MSFA 728-02 N - Uber assignment PDF

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MSFA 728-02 Ethics and Finance N. Weggeland Assignment #3 Uber’s Corporate Culture and Practices This article examines which ethical standards of the CFA Institutes Standards of Practice were violated by Uber, and therefore prove that the business model, board structure and culture encouraged by management prevented the company from operating in any ethical way. The CFA Institute Code of Ethics and Standards of Professional Conduct describes the need for its members to act with integrity, competence, diligence and in an ethical manner when interacting with stakeholders. To meet these standards members are encouraged to exercise independent professional judgment whilst practicing and encouraging others to practice their profession in a ethical manner that will reflect positively on themselves and, in return, the profession itself. The CFA Code of Conduct continues to identify seven main ethical standards: 1. Professionalism, 2. Integrity of Capital Markets, 3. Duties to Clients, 4, Duties to Employers, 5. Investment Analysis, Recommendations and Actions, 6. Conflicts of Interest and 7. Responsibility as a CFA Institute Member. Following we will examine which of the standards were mostly disregarded by Uber. I.A. PROFESSIONALISM - Knowledge of the Law. The Silicon Valley Venture Uber was founded just like many other Silicon Valley start-ups. Based on one simplistic idea, funded in millions by prominent investors and stakeholders. While the first product of Uber – and App supporting ride sharing services – is not necessarily illegal, it was the fact that the business model completely foregoes a Third-Party vendor which many city regulations did not agree with. For instance, San Francisco state authorities formulated a “cease and desist” order the moment Uber began offering services within the city. Which the firm ignored. In New York, Uber

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MSFA 728-02 Ethics and Finance N. Weggeland instigated a campaign of passengers complaining about cab waiting times to gain ground in the face of angry regulators. From the very beginning, Uber’s success was built on one objective only: Growth. Growth at any Cost. Growth at the cost widespread deregulation of ride-sharing services. The aggressive growth strategy of the firm ironically led Uber’s lawyers to building a culture of illegality and building the very basis of the business on this disastrous principle. This strategy is in direct contrast to the CFA Code of Conduct which states that members must understand and comply with all applicable laws of any government and in the event of conflict, must comply with the more strict regulation. They should refrain entirely from knowingly participating in any violation of such laws. The extent to which the firm used to abuse regulation, simply because Uber deemed them “bad laws”, becomes especially apparent in Frances case: the French government declared ride-sharing vehicle without professional license as illegal, punishable by two years in prison and a €300,000 fine. Prosecutors indicted Uber’s two top executives and fined the company €800,000. Similar regulation were imposed across Europe. The response by regulators unfortunately proves yet another violation of Codes of Conduct: I.D. PROFESSIONALISM - Misconduct. Members must not engage in any professional conduct involving fraud or deceit that reflects adversely on their professional reputation, integrity, or competence. Thinking of Lawyers working for Uber this standard was impossible to follow under the firm’s strategy. But it becomes especially apparent when analysing the firm’s board and CEO’s behavior. From the beginning, Mr. Kalanick embarked on an aggressive campaign to dominate the ride-sharing industry which bore incredibly successful fruit within a short amount of time (within 4 years operating in 250 cities and 53 countries, revenue of 6.5 bn in 2016). But it was built on values such as “growth above all else.” And 14 2

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hustling”, “make magic,” and “toe-stepping”, which all don’t support an ethic work and company culture. Worse, it inspires misconduct in order to achieve the company’s ambitious growth objectives. Indeed, while one board member was let go due to sexist comments, the next chairman filed a lawsuit against the CEO was accusing Kalanick’ of breach of fiduciary duty, gross mismanagement and misconduct. Which seems only the iceberg in a an endless continuing cascade of miscount and misrepresentation cases, including a sexual assault case in India in which the local Uber executive illegal attained the victims medical records and shared them with Board Members in an attempt to prove misrepresentation, and a particularly profound attempt to undermine competition in self-driving technology by stealing 14,000 documents of Waymo, forfeited by a former Waymo executive, who was engaged by Uber. I.C. PROFESSIONALISM - Misrepresentation. Members and Candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities. In the case from India, there is immediate prove that this Code was violated by Uber. An additional case is cementing the firm’s use of misrepresentation even further. In both 2014 and 2016 Uber cyber security systems where hacked, exposing information of hundreds of thousands of drivers. Instead of acknowledging Uber’s shortcomings, the firm chose to hide the fact for a year, and worse accepting possible blackmail by the hackers through paying them $100,000 to conceal the data breach. The result was a thirdparty audit every 2 years for 20 years to prove reliability and compliance in regard to data privacy. But further audits should reveal further shocking mismanagement of the company. 3

MSFA 728-02 Ethics and Finance N. Weggeland VI.A. CONFLICTS OF INTEREST - Disclosure of Conflicts. Uber’s culture brought inherent conflict of interest with it, for both employer and employees. This issues becomes especially clear through an open investor letter stating: “Uber’s outsize success interims of growth of market share […] are impressive, but can never excuse a culture plagued by disrespect, exclusionary cliques, lack of diversity, and tolerance for bullying and harassment of every form.” The CFA Code of Conduct clearly states that members must make full and fair disclosure of all matters that would impair their independence and objectivity or interfere with respective duties to their clients and employer. It seems that there were many talented and dedicated employees at Uber who genuinely wanted to innovate the transportation and ride-sharing industry. Yet, they seem to be completely impaired to do so in an ethical way through Uber’s culture. Especially bad example of this situation are the several complaints of sexual harassment against board members, the CEO and executives.

The magnitude of Uber’s corrupt culture becomes

especially clear through the Audit carried out by Perkins Coie. 215 complaints stating discrimination, sexual harassment, unprofessional behavior, and bullying since 2012. Disciplinary action in 27% of cases resulting in 20 terminations. At the root of it all: CEO Kalanick’s leadership. The Auditor recommended immediate reallocation of Kalanick’s responsibilities, an increase in independent directors, leadership training to seniors and mandatory sensitivity training to employees, plus, a completely restructuring of the firm’s 14 values. The solution? By now, Uber is deemed a poster child for poor corporate governance and should hold numerous lessons for other companies, particularly fast-growing startups. The root problem seems to be the objective of Innovation and Growth at any price. Yet the cost to ensure proper and ethical corporate governance 4

MSFA 728-02 Ethics and Finance N. Weggeland is deemed to high given the economic model of the firm. While it is possible to ensure internal corporate governance within the firm it is almost impossible to ensure the same to external independent stakeholders such as Uber Drivers. A first step to alter internal corporate governance was already undertaken: Hiring outside experts, acting in transparency about their findings and correcting culture according to those findings. Another solution would be immediate changes to the board and management structure. One especially advisable one would be to remove Kapernick as CEO and board member. While Uber engaged another CEO, Kapernick retained a seat on the firm’s board which seems completely irresponsible even after imposing certain restrictions such as loosing super voting rights and the need of 2/3 of all votes to regain CEO status. Through accepting Kapernick in its core business structure, Uber is preventing itself from operating completely ethically as his continued engagement is signaling acceptance in his (mis-)behavior. In addition, the cost to ensure external corporate governance of each Uber driver seems almost impossible to measure and attain, making an outlook on Uber’s recovery of ethical culture rather bleak.

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