The unfolding drama at Uber is one of the most colourful stories in global business right now. The firm behind the popular taxi-hailing app has been among the most spectacular success stories of the latest technology boom, drawing in an avalanche of investment money and creating a product that, for all its critics, does genuinely provide a new and popular service. But Uber does not give the impression of being very well run.
This week, Uber's president, Jeff Jones, a man bought in only six months ago to stabilise its operations, resigned. The reason? The company did not live up to his "values". He is just one of a series of senior executives to quit in the past few months. Over that time, there have been reports of an internal culture of sexual harassment and bullying within the company, and its co-founder, Travis Kalanick (pictured), was caught on film berating a driver who complained about falling rates for the work. In the background there are simmering patent-infringement lawsuits. There is, it seems, never a dull day in the Uber office.
The business has exploded in size Uber is now valued at $66bn, almost as big as Vodafone and nearly four times the size of Tesco but fairly obviously it has yet to acquire the kind of management it needs. Thanks to the growth of Uber and other technology companies like it, there are suddenly lots of private companies out there with huge valuations and lots of shareholders. And in most cases as well, these companies have fairly wide shareholder bases. Kalanick only owns an estimated 10% of Uber. It is not his company. The rest of the shares are widely held among banks and investment funds around the world. If you drill down, you will probably find your pension fund owns a bit of Uber, just as it probably owns a bit of Apple.
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But these private companies are not subject to any of the same kind of rules, nor are they held to the same standards, as companies of that size would be if they were quoted on one of the main stock exchanges. We may often see the layers of middle managers, the teams of non-executive directors, and the scrutiny by analysts and the press that are part and parcel of daily life for a major public company, as excessively time consuming and lumberingly bureaucratic. But they do have big advantages. They provide a series of checks and balances, and ensure that a firm is at least run responsibly.
Companies like Uber are starting to show why that is necessary. If Uber were to go down and despite the seeming chaos within its boardroom, no one is suggesting it is about to the losses would ripple through the financial system. Everyone would suffer not just the founders or the one or two major venture capital funds that backed it.
Of course, it is great that companies can grow as quickly as Uber, Airbnb, Spotify and Netflix have over the last five years. It is absolutely right that the capital markets are able to supply the cash needed to enable those companies to expand very quickly and to disrupt the existing players in their industry. That is how economies grow, and new ideas spread. And yet, when so much money is at stake, investors need to make sure that the systems are in place to ensure that the management is responsible, and the checks and balances are there to stop the founders running out of control, just as they would for a quoted business.
Uber may well be a great advert for the ability of technology to disrupt and change a traditional industry in its case, taxis at lightning speed. But it is also turning into a great advert for the virtues of the traditional listed company often dull, sometimes stodgy, but also usually very responsible.
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Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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