On the day of the Uber IPO, I decided to tune into MSNBC to see the ringing of the bell. Shortly after, I observed an in-depth argument about Uber’s performance and overall business. A reporter made a statement: Uber’s culture—and how it treats its employees and drivers—negatively impacted its IPO and stock price. This opinion was countered by another analyst, saying, in no-way could Uber’s culture turn the IPO into a victim.
But, given Uber’s laundry list of scandals, this argument got me thinking about the company’s rocky IPO: To what extent can Uber’s toxic culture impact its bottom line? While surely there are a wide array of challenges with the business (market dynamics, global reach, regulations, innovation, etc.), I don’t think you can prevent a toxic culture from having some sort of impact on the bottom line, business results, or ultimately, the performance of the IPO.
If you Google “Uber” at any given moment, you will likely see negative press about driver strikes, price gouging, harassment, and questionable business tactics, just to name a few. The public nature of Uber’s scandals makes the company a solid case study for analyzing the financial effects of a toxic work culture. This often begins with leadership, and in this case, Uber founder, Travis Kalanick.
Uber: Bumps in the Road—From the Starting Line
Uber’s founder and former CEO, Kalanick, is now written about as the “ousted Uber CEO.” He had to watch from the floow as the company he started launched into the ultimate exit, IPO. In discussing Kalanick’s forced resignation, BBC News cites, “...a series of scandals about sexual harassment, macho culture and the departure of senior executives.” Dating back to the early years of the company, Kalanick sent an employee-wide email about a company outing. With profane language and inappropriate tone, Kalanick was advised against sending the message, some saying it contributed to a pervasive culture of sexism at Uber. He sent it anyway.
Fast forward four years to August 2017, and the US Equal Employment Opportunity Commission began investigating Uber for possible gender discrimination. Then in June 2018, a former engineer at Uber sued the company, filing a sexual harassment lawsuit. The New York Times writes, “The latest lawsuit is another reminder of the toxic workplace culture that critics say was allowed to fester under Uber’s former chief executive, Travis Kalanick.”
Intentional or not, executives create companies in their image and likeness. The behavior of executives like Kalanick can permeate throughout an organization—spiraling out of control, beyond an isolated impact into a company-wide problem, and an expensive one at that. In fact, Harvard research concludes that, “In extreme cases, aside from hurting performance, such [toxic] workers can generate enormous regulatory and legal fees and liabilities for the firm.” Although Uber has taken measures to change its cultural norms and repair its image, it’s a lot to come back from—leading some to debate that Uber’s culture will continue to negatively affect its performance and stock price.
How Toxic Culture Can Impact the Bottom Line and Stock Price
If you look at Uber, the readily visible cost of the company’s toxic leadership is the legal settlements, like Uber’s October 2017 decision to settle a bias case involving women and minorities for $10 million. But the true cost of toxic leadership goes beyond just settlement costs. Here are just a few of the other expenses Uber has accrued due to its toxic culture.
- Hire a law firm to assist in a harassment investigation.
- Fire 20 employees for sexual harassment, discrimination, unprofessional behavior, retaliation, bullying, and physical safety issues.
- Hire and train new employees and senior executives.
- Provide more adequate training to employees, as recommended by Eric Holder—citing leadership training for senior management, along with human resources, manager, and interview training.
- Increase the headcount for Human Resources.
- Identify and address high turnover rates.
- Overcome lost income caused by rider protests, as seen during the #DeleteUber movement.
And although it’s a limited sample, along with 10+ of my connections, I almost exclusively use one of Uber’s competitors, consciously choosing to support a company with a better company culture. If you were to compare my usage now to pre-scandal, you’d see a 90% drop-off.
While many of Uber’s expenses may seem uncommon, the financial ramifications of Uber’s culture extend beyond its one-time settlements. A study comparing the ‘100 Best Companies to Work For’ with industry averages, concludes that, “... organizational culture significantly correlates to higher financial performance in the form of stock returns.” Likewise, we know the converse is true: Positive company culture can positively affect retention, maximizing profit and minimizing opportunity loss for organizations.
Addressing Toxic Leadership
Though strongly influential, Kalanick and Uber’s exec team don’t capture the full story when it comes to Uber’s stock price. Although I acknowledge additional factors like market dynamics, timing, and analyst notes, at the same time, I strongly believe in the correlation between how a company treats its employees and its financial performance.
If your exec team is the main roadblock to creating positive company culture, sometimes it takes an extreme response like hiring the Former Attorney General of the United States to conduct an investigation and provide recommendations. Other times, it may require leadership development or firing a single executive. Although the solution to toxic leadership may vary, the impact is the same: Toxic leadership hurts people and the bottom line. To steal a phrase from the replacement CEO of Uber, Dara Khosrowshahi, “...do the right thing. Period.”