Travis Kalanick, Co-Founder and CEO of Uber
Photograph by Barry Chin — Boston Globe via Getty Images
By Dan Primack
November 24, 2014

Why won’t the investors do something?

I read all sorts of variations of that question last week, in regards to the Uber kerfuffle. Some people felt that the company’s shareholders — who have invested around $1.5 billion — should fire CEO Travis Kalanick. Others felt they should insist that Kalanick fire Emil Michael, the Uber executive who floated the possibility of spending $1 million to investigate the private lives of critical journalists. At the very least, they should make sure that Uber employees can’t access user data in order to turn dinner party tricks.

But here’s the reality: Uber’s investors don’t have the power to do any of that.

Like many of the other hot Silicon Valley tech companies, Uber’s governance structure is said to be heavily tilted toward management. Just like Facebook’s (FB) board couldn’t overrule or fire Mark Zuckerberg, I’m told that Uber’s board can’t overrule or fire Kalanick.

This isn’t the old days where venture capitalists could gain a reputation for firing founders in favor of more experienced executives. Entrepreneurs now often maintain control, via mechanisms like dual-class stock. The board members are largely advisory, and can effectively be frozen out by CEO whim.

Why have VCs allowed such a power shift to occur on their dime? Mostly because competition for hot deals is so intense that insisting on adversarial terms — even if in the reasonable pursuit of maintaining fiduciary duty — is a sure way to get your term sheet tossed in the trash. And what VC wants to tell his investors that they don’t have shares in the next Facebook because of a disagreement over voting rights?

So what can investors really do if they disagree with Kalanick’s decisions or continued leadership? One option would be to refuse to participate in the company’s next financing, thus hindering Uber’s geographic and product expansion plans. But that assumes: (a) Investors even have the flexibility to participate on the next round pro rata, given Uber’s rocketing valuation, and (b) Uber can’t raise new money entirely from third-parties, which it likely can.

The other option would be a public rebuke. Take to Twitter or some other medium to express displeasure. The problem with this, of course, is that such an action could be viewed by Uber management as an inappropriate airing of dirty laundry, and result in the investor losing his in-house influence (or his ability to someday sell shares on the secondary market, which requires company approval). Unless it’s a small investor who has no influence in the first place, at which point such a public statement would be largely irrelevant.

None of us, of course, have any idea what Uber investors have (or haven’t) been saying to company management behind the scenes.

In short, Uber’s investors don’t control Uber. If the cultural problems have been trickle-down from the top (as many have argued), that’s also how the solutions will have to flow. All investors can do is try to carefully throw a few pieces of sage advice upstream and hope that they hit the current.

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