Uber's CEO is gambling with his company's future

Uber CEO: I need to 'grow up'
Uber CEO: I need to 'grow up'

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Uber CEO: I need to 'grow up' 01:16

Story highlights

  • Recently, Uber CEO Travis Kalanick came under fire for his outburst at one of his drivers
  • Martha Pease: Kalanick must tread carefully, since these days consumers have the power to make or break a brand

Martha Pease advises Fortune 100 companies and business leaders on corporate strategy, marketing and growth. She is a Director at the Boston Consulting Group and the co-author of the book "Think Round." Follow her on Twitter: @Martha_Pease. The views expressed in this commentary are her own.

(CNN)In American business, it has long been argued that crime doesn't pay, but bad behavior often does. That may be changing -- and fast. Just ask Travis Kalanick, CEO of Uber, who The New York Times recently described as a businessman willing to win at any cost.

Although it's hard to imagine, Kalanick may be putting his mighty Uber at risk. And that risk bears a hefty price, since these days the fortunes of a company are not just in the hands of customers, but of anyone who chooses to share an opinion.
Martha Pease
Start with the viral video that catapulted Kalanick into the public eye and triggered a massive outcry a few weeks ago. He was captured in a heated exchange with an Uber driver, shouting at the hapless driver who claimed he had lost money working for the company's high-end black car service, "Some people don't like to take responsibility for their own [expletive]."
With the footage caught on the driver's dash cam, Kalanick was finally forced to take responsibility for both his words and actions -- but especially after the story leaked on social, and soon afterward, mainstream media. Kalanick issued a statement on the company's blog, in which he said he needed to "grow up." He wrote, "This is the first time I've been willing to admit that I need leadership help and I intend to get it."
That video may have had a more negative impact on Uber's brand than even the revelations from Susan Fowler, the female software engineer who documented her account of persistently ignored claims of sexual harassment at the company. And a more negative impact than the resignation of its SVP of engineering over undisclosed claims of a prior sexual harassment suit. In these two incidents, Kalanick did take responsibility, apologize and attempt to rectify the situation.
Uber CEO orders review of sexism allegations
Uber CEO orders review of sexism allegations

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Uber CEO orders review of sexism allegations 04:30
The Los Angeles Times reports that Uber's brand is shaped by a fundamental attitude of opportunism that risks undermining its relationships with the very people on whom it depends for success: drivers and riders. Uber is now having trouble recruiting and keeping their drivers happy, and riders have shown a willingness to defect to competitors like Lyft.
Some say the reports of Uber's brashness are just business as usual with founder-led tech companies: the definition of Silicon Valley disruption. Indeed, Kalanick and a handful of investors are part of a long tech tradition of maintaining their boundary breaking rights by holding the majority of their company's equity -- a tradition that allows them to act by their own code of conduct, as obnoxious as it may be.
Board members rarely intervene in public to take a position on the behavior of their CEOs. In Uber's case, board member Arianna Huffington did step up in public to investors and media. She forcefully took a position to investigate and address accusations of sexual harassment at the company. But hers is an unusual act: According to a Harvard Business Review study, fewer than 40% of board members comment in public on alleged company or CEO misconduct.
And Huffington's move might have hurt more than helped, backfiring with some observers who thought she let Kalanick hide behind her credibility rather than forcing him to step forward and take responsibility.
In the past, there was an argument that none of these types of allegations really mattered to a bottom line. Badly behaved CEOs generally found neither themselves -- nor their companies -- worse off with investors or financial markets. In that same study, of 38 companies involved in incidents of CEO bad behavior, 11 exhibited positive stock price returns when CEO misbehavior made the news.
However, in today's society, bad behavior creates challenges to a company's reputation that persist: References made to a CEO's actions continue to show up in online searches an average of almost 5 years after the initial event. Along with plain common sense, this makes it even more surprising that Uber's CEO is seemingly oblivious to the number one rule of the contemporary marketplace: You're not in control; every consumer out there is.
Uber is bound at to find its brand and reputation in a truly vulnerable position, which some reports suggest could negatively impact the company's valuation going into an IPO.
It used to be that companies would target a smaller slice of a larger consumer market and attempt to attract those most likely to be interested in what they sell. What's new today is that forward-looking companies know they now need to spend their time talking to virtually 100% of consumers, including people who don't even buy their products. Demanding to be respected, and not just as ATMs dispensing revenue into corporate coffers, consumers today act more like constituents in electoral politics: They have access to the media to air issues and the power to vote a brand in or out, regardless of whether they buy the actual product.
Even Kalanick once seemed to recognize this. "We're in a political campaign," he said at a technology conference some years ago, referring to the taxi industry and suggesting the candidate was Uber. But Kalanick hasn't made the connection that the real constituents casting the decisive votes are consumers.
Their rising cry reflects an ever-increasing sense that they've just had enough. In the broad activism we're seeing around sexual harassment, hiring and pay inequality, discrimination, privacy violations and the like, people are clearly pushing back against institutions and people who are failing them.
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One CEO recently told me that central to her role is protecting the reputation of the multibillion dollar company she leads. She knows, as Uber is learning, that anyone can attack a brand's reputation and destroy value it's taken years to build.
Uber's biggest challenge to future growth may in fact be its CEO's blind spot to this tension between reputation and revenue. Every consumer has unprecedented power, literally at their fingertips, to punish a brand for bad behavior and take their business elsewhere.