Showcasing the Need for Due Diligence Investigations
Reputation is critical in business. Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” With the advent of social media, the turnaround for good or ill is even faster. Now, Uber Technologies, Inc. (Uber) is once again in negative headlines. Over 120,000 confidential documents leaked to The Guardian reveal numerous acts of purported malfeasance during its aggressive global expansion efforts. These acts range from flouting local laws in different nations, secret lobbying of government officials to influence policies and laws, exploiting violence against its drivers, and deceiving the police.
On the heels of this, the Department of Justice (DOJ) announced that Uber must pay over $2 million to settle charges of violating the Americans with Disabilities Act. While Uber’s senior vice-president of public affairs to global journalistic investigation Jill Hazelbaker replied to the leak, in part, by stating their current CEO Dara Khosrowshahi, who came aboard August 2017, “rewrote the company’s values, revamped the leadership team, made safety a top company priority, implemented best-in-class corporate governance, hired an independent board chair, and installed the rigorous controls and compliance necessary to operate as a public company,” the Uber settlement with the DOJ for Americans with Disabilities Act violations brings that into question. The scandal from the leak, and even possible legal questions it brings up, highlights the long tail effects of reputational damage and the dire need for executive due diligence investigations in business transactions. Bad actions by past executives can have a deleterious effect on a company many years later.
What the Uber Files Uncover
The Uber files consist of over 124,000 documents, in the form of emails and private messages, from 2013 to 2017, between then-CEO Travis Kalanick and top Uber executives. They were leaked to The Guardian by Mark MacGann who served as Uber’s chief lobbyist for Europe, the Middle East, and Africa during that period and impart Kalanick’s means of forcing Uber’s rider-sharing service into global markets, even breaking laws and taxi regulations if necessary.
The documents reveal Uber’s relentless lobbying efforts with powerful world leaders, such as Enda Kenny the Irish prime minister, Israeli prime minister Benjamin Netanyah, and U.S. president Joe Biden during his vice presidency. They also enlisted “strategic investors,” influential figures in countries such as Italy, German, and Russia to garner their support, hoping they would spread positive messages about the company and its entrance into global markets.
Additionally, the documents disclose that Uber paid academics to produce research that supported the benefits of Uber’s economic model, their plan to take down “Big Taxi” by lowering costs to passengers and paying driver’s higher salaries. Once riders were habituated to Uber’s service, they would sunset these benefits, slashing drivers’ salaries and increasing passenger costs. In an effort to avoid law enforcement, Uber also employed a “kill switch” to block authorities from access to Uber data systems in countries such as India, the Netherlands, Belgium, France, and Hungary during raids by regulatory agencies or police. In 2015, According to The Guardian, an Uber IT engineer in the Netherlands was arrested in 2015 and fined €750 for “non-compliance with an official order.”
Another reveal in the Uber files is confirmation of the use of the tool “Greyball” to target specific individuals, such as police, in countries where Uber’s activities were deemed illegal, to avoid apprehension. Back in May 2017, the DOJ opened criminal investigations into Uber’s use of “Greyball,” which the company had acknowledged using though 2017, but said it was no longer used.
Moreover, the documents reveal that a London-based executive was requested to relocate to Amsterdam, purportedly to convince tax collectors in the UK that Uber was not partially managed in the UK. That executive resisted the move, citing family reasons and looked to other opportunities elsewhere, reports The Guardian
The documents also reveal Uber’s apparent disregard for the safety of Uber employees and passengers, ranging from ignoring country safety laws and purportedly encouraging Uber drivers to counter-riot against the protests of taxi drivers, in Belgium, Italy, France, and Spain, who were afraid of losing their livelihoods. In France, according to The Guardian, Kalanick ordered executives to “retaliate by encouraging Uber drivers to stage a counter-protest with mass civil disobedience.” When advised this would put their drivers at physical risk, Kalanick responded, “I think it worth it. Violence guarantee[s] success.” A former senior executive told The Guardian Uber’s strategy was one “of “weaponizing” drivers, and exploiting violence against them to keep the controversy burning.’”
