation in the beginning? Travis Kalenik, who is Uber CEO and is this fighter and sort of paranoid competitive guy, like, that's a deserved reputation. But in the beginning he was saying, oh, everybody should

follow the law and not break the rules. Right, he was faced in two thousand twelve, after they had operated for a few years as a very legal black car company. By some other companies, Lift among them, that introduced the idea of ride sharing. Anybody could offer a ride in their own car, right, and Uber was opposed to that until they realized that regulators weren't going to do anything, and so that they were gonna lose out to this

cheaper service and that they needed to take action. Now, around this time, Travis hires his really his corporate attorney, Sally. You tell us about her and why she's important. Yeah, she's like a litigator, like from law firms. She'd been there thirteen years, she'd made partner. She didn't really think she was gonna leave, but then a friend showed her this random job at Uber in the very early days, and she sat down with Travis and then quickly joined

the company. And one of her first challenges that the company is should Uber a black car service, be more like Lift and a company called sidecar in the ride sharing category. Ultimately, obviously they decided to get into that with Uber X. What were the implications of that decision? So Travis writes this white paper number one, you know where they say where there's a legal gray area where

the law is enforced. We're going to take that as a tacit endorsement that it's okay they've deleted that block post. I think it's where that's That's all you need to know on it um. But that idea that they would do what they wanted as long as somebody was stopping them define the company right. It meant that they were going to really challenge taxi regulations all around the world.

And it also meant that they were going to get into a very competitive environment with a lot of down pricing pressure, which of course would have implications for all their drivers, would have implications for how they had to function as a competitor because they're competing basically in a modified environment. So we're in the year two thousand thirteen. Here uber X rolls out, and this is a period of hyper growth for the company. It's valued at seventeen

billion dollars. It's expanding in cities every single week. We sort of thought this was coming, but now we know it's confirmed seventeen billion dollars, and there was a lot of competition to leave the rounds other investors in the round. Kleiner Perkins, Google Ventures, and low Ventures. Obviously, demand was very much there. Travis is a competitive guy, as we both know. What are some of the techniques he introduces

back then to compete against companies like Lift. I mean, I think it's so funny that Uber is this quote unquote technology company, but it was really sort of fighting in the streets. And one of the key elements was this thing called slogging. You know, where they would have employees and this happened all over the world go and ride in a competitor's car and say hey, why don't you work for Uber? And you know, that's a very manual way to get new business. They would also say

that their competitors did that to them as well. Yeah, I mean, it was sort of industry practice. But this is like the level of street fighting we're talking about. It's one to one, like spend employee time going to recruit individual drivers to get them on your team. So slogging may have been industry practice. But around this time, Uber starts to introduce other programs that are somewhat unique and perhaps ethically dubious. For the first time, you reported

on one of those programs called surf Cam. There's another one called Hell doesn't sound so good. They're really good at naming. Really what what are? What were these things? They let Uber scrape their competitors API, which is a way of saying, okay, as a tech co'many you put out this information for people to sort of partner with you.

Uber would abuse that information and use it to understand, you know, where a lift was it any given time, more in Southeast Asia, where grabs car was, or how how much they were being utilized, like, learn things about their competitors and what was the Hell program? Hell is the u S version of that. It's sort of a tongue in chic name. So Uber internally has Heaven, which is their sort of view of everything where all their

cars are ating and given moment. So Hell is the version where they get to figure out where they're competitors cars are and you know, take advantage of that information. So now going back to sal you the in house lawyer, what is she thinking about all this? So the legal team gives sort of initial okays of you know, Hell and these other programs. They look at it and say, all right, you know, API scraping is okay within these parameters.

But then the programs sort of go wild. By the way back into fourteen, these programs were still very secretive, right, nobody really knew about them. But what was starting to bubble up where some of these very bad incidents you know in ubers, including a sexual assault case in India. Think we would both argue that perhaps that was a little bit of a turning point for Uber's reputation, right, so, that a woman you know, was in an Uber and was raped by a driver. The driver was later convicted.

