Uber's next CEO inherits a board at war and a combative ex-CEO

Show Caption Hide Caption 5 things you didn't know about Uber Uber has had their fair share of press, both good and bad. Video provided by TheStreet

SAN FRANCISCO — Is this Uber, the ride-hailing company — or Uber, the prime-time melodrama?

Lawsuits, board infighting and an inability to land its next CEO have created a swirl of corporate intrigue only rivaled in its intensity by its former break-neck growth. Behind the bitter public spats over who will run and control the company, lies this possibility: investors and its pugilistic ex-CEO may be fighting over a shadow of its former self.

As Uber grapples with its many challenges, which started to spiral early this year with an ex-employee's charges of a sexist and chaotic work environment, rival Lyft is making significant inroads in several U.S. cities, according to three separate surveys of consumers' digital card receipts.

The value of its privately held shares has dropped. And Uber has relinquished ambitious plans to expand in one huge market — Russia — just as it wages a distracting legal fight over whether it stole rival Google's ride-hailing technology.

"Every one of these are pretty profound dramas in and of themselves, [but] the simultaneity of them is unparalleled," says Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management.

Combined, they indicate an initial public offering, an essential part of the next CEO's to-do list, is unlikely to live up to the $70 billion valuation deep-pocketed investors have assigned it.

"It's been way overvalued and drinking its own Kool-Aid and now there is just no leadership," says Sonnenfeld.

Help wanted: C-fill-in-the-blank

Many anticipate that Uber will reveal its CEO choice in the coming weeks, closing the latest c-suite vacancy that already counted a missing CFO and chief operating officer. The new top executive would replace co-founder Travis Kalanick, who resigned in June under pressure from a group of investors including Benchmark Capital after a brand-bruising several months that resulted in a sweeping set of recommendations led by ex-Attorney General Eric Holder.

Kalanick's replacement is likely to possess the leadership chops that Kalanick admitted to lacking. Former General Electric CEO Jeff Immelt is a front-runner, reported tech website Recode, which cited unnamed sources. Uber and GE representatives declined to comment.

Hewlett Packard Enterprise CEO Meg Whitman, previously tipped as a possibility, has said she's not interested.

Technically, the company now is being run by a 14-member leadership team. But that group is down a member after Uber's first employee, one-time CEO Ryan Graves, said he would step down as senior vice president of global operations in September to focus on his role as a board director.

Complicating matters further is the role of Kalanick, who has retained a loyal following among some employees as well as control of some board seats. Co-founder Garrett Camp has knocked down the rumor Kalanick is still hoping to engineer a Steve Jobs-like comeback.

Benchmark, one of the company's largest investors with a stake worth around $8 billion, is seeking to lessen his influence on the board. In an unusual twist, the venture capital firm sued Kalanick, claiming he created additional seats on Uber's board to "increase his power over Uber for his own selfish ends" and misled on a number of scandals that later became public, including the legal dispute with Google self-driving car unit Waymo.

Kalanick fired back last week with a court filing contending that Benchmark was executing "a public and personal attack" that launched mere weeks after a May boating accident killed his mother and injured his father.

Adding to the brawl, a trio of Uber investors — Sherpa Capital, Yucaipa Companies and Maverick Technologies — last week demanded via email that Benchmark Capital cede its seat on Uber’s board and sell its shares, a day after Benchmark sued Kalanick, reported news site Axios.

"This type of turmoil creates uncertainty, and investors hate uncertainty," says Sydney Finkelstein, a professor at Dartmouth University's Tuck School of Business. "This is also why venture capitalists are leading the battles here to figure out what to do and are pitted against each other because they know this thing could unravel."

The U.S. is not only the world's most lucrative ride-hailing market, but also one that has room for exponential growth as urban dwellers increasingly consider options to car ownership. Uber, trailed by its smaller rival Lyft, led the charge to win stateside consumers, in many cases setting up shop in opposition to local regulations and city officials. It upended decades-old businesses, from taxi unions to rental cars.

Rapid growth that made "to Uber" part of the household lexicon attracted investors eager to get in on the next paradigm-changing company. The company has raised nearly $13 billion, a war chest that allowed it to expand to more than 80 countries.

Strain on the ride-hailing model

Yet it's always faced the question of whether its business model was tenable. To keep fares low, in some cases nearly the price of public transportation, it subsidized those low costs — particularly as it sought to grab share in huge markets in China and Russia. The cost of competing in these markets proved too much, and it's capitulated to local services Didi Chuxing in China and Yandex in Russia.

Uber's goal of creating a self-driving car fleet, one solution to slashing one of its biggest hurdles to profit — paying drivers— has hit a series of rim-busting potholes.

When Uber bought Otto, the autonomous trucking start-up that Uber acquired for around $680 million last summer, it represented Uber's bold overnight entry into the self-driving car competition. Now it's at the heart of a trade-secrets lawsuit from Alphabet's Waymo division, which contends that stolen technology was the fundamental appeal of an Otto acquisition. Uber has denied the charges. But the Otto co-founder brought on board to helm the self-driving division has left. A trial is slated for the fall.

In its core, U.S. market, it still rings up the lions share of ride-hails, and continues to siphon fresh business from would-be taxi riders. Yet smaller rival Lyft is making inroads.

Overall, Lyft's marketshare was 22.9% in July, up from 15.2% a year ago, according to Second Measure, which sells anonymized data culled from around 3% of U.S. credit cards. In some cities, including Oakland, Calif. and Portland, Ore., the two companies are running neck and neck for market share.

Those growth figures are echoed by recent analyses conducted by other credit card data companies such as TXN Solutions and Certify.

More: Uber co-founder says Kalanick not returning as CEO: report

More: Uber shareholders ask Benchmark to leave board

More: Uber's first employee to step down

All these woes have undercut Uber's once-soaring value. Its shares on the secondary market have plunged in recent months, dropping the company's valuation to about $50 billion from nearly $70 billion last year, according to a report from The Information, citing unnamed investors.

“I see a 5% to 10% correction in market value,” says Santosh Rao, head of research at the investment bank Manhattan Ventures Partners. He pegs Uber’s value at $53.5 billion, based on operations, and $60.3 billion, including equity.

Uber isn't likely to run out of gas anytime soon, given the capital it's raised. Losses have narrowed quarter to quarter. Also in Uber's favor is a product that has fundamental appeal for millions of users. Despite a much-publicized #DeleteUber social media campaign that benefited Lyft, there remains a disconnect for many consumers between the company's internal issues and the app on their phone.

That utility gives Uber some time to solve its problems. But it's exhaustible.

Uber can likely coast for around six months before its lack of leadership will begin to take a toll on talent retention and acquisition, says Michael Useem, professor of management at the Wharton School at the University of Pennsylvania. "If I were an investor, I would be demanding a resolution soon, within months or even weeks," he says.

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