Uber’s C-suite set poor tone at the top

On Nov. 28, 2017, just a week after Uber revealed that it was the victim of a huge data breach affecting more than 57 million accounts, a U.S. federal court judge slammed the company a day before jury selection was set to begin in a trade secrets trial between Uber and Waymo, the self-driving car unit of Alphabet, Google’s parent company.

“I can no longer trust the words of the lawyers for Uber in this case,” said Judge William Alsup in court.

Uber previously hadn’t disclosed the breach to authorities or the affected account holders for more than a year. Instead, it paid $100,000 to a 20-year-old, live-at-home hacker to keep the breach a secret. (See Uber paid 20-year-old Florida man to keep data breach secret, sources said, by Reuters, Dec. 6, 2017.)

Alsup made the “trust” statement after the U.S. Attorney’s Office of Northern California had presented him with a letter in which Richard Jacobs, a former manager of global intelligence at Uber, outlined claims of an advanced corporate espionage program at Uber to Angela Padilla, Uber’s deputy general counsel.

According to an article in The New York Times, the letter’s discovery caused Alsup to delay the Waymo trade secrets trial.

“If even half of what is in that letter is true,” Alsup said in court, “it would be an injustice for Waymo to go to trial.” Alsup told Uber’s lawyers, “You should have come clean with this long ago.” (See Rebuking Uber Lawyers, Judge Delays Trade Secrets Trial, by Cade Metz, The New York Times, Nov. 28, 2017.)

In the January/February issue of Fraud Magazine, we examined how Uber and its competitors have changed the hired car industry — and thereby changed the industry’s fraud profile. Here in part two, we take a deeper dive into some of Uber’s fraud, ethics and compliance issues that the business and mainstream press highlighted in 2017.

Searing blog post

The incident that seems to have triggered a snowball effect of Uber’s problems last year was a blog post by Susan Fowler, a former Uber software engineer. (See Reflecting On One Very, Very Strange Year At Uber, by Susan Fowler, Feb. 19, 2017.)

In her blog, Fowler recounts case after case of sexual harassment by her supervisors and managers followed by cover-ups and retaliation, which eventually led her to leave the organization after about one year. As a compliance and ethics professional, it reads to me like the nightmare of any whistleblower who was counting on their organization to support them for speaking up.

Not only did Fowler not receive the support and protection that federal, state and local laws require, she faced months of direct and indirect retaliation. Apparently, Uber management supported this abhorrent behavior all the way up to the C-suite. Although Fowler did leave Uber, her accusations, in part, led Uber to conduct an extensive external investigation by the law firm Perkins Coie that resulted in the firing of more than 20 employees. (See Uber fires 20 employees after harassment probe, by Joseph Menn, Heather Somerville, Reuters, June 6, 2017.

According to Reuters, the report looked into claims of harassment, discrimination, bullying and other employee concerns.

Ethical shortcomings spread like wildfire

However, this wasn’t the first and only negative headline for Uber in 2017. In January of last year the Federal Trade Commission (FTC) gave the company a $20 million fine for exaggerating potential earnings for New York City Uber drivers.

The FTC alleged, among other issues, that Uber falsely claimed that the median income for its drivers in New York is more than $90,000 per year, but the actual amount was closer to $61,000. (See the FTC’s release, Uber Agrees to Pay $20 Million to Settle FTC Charges That It Recruited Prospective Drivers with Exaggerated Earnings Claims, Jan. 19, 2017.)

This was just the beginning of Uber’s troubles. As I’ve found in my experiences as a CFE, ethical shortcomings tend to spread like wildfire through an organization. If a company is willing to lie, cheat and steal to make money, a cascading waterfall probably will touch all parts of the organization. Often, infractions aren’t public knowledge. But thanks to the media, the skeletons kept marching out of Uber’s closets.

Shortly after Fowler went public with her claims, Waymo filed a lawsuit that a former employee at its company misappropriated trade secrets about autonomous driving technology. (See Alphabet’s Waymo Sues Uber Over Self-Driving Car Secrets, by Tim Higgins and Jack Nicas, The Wall Street Journal, Feb. 23, 2017.)

CNBC reported on a text message between former Waymo employee Anthony Levandowski and Uber CEO Travis Kalanick: “ ‘Internet, electricity, self driving cars and key things will always find a way,’ Levandowski texted Kalanick, linking to a YouTube clip from the 1987 movie ‘Wall Street.’ In the clip, the main character gives a famous speech of why ‘greed is good.’ ‘Here’s the speech you need to give ;-).’ ”

(See Unsealed texts show Travis Kalanick was cocky about China before Uber got creamed there, by David Orrell, CNBC, Aug. 15, 2017.)

And then a video of Kalanick arguing with an Uber driver went viral on YouTube. (See the video.) When the driver blames Uber for him losing $97,000, Kalanick responds “you know what … some people don’t like to take responsibility for their own ****.” To his credit, Kalanick did offer an apology after the video went viral.

On March 3 of last year, an article in The New York Times reported that Uber had created a fake version of its “Greyball” app to trick and deceive local regulators. According to the article, the program “uses data collected from the Uber app and other techniques to identify and circumvent officials who were trying to clamp down on the ride-hailing service. Uber used these methods to evade the authorities in cities like Boston, Paris and Las Vegas, and in countries like Australia, China and South Korea.”

“At a time,” the article continued, “when Uber is already under scrutiny for its boundary-pushing workplace culture, its use of the Greyball tool underscores the lengths to which the company will go to dominate its market. Uber has long flouted laws and regulations to gain an edge against entrenched transportation providers. …” (See How Uber Deceives the Authorities Worldwide, by Mike Isaac, The New York Times, March 3, 2017.)