It was a crazy story in India. The company, though internally handled it poorly. So at the time of this incident, Uber is consumed with the competitive environment and and somewhat grotesquely, you know, management thinks that this could be you know, a competitive tactic. This this sex crime by a rival in India. UM they they hire a firm to investigate it, and the firm obtains the medical records of the victim, and then maybe some Uber executives to get those medical records.

That is, you know, just by any measure, grotesquely wrong. Right. This went to the top levels of the organization. I mean, Travis Kalenik was involved in sort of raising questions even after the woman s driver was convicted of the rape, about whether their competitor, Ola had set them up for this, and his top business executive in a close confidence on it of his Eric Alexander had the report at one point and was going around talking about the woman's very

private rape report. And so that's continuing to haunt them, and there are questions now about how they got in the first place and whether they were in violation of you know, anti bribery laws. So Eric tell us more about Sally. You are are her and Travis kind of birds of a feather when it comes to pushing the boundaries of the law. She really has this funny moment where Travis tells her he wants her to be innovative.

It really made her angry. In another interview, Uh sort of accounts, you know, playing tennis with her husband and getting this feedback that Travis wanted her to be innovative, and at the end of the match she's sort of, I guess, as exhausted as processed it and decides that you know, he's telling her that their their team can act differently than everybody else's legal team, that Uber can be creative in ways that other people won't, and that Basically she needs to sort of figure out how to

make it possible for Uber to do all this stuff even when the law doesn't seem to be in their favor. By the way, I mean that in most cases was a successful approach. Right. If they hadn't pushed the boundaries, Uber never would have launched in cities like New York or London or San Francisco for that matter. Okay, so now I want to introduce another person in a position of authority at Uber. His name is Joe Sullivan. Most people have never heard of him, but he's a big

tech figure. He worked at Hey pal eBay, he was the head of security for Facebook, and so Uber brings him in as his heavy hitter. But then his portfolio is like all the sketchy stuff, like all the dark

arts of Uber is basically Joe Sullivan's organization. Yeah, you describe him in a in a recent story as running kind of a corporate spy agency inside Uber and all these programs that we've just talked about, these ethically dubious kind of monitor your rivals programs, Like hell, Joe runs those, right. Any program with idious sounding name was part of his organization. You know, one part of his fifdom was called competitive Intelligence. They called it coin that contained hell and other data

scraping efforts. He ran SSG, which you know literally sounds like the KGB, which strategic services group, which would hire people to surveil competitors and their employees. Right, Uber had the head of its Chinese business who was the cousin to the head of its primary rivals business d D. And we reported in a recent story that you know, allegedly Joe's group had their own employee monitored because perhaps

they were questioning her loyalty to the company. Yeah, they just want to make sure she didn't interfere with the deal and sort of help her cousin out right the deal where Uber sold its business to d D in China. But here's the key question, you know, which is to what extent did Uber's board know about all of these slightly nefarious activities. Certainly the board claims and not have known knowing Uber and Travis, they must have known that they were pushing the boundaries and then chose not to

get into the specifics. I think that's how it's looking right now, and certainly on a lot of fronts, there's an effort from the board to say, we had no idea what was going on right now. Throughout this period of time around two thousand and fifteen, the company is growing by leaps and bounds. But we've been told that Sally You, the chief lawyer, is starting to get a little nervous and she cautions Travis. But you know, Travis headstrong,

very competitive. He keeps pushing the boundaries of the law. Right in an all hands meeting to his employees, like lots of people there, he says they don't need to follow laws that aren't being enforced. He says, you know, we'll have to see what the regulators doing. If they're not doing anything to our competitors, we should push the

boundaries too. And Sally's just like, you can't say that, Like she sends an email be like, you know, the message of compliance is very important here, and this is gonna matter if we face criminal investigations down the line, because if something individually does something bad, the whole company could be held responsible if we don't have a good

