Jun 14th 2017

Why leadership looks weak and wobbly at Uber, Snap and Twitter

by John Colley

Professor of Practice, Associate Dean, Warwick Business School, University of Warwick

Silicon Valley has not had a great year for governance, and ride-sharing business Uber has been struggling more than most. The company’s culture has come under sustained attack for macho and sexist elements leading CEO Travis Kalanick to fire staff and hire brand image specialists in a bid to convince the world the company is cleaning up its act.

Now, the Uber board has adopted a series of recommendations designed to address the firm’s culture and practices. Details of the report from former US attorney general Eric Holder, were not initially revealed, but it has already sparked the departure of senior vice-president Emil Michael, an ally of Kalanick. Some reports have suggested Kalanick could be asked to go on leave for a spell himself.

It’s not the only bump in the road. Uber was forced into a costly exit from China where it had spent at least US$2 billion. And Google is now suing them for driverless car patent infringement and the alleged theft of secrets. The business continues to lose money and local competition is strengthening in many of Uber’s markets. Simply put, would Kalanick still be there if he did exert tight control over the privately-held shares and was able to block any uprising?

There have been issues too over at Snap Inc, owner of social network Snapchat. The firm has tried to explain poor performance since it floated its shares by complaining that Facebook is copying everything it does – hardly unusual behaviour in competitive markets. After the float, CEO Evan Spiegel immediately gave himself US$750m of stock and his colleagues the rest of US$2 billion stock, all without qualifying loyalty restrictions.

So what is going on with leadership among the tech elite? This last year, social networks LinkedIn and Twitter, and internet giant Yahoo, have all put themselves up for sale after attracting substantial user traffic which they failed to monetise. Are these also leadership failures?

Keeping control

Perhaps one clue lies with Snap, which floated at a valuation exceeding US$20 billion when its 2016 revenue was just US$400m, losses came in at more than US$500m and its user growth was slowing. Investors were essentially buying a lottery ticket as the issued shares did not carry votes. This meant they would have no influence over strategy or on the leadership, or, indeed, on what the leadership choose to pay themselves. The 26-year-old Spiegel and 28-year-old chief technical officer, Bobby Murphy, have a tight grip on control through their voting founder shares. Clearly whatever the future for Snapchat, they won’t be leaving in a hurry.

It is rare that entrepreneurs continue to lead their business once it moves into a strong growth phase and achieves maturity. The need for funds to develop the business requires outside funding which, due to the extent of risk, is provided by venture capital in return for voting equity. In turn, they usually move aside the entrepreneur to a product development role to be replaced by a more experienced CEO who can manage the introduction of systems, processes and structure.

The CEO will also have the delicate job of managing stakeholder interests and business reputation. Through experienced CEOs and chairmen, shareholders can ensure the rapid development of the business without major distraction through unproductive diversification or impulsive lurches towards high-risk business areas.

A business goes through various stages. From start up to rapid acceleration; to maturity, perhaps a turnaround, and for many, eventual demise. Each stage creates very different demands for leadership which are usually met by different leaders with appropriate skills for the stage the business is in.

Entrepreneurs rarely make it through the acceleration phase to maturity. That’s the point at which point most businesses recruit an outside CEO. Mark Zuckerberg at Facebook and Bill Gates at Microsoft were significant exceptions to that rule. However if entrepreneurs can retain adequate voting rights to block any challenge, then they typically hang on to power as long as they can. There are plenty of exceptions, but these norms are quite persistent.

Investor power

Jack Dorsey is a serial founder of technology businesses including Twitter and, more recently, Square. He has held the CEO role at both Twitter and Square at a time when Twitter has struggled. User growth has only very recently shown any sign of rallying, and the share price has stagnated. As investors are unlikely to contribute further funds, a first round of redundancies totalling 10% of staff has just been completed. These may not be the last. Meanwhile Dorsey is promoting his more recent interest in Square, which processes card payments and in which he is believed to hold about a quarter of the equity.

No one disputes Dorsey’s entrepreneurial eye for technology opportunities or ability to rapidly exploit opportunities. But can he deliver two long-term, thriving, focused businesses which know what they are good at? He may be a serial starter of businesses, but should he be running failing mature businesses when clearly his interests are elsewhere?