A passenger was raped by an Uber driver in New Delhi shortly after Uber began operations there. Six days later, the then-head of Uber’s communications unit wrote an email to his colleague stating, “Remember that everything is not in your control, and that sometimes we have problems because, well, we’re just f***ing illegal.”
The Washington Post reported that testimony of Uber drivers, in combination with the Uber leaked files, show that Uber knowingly created hazardous and financially dependent conditions where drivers were rewarded for “taking long routes and schedules that put them at risk of harm in violence-plagued areas,” and were “barely scraping by.”
These are not the only incidents of alleged questionable legal and unethical actions by Uber. As early as 2014, Uber was accused of sabotaging competitors with the use of a distributed denial-of-service (DDoS) attacks, something the company did not refute, and in fact, issued a statement that read in part, “It was likely too aggressive a sales tactic and we regret the team’s approach to outreach of these drivers,” as reported in TechCrunch.
For a more complete history of Uber’s scandal, read “Uber Corporate Corruption, which includes allegations of sexual harassment, driver compensation fails, problematic privacy issues, data breach issues, and more.”
Those past scandals, and the newly released leaks have a long tail effect on Uber’s reputation and ultimately for its board.
The Legacy of Scandal
In 2017, Uber lost part of its market share to Lyft after those earlier scandals became public. That is a direct result of the reputational damage they suffered.
The scandal isn’t over in the wake of the newly released Uber files (July 2022) that raise new questions about Uber’s current operations and potential legal issues that may arise over what they revealed.
Boards of Directors Need to Incorporate Due Diligence Investigations
The effect on a business can be disastrous when a company does not employ proper due diligence investigations ranging from loss of reputation to complete dissolution, as occurred at Theranos. One particular challenge is when a founding member or CEO of a business is the foremost bad actor and is directing and creating a culture of corruption.
Numerous cases have come to light in recent years: Elizabeth Holmes and Theranos, Martin Shkreli and Turing Pharmaceuticals (now Vyera Pharmaceuticals), and just this month, Holme’s ex-romantic partner and former president and COO of Theranos Ramesh “Sunny” Balwani, who was found guilty on 12 counts of fraud and faces possible prison time. These come long after massive corporate failures for fraud, such as Enron, which resulted in mandated internal controls programs. Yet these programs often do not look at executive behavioral issues that lead to such massive frauds and in some cases dissolution of the entire company. Enron of course led to the demise of its accounting firm Arthur Anderson.
These companies resulted in tens of thousands of employees being laid off, several suicides, and extensive losses in pension systems, in addition to shareholder losses; the cost of such fraud and malfeasance at executive levels to employees and the public can be staggeringly high.
Even if justice is brought in some cases, the damage to companies, investors, the board, and employees can last a lifetime. The boards of all of these companies, could have done more to assure that there was ethical behavior on the part of its executive team. Insisting on executive due diligence investigations would have gone a long way to mitigate risk and uncover the negative actions and past histories of these individuals. These issues rarely occur only one time, but rather they build on a history of marginal and unethical behaviors, misconduct and malfeasance which can often be detected.
Two major investors in Uber, Freada and Mitch Kapor, called out Uber’s failure to change in an open letter to the board and investors in 2017. The Kapor’s point out their “disappoint[ment] to see that Uber has selected a team of insiders to investigate its destructive culture and make recommendations for change. To us, this decision is yet another example of Uber’s continued unwillingness to be open, transparent, and direct.”
The Kapor’s open letter notes the inherent conflict of interest to use an internal team to look into the company’s issues and the lack of transparency. Hiring an external investigative team is critical when trying to solve internal corruption issues. It reduces any bias an internal team would have and provides the experience and skill needed to address them. The open letter also shows that there was a lack of cooperation behind the scenes in coming to an agreement on how to solve the issues.