corporate compliance culture. So, in other words, after a two year period of successful what they would call legal innovation, Sally You and Travis Klinik are on a collision course. By now, it's the summer of two thousand sixteen, and Uber is a huge company. It's raised twelve billion dollars. It's evaluation is an insane sixty nine billion dollars. And amidst all this kind of hype and energy, Uber very quietly changes the way it calculates fairs. So Uber announces publicly, Okay,

we're gonna do upfront fars. We're gonna be super transparent, We're telling people beforehand how much we're charging you. But what they didn't really make clear publicly is that that also meant that they were going to start paying drivers in dependently from what they charged passengers, which made it possible for them to find all sorts of crafty ways to charge passengers more without paying drivers more. There is a federal statute called the Robinson Patment Act, which you know,

forbids any kind of pricing discrimination. You know, to what extent is Uber wandering into this, you know, legally gray or even just a illegal territory? And what a sally you thinking about this? Well, they're being investigated for their pricing policy, so definitely wandered sufficiently for prosecutors to look into it. I think there are all sorts of questions.

I mean, Uber's operating in physical locations, going from neighborhoods, you can imagine actual discrimination, not just pricing discrimination being an issue. So yeah, it's it's a big set of

their troubles at this point. And then at the same time, as it is experimenting with some of these pricing tools with names like Casscade and Firehouse, Uber makes what I might argue is its biggest mistake yet, which is over the summer of two sixteen, it acquire fires a small autonomous car startup in San Francisco called Auto and Otto is run by a farmer, a very recently former Weymo

division of Google executive named Anthony Lewandowski. In when they bought Auto, they seemed like geniuses, Like it looked like Uber was flying high. The valuation was super high. They just expanded their self driving car unit. It seemed like they were really on the path to do great things. Well, it was a bold move, right because it's not it's really not related to Uber's business, you know, And they say, we're going to get into deep tech and compete with Google.

So they buy Auto, which is largely made up of former Google employees and run by a former Google employee, and that seems great. It's going quiet, quite quiet, and then all of a sudden, alphabet the barren company of Weymo. You know that Google. They have so many names over there.

But you know, basically, Google sues Uber and a mega lawsuit and says you stole our trade secrets by buying this company, and it turns the attention to the question of okay, uh, Anthony Lewandowski, you know, it's still I guess allegedly had downloaded all these files from Google before he left. And the question that you know, Sally you must have been asking herself, is you know, how much did Uber know about the way in which Anthony Lewanowski had left Google? A lot? A lot. I mean, that's

what we've been learning now that Uber. It wasn't like they bought the company and then they realized, oh crap, this guy might have stolen stuff from Google. It was, oh, it seems like he's taken He's told us that he's taken five hard disks of information. What do we do now? And Travis is like, no, we should definitely buy the company. Still, let's figure out how to protect ourselves. So to your point that Uber knew before they finalized the acquisition of Otto.

They hired a forensics firm called Straws Friedberg, Right, And and Straws goes and tries to assemble a portfolio of all the information that Anthony has his team have from Google and kind of isolated, get it out of the company, right, The ideas of it never gets to Uber. We're fine, And I mean it was sort of you can read the report now and Lewandowski is literally like emptying the trash on his computer like the day of their meeting

with him. It's just it's clear that the investigators themselves are sort of troubled by some of the activity when he's really supposed to try and hand everything over to them so they can sort of know about it and wall it off from Uber so that Uber can't get in trouble. And this is all happening very quietly over the summer and fall of two thousand and sixteen, so quietly that board member Bill Gurley from from Benchmark, one of Uber's investors, claims he doesn't even know about that. Right.