Whatever your answer to those questions, at least Twitter and Dorsey, and co-founder Ev Williams, have put in place a one share one vote structure. Elsewhere, Silicon Valley investors appear to have accepted the new norm of buying shares which lack the rights to dislodge the CEO if performance is failing. Uber remains privately held and so management retains control, but many public tech sector floats – including Google, Facebook, LinkedIn, and now Snapchat – protect the founders with either protective article clauses or privileged shares. So why are investors willing to pay for shares, in private companies or public, which have limited rights?

We can look back to the global financial crisis for the fundamental reason. The era of cheap money and low interest rates that followed has made it almost foolhardy to watch as your money stagnates in the bank. A ticket in the lottery, even with very long odds, is tempting for investors hoping for another Amazon, Google or Facebook, even if they are setting themselves up for longer term disappointment. Silicon valley investors should be ready to assert their power as the money behind tech sector growth. Voting rights would keep mercurial founders on the straight and narrow, work in those investors’ best interests – and make corporate governance less of a lottery while we’re at it.


This article was originally published on The Conversation. Read the original article.




To subscribe to Facts and Arts' weekly newsletter, please click here.

To follow Facts & Arts' Editor, Olli Raade, on Twitter, please click here.

Browse articles by author

More Essays

Jul 30th 2015

Art world sophisticates often casually dismiss the market for art as irrational and arbitrary.

Jul 30th 2015

The killing of Cecil the lion in Zimbabwe has brought fresh attention to an entrenched, ongoing crisis in wildlife conservation.

As unsustainable global

Jul 24th 2015

The discovery of Kepler-452b is not likely to see the public swoon with a collective r

Jul 21st 2015

O.K., I admit it: I have resumed a love affair begun more than four decades ago. The object of my affection -- and I should add, also of my wife's -- is Finland, a country where we once lived when I was researching my doctoral dissertation.

Jul 19th 2015

What would Voltaire make of his uncertain place in the collective American consciousness today?

Jul 13th 2015

Greece is in desperate trouble, but at least its survival as a nation is assured. In contrast, the UK might very well cease to exist within the next decade or so. In its place, England, Scotland, Wales and Northern Ireland could emerge as completely independent nations.

Jul 9th 2015

NEW YORK – Vidkun Quisling, Norway’s wartime fascist leader whose name has become synonymous with collaboration with evil, lived with his wife in a rather grandiose villa outside of Oslo.

Jul 7th 2015

U.S. Senator Bernie Sanders of Vermont is this summer's campaign phenomenon. Consider the crowds he is drawing. In Madison, Wisconsin, he recently attracted a crowd of nearly 10,000 raucous, enthusiastic supporters.

Jul 2nd 2015

Racially Motivated Murder

Jun 29th 2015

Beginning with my book Moral Politics in 1996 (Ch. 12), I have been arguing that environmental issues are moral issues.

Jun 27th 2015

You care about literature. You might even want to get published. Maybe you’ve got the short story done. You’re working on the novel. You don’t have an agent, a big publishing house.

Jun 25th 2015

This week in a televised press conference, Republican South Carolina Governor Nikki Haley called for the removal of the Confederate Battle Flag from the South Carolina Statehouse grounds.

Jun 24th 2015

"The idea of nullification in its own way is equally odious......... It is frightening that such an idea has captured the imagination of so many Republican legislators. It is an idea that the national GOP leadership should repudiate, and soon.

Jun 23rd 2015

"I told you so" just seems so inadequate.

Jun 22nd 2015

The sex lives of older people have received a lot of attention recently.

Jun 21st 2015

Importing the “Divine Past” into the Present

Jun 19th 2015

The Pope now recognizes the obvious: our climate is changing as a consequence of human activity.

Jun 19th 2015
What makes Pope Francis and his 183-page encyclical so radical isn’t just his call to urgently tackle climate change.
Jun 16th 2015

Domestic violence tends to be considered as a younger persons’ problem. The majority of adverts and campaigns focus on issues affecting younger people – and they often use younger models to increase awareness of domestic violence.