To fan the fire even further, The Information (a tech news site) reported that Kalanick and five other Uber managers — only one of them female — visited an escort bar while traveling in South Korea in 2014. When the female manager felt uncomfortable, she left the bar and later reported the incident to human resources. The article alleges that Uber then “tried to keep the executive quiet about the incident in light of the current sexual harassment investigations the company was already facing.” (See Uber Group’s Visit to Seoul Escort Bar Sparked HR Complaint, by Amir Efrati, The Information, March 24, 2017.)

Boss man quits; new CEO vows culture changes

With all of the negative publicity hitting the company in 2017, it wasn’t surprising that Uber’s major investors, as reported by The New York Times, wrote a letter to Kalanick, titled “Moving Uber Forward,” in which they asserted that the company needed a change in leadership, and he should leave immediately. (See Uber Founder Travis Kalanick Resigns as C.E.O., by Mike Isaac, The New York Times, June 21, 2017.)

Although Uber made the right choice to distance itself from Kalanick, it still has some major issues to deal with, including the lawsuits alleging fraud, multiple U.S. Department of Justice (DOJ) investigations and the data breach to name just a few.

As a compliance and ethics professional, it reads to me like the nightmare of any whistleblower who was counting on their organization to support them for speaking up.

Newly appointed CEO Dara Khosrowshahi has vowed to clean up Uber’s culture and business practices, but he still seems to be struggling with some of the skeletons and the backlash to Uber’s past behavior, including the city of London stripping Uber’s license because its “approach and conduct demonstrate a lack of corporate responsibility.” This is a huge blow to the prestige of Uber’s brand and could set off a chain reaction among other major cities. (See Uber stripped of London licence due to lack of corporate responsibility, by Sarah Butler and Gwyn Topham, The Guardian, Sept. 22, 2017.)

Uber’s unrelenting problems are costing the company dearly — not only in potential legal fines and reputation but also in its valuation. As reported by Bloomberg, Softbank Group Corp. and a group of investors entered into a deal with Uber in November at a valuation discounted 30 percent compared to previous valuations. (See SoftBank Bids to Buy Uber Shares for 30% Less Than Current Value, by Eric Newcomer, Bloomberg, Nov. 27, 2017.)

Is Uber comprised of just a bunch of Silicon Valley hotshots who believe they’re above the law? Or does it speak to a unique culture only applicable to Uber itself? Let’s take a closer look at the core of these issues: values.

Uber’s former values

Most organizations have value statements that they communicate to internal and external stakeholders to establish ideal working environments and relationships. For example, Procter & Gamble’s values are well known to be integrity, leadership, ownership, passion for winning and trust. Under “integrity,” the value statement reads in part, “We always try to do the right thing; We are honest and straightforward with each other; We operate within the letter and spirit of the law.” (See Procter & Gamble’s Purpose, Values & Principles.)

When an organization sets a values baseline it provides guidance to management and staff. Uber didn’t use traditional value statements but instead gave its employees short taglines. Kalanick communicated these in 2015 at an employee retreat at Planet Hollywood in Las Vegas: customer obsession, make magic, big bold bets, inside out, champion’s mind-set, optimistic leadership, superpumped, be an owner — not a renter, meritocracy and toe-stepping, let builders build, always be hustlin’, celebrate cities, be yourself and principled confrontation. (See Uber has replaced Travis Kalanick’s values with eight new ‘cultural norms,’ by Oliver Staley, Quartz at Work, Nov. 7, 2017.)

When I first reviewed these values, I was reminded of the scene from the Hollywood movie, “The Wolf of Wall Street,” in which Jordan Belfort (played by Leonardo DiCaprio, who happens to be an investor in Uber) gives an inspirational speech to his employees that was nothing less than telling them to act like savages for the benefit of the company and their own wallets.

What’s clearly missing from Kalanick’s “values”? They don’t address integrity, ethical decision-making or trust. Instead they promote bending of rules, speeding to market, focusing on personal gains and being “superpumped.” (I’m not really sure what that means except employees should frequently pump their fists in the air.) Any of Kalanick’s taglines could’ve been employees’ premises for some of Uber’s alleged unethical and/or illegal behaviors.

Uber’s leadership has replaced Kalanick’s values with eight new “cultural norms,” including “we do the right thing” and “we act like owners,” according to the Quartz at Work article.

The obvious lesson for Uber to learn is that ethics matters, and it begins with excellent tone at the top. An organization’s desires to grow, disrupt an industry, play hardball, take large risks — none of that’s necessarily incompatible with ethical, responsible decision-making. However, poor, sloppy ethics marks the beginning of a slippery path to lawsuits, investigations and, potentially, jail time.

On a brighter note, the Financial Times recently named Susan Fowler, the whistleblower who kick-started the investigations into Uber’s culture, its Person of the Year. (See FT Person of the Year: Susan Fowler, by Leslie Hook, The Financial Times, Dec. 11, 2017. Also read She’s 26, and Brought Down Uber’s C.E.O. What’s Next? By Maureen Dowd, The New York Times, Oct. 21, 2017.)

I hope Fowler’s well-deserved recognition will empower more people like her to speak up even when it seems impossible to change a situation.

And Kalanick certainly gives CFEs yet another example of abhorrent C-suite tone at the top setting a poor pace for employees. However, Uber’s future now depends upon the decisions its new leaders make.

Steve C. Morang, CFE, CIA, CRMA, is a senior manager at a Northern California-based CPA firm and president of the ACFE's San Francisco Chapter. His email address is: steve.morang@yahoo.com.