He testified under oath that the board was never told about Uber's findings. Meanwhile, they'd approved all these contractual things like indemnifying Anthony Lewandowski for past bad acts. So hopefully we've laid the groundwork here for what then happens. In early two thousand and seventeen. You know, Donald Trump has been elected. It's sort of different political environment that sends on Silicon Valley, and it's in that environment that we

start to see the delete Uber hashtag. Susan Fowler, a former Uber employee, writes a very critical blog post of of what she called the misogynistic and harassing culture for women, and one by one, a rough week for Uber appears to be getting rougher. The New York Times is reporting Uber you use software to elude authorities in cities where the ride hailing service is not yet approved by using

the program known as gray Ball. And amid all these crises, all these controversies, a video emerges, a very unflattering video of Travis Klink. It's so funny because it's so mundane

in some ways. I mean, Travis is just bopping around in the back of the car with these two women and having sort of mild conversation, and then the women get out of the car and the driver sort of starts interacting Travis, and Travis opened the conversation and by the end of it they're having this fight where Travis is swearing and it's just very unco like and also it just sort of shows is sort of lack of compassion for one of his drivers. But people are not

trust in you anymore. Do you think people would blank cards anymore? I lost plenty seven thou dollars because of you. I bankrupt because of you. Look, he does, he does, he does? You keep changing every day? What you keeping? What have I changed about black? What have you changed the whole business? What you dropped the prices on black? Yes? You did? Did with twenty dollars. He started with twenty dollars. You know how much is the mile now to you

know what? What? Some people don't like to take responsibility, to take something playing everything car good luck. And then what happens is earlier in the summer, you know, all the scruise and t Havis's position becomes basically untenable. The board, led by you know, the investors at a benchmark who have claimed to be surprised by all the things that we've talked about. Uh, you know, they confront him in a hotel in Chicago and they tell him that his his tenure as CEO is over. So Eric back to

the board beating on a Cobra third. In light of all of these scandals, it's it's not that surprising that the board wants to further limit Travis Kalinic's power. Right, he's no longer CEO, but he's on the board. He controls two other seats. Maybe one day he'll come back. But this is Silicon Valley, right, We revere the founder, We revere the founding CEO, which Travis basically is well. Part of the fight here is just how bad was

it uber. I think they're different camps. There's sort of, you know, the benchmark camp, which is it was terrible, like we are being sued by Alphabet like everything is. And then there are board members who want to sort of saying, you know, it's sort of bad. We got rid of him, but he can stick around. I think another key point is that when Travis resigned, he agreed to hand over a lot of his power over these board seats, and then he renegged on the deal like

in the other aspect. And this is a little technical, but it's it's true. At a lot of Silicon Valley companies. There are different classes of stock, right, and Travis owns shares of stock that come with super voting powers, and the board at this momentous meeting is trying to get rid of those and limitous power in that way too.

And ahead of the board meeting, fearing that the board was gonna take away a lot of his power, it Travis filled his two board seats suddenly, uh John Thane and Ursula Burns to you know, very senior former executives one Merrill Lynch, one Xerox. But he fills them, sort of proving the impulsiveness and sort of power of this ousted founder that wasn't going to go quietly. And and this is a very fractis board, right. You have Travis

and some of his supporters. I think Ariana is still somewhat in as camp You have you know, the first seat EO. Ryan Graves and the one of the co founders, Garrett camp Um. But you've got Benchmark, you know, You've got David Trujillo at TPG. I mean, yeah, there are a lot of characters, and it was an eleven person board before this meeting started, and Darak shah He the new CEO who's right in the middle and really trying to, you know, get rid of all this divisiveness and just

safeguard the future for the company. Dark as are Shah He the new CEO who would come over from Expedia, the dark horse candidate who is now controlling everything. He's doing a pretty good job of playing the convener, like getting everybody on the same page. Even as he's one of the authors of these reforms. They're gonna live a limit Travis's power. His appointment surprised almost everyone. Right the names we were hearing were Meg Whitman from HP or