It is important to perform executive due diligence investigations whenever entering a partnership to protect against corruption and to avoid getting involved with unscrupulous individuals. Theranos, Turing, and Uber stand as warnings for both investors and board members that executive due diligence is not only desirable, but imperative before coming aboard, no matter how good the opportunity looks. Travis Kalanick, was both co-founder and CEO of Uber, if the board didn’t insist on a due diligence investigation, who would?
Uber’s Response to the Uber Files Leak
The Guardian reported Uber’s response to the leak. In a statement, Uber said: “We have not and will not make excuses for past behaviour that is clearly not in line with our present values. Instead, we ask the public to judge us by what we’ve done over the last five years and what we will do in the years to come.” Today’s behavior includes a $2 million settlement with the DOJ to resolve violations of the Americans with Disabilities Act, which Uber neither admits or denies.
Current Uber CEO Dara Khosrowshahi, who replaced Kalanick in 2017 and also serves on their board of directors, is not without some controversy either. However, Khosrowshahi was hailed by Uber spokeswoman Hazelbaker’s in a recent statement to The Guardian as having rewritten the “company’s values, revamped the leadership team, made safety a top company priority, implemented best-in-class corporate governance, hired an independent board chair, and installed the rigorous controls and compliance necessary to operate as a public company.”
Current Uber ethics are still unclear. Gizmodo reports, in a 2021 lawsuit, brought by a woman who claimed that Uber drivers repeatedly denied service to her and her guide dog, Uber tried to claim it was the fault of the “independent contractors.” Uber’s drivers. There are also concerns over safety for both drivers and passengers that continue.
Due Diligence is Critical
The primary way a company can deal with scandal and reputational damage is to safeguard against it. The starting point is building a culture of integrity that starts from the top. A company needs to make sure that character is one of the attributes required when hiring a CEO. It should also be required for all executives. In fact, for all employees. It is top management that sets the tone for the company and its culture.
Recent articles “Death of dos Santos and Leadership at the Top” by Tom Fox, and “Assessing Character: The Indispensable CEO Quality,” discuss recent studies supporting the essential need for character and leadership in a CEO and executive teams.
The single most important way to see if a potential C-suite hire is ethical is to run an executive due diligence investigation on candidates by an external investigative firm (a neutral third party assessment). Standard employment background checks cannot effectively detect this type of information and does not include an open source investigation OSINT/ HUMINT which may find such behavioral issues. Having a proper due diligence investigation risk program in place can save a company substantially in customers, market share, employees, and reputation costs. Lack of executive due diligence can open a company to a range of problems from fraud, sexual harassment, racketeering, bribery, money laundering, to acts of malfeasance and a wide range of misconduct.
Uber operates in numerous countries. The quality and availability of background checks in those countries vary, as do the laws. This does not alleviate a company from responsibility if something were to happen. Effective due diligence can help identify a range of risk issues and therefore enable the company to mitigate those risks.
When Damage Control is Reactionary
Some of the findings released in the Uber files, suggest that government authorities should be taking a closer look. When controversy arises, not only are there potential monetary costs, such as fines if criminal charges or civil penalties result, drop in share price and direct loss of customers. Add to this, but harder to quantify, are financial losses such as the company’s morale, departure of good executives and employees, and time and resources used to respond to the crisis. The best protection is not letting bad actors and rogue players into your company to start with.
Uber has suffered reputational loss multiple times in the past. These were “accepted” as part of a strategy to become a dominant player and disrupt an industry globally. Along with the loss of market share in 2017, the financial cost for dealing with replacing the numerous employees fired, legal fees, and cost of internal changes, the bad actions of the past continue to plague the company.
The takeaway is that the most effective way of preventing long-term reputational damage and its costs, is keeping bad actors out from the start. Executive due diligence investigations are the best preventative strategy to go about this. It should be in every risk manager’s quiver of resources to protect the company. For large corporations the board of directors is better protected in terms of its fiduciary duty of care. To protect corporations ensure that due diligence investigations are completed prior to on-boarding new executives and forming key business partnerships. What this means for Uber today, and going forward, is yet to be seen.