Jeff Emil formerly from g e U Dara. You know, as a as a professional CEO, he ran Expedia for many years. He feels like an adult frankly in this scenario for sure. Yeah, And I think he wants to make sure that it while he's new and he has all his support and good press and everything, that he

can sort of get the company's governance under control. So that meant, you know, moving the company to one share, one vote, having a lot of new independence board members, so that the power of Travis spord members and the current board that's dysfunctional would be deluded. And meanwhile, they needed to figure out how to integrate soft bank into

the company if they're going to make this deal. And before we get to the finalization on the soft bank decision, as if this situation needed to be any more complicated. In September, the city of London, one of Uber's biggest markets, basically refuses to renew Uber's license to operate there. This is Dara's basically first big test as the CEO of

of Uber, and Dara went to London. He met with the head of TfL Transport for London, and he talked to the mayor and afterwards they were saying nice things about Uber. Was sort of remarkable. So let's finally get back to a soft bank. The sort of underlying question of this episode. They're offering a ten billion dollars a little bit to Uber, but also many to the early investors and employees to give them some liquidity. It's a huge sum of money. Uber doesn't really need the money, right,

so this isn't really about Uber getting new money. Uber is getting a billion dollars new which for the company was like, whatever, we've raised more than fifteen billion, what's really interesting, here is the other nine billion, which is buying out the existing shareholders. Fine, it's like a mini I p oh. It's going to be the largest if this thing finishes, the largest private stock sale ever. So it is gonna be a huge cash change of hands.

And it's all happening sort of in this negotiated private way, not in an I P O. Right, and it has so many implications for governance of the company, Travis's role, the future of Uber. What does the board decide? So the board up until like this Tuesday meeting, they're like negotiating their writing things throughout the night, tweaking provisions, and so finally, I mean they all unanimously agree because they

can see the right on the wall. I mean, I think Dara Benchmark, the people who wanted to sort of rain in Travis got what they wanted here. They moved to one share, one vote, But Travis got enough concessions from the original proposal that he looked pretty good too. We got to keep his two board members, and they

agreed to move the board to seventeen people. You know, I I don't know how many of Uber's problems this solves, right, There's still been a lot of turnover of topics X. I would have to imagine moral is pretty low, and a lot of Uber's, you know, biggest competitors like Lift, like Ola on India, Grab in Southeast Asia have used this period of incredible turmoil to raise money themselves and to improve their their positions on the market. Yeah. I think this is sort of the baseline thing that Dara

needed to do. This needs to get done just so he doesn't have Travis trying to come back, so the boards more functional, their independence, so that people can get liquidity and sell some of their shares. But there's, like you said, there's so much more that they need to do. They're gonna have. They have to fight five criminal probes like at least yes yeah so, and the Waymo lawsuit and many many other private lawsuits. And it was just reported that Google wanted a billion dollars to settle that.

So it's it doesn't stop. There's a lot of problems for him to solve. And to that point, are legal guardians at Uber, Sally you and Joe Sullivan. What has become of them? So Joe is still there the board in the investigation into his team is ongoing. Sally is on the way out. I mean she's she's stepping away. Dara is looking for a general counsel right now to be interesting to see, and she's helping with the process, yes, but I think she's been alienated from the company a

little bit here. And I mean they know they need a new lawyer, but I think it's it's gonna be a hard job, so it'll be interesting to see if they can get someone. And Travis Kalanek, he's not CEO, but I get the impression, and I don't know about you, that Uber is still his life and he's still behind the scenes working pretty much NonStop on on the least board issues. Yeah, he's super involved. It'll be interesting to see if you can starting a company or find some

philanthropy to sort of give the company some space. And that's it for this week's Decrypted. Thanks for listening. We want to hear what you think of the show. You can email us at Decrypted at Bloomberg dot net or on Twitter, I'm at Eric Newcomer. If you work for Uber, you know, send me a d M that's shameless. And on Twitter I'm at brad Stone. If you haven't already, please take a moment to rate and review our show. It's the best way to help us get the show

in front of new listeners. This episode was produced by Piaga, Cary, Liz Smith, Magnus Hendrickson. We'll see you next week.