Uber investor sues Uber’s former chief executive for fraud
Travis Kalanick, who built Uber into a transportation behemoth, was ousted as chief executive of the ride-hailing company in June by unhappy investors. Now, one of those investors has escalated the battle by suing Mr. Kalanick, claiming fraud and other transgressions, in an attempt to remove him from Uber’s board of directors.
Benchmark, a Silicon Valley venture capital firm that is one of Uber’s largest shareholders, filed suit against Mr. Kalanick on Thursday in Delaware Chancery Court, accusing the former chief executive of fraud, breach of contract and breach of fiduciary duty.
At the heart of the suit is how Mr. Kalanick obtained outsize control of several Uber board seats in 2016, which Benchmark said he achieved through “material misstatements and fraudulent concealment” of information. Mr. Kalanick’s “overarching objective is to pack Uber’s board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as C.E.O. — all to the detriment of Uber’s stockholders, employees, driver-partners, and customers,” the suit said.
The suit added that Mr. Kalanick’s position on Uber’s board “is thus improper and inequitable, and should be invalidated.”
The move signaled a new level of power politicking over the fate of Uber, the privately held company that is valued at nearly $70 billion. Mr. Kalanick, who had built Uber up over the last eight years, stepped down in June after pressure from investors, leaving no clear successor, though he remained on the company’s board. Uber’s directors have since fought behind the scenes over matters including potential candidates for chief executive, with the dissension hampering decision-making.
The suit shines a spotlight on governance issues at Silicon Valley start-ups. Most young technology companies are built atop the partnerships of entrepreneurs and the venture capitalists who fund them. In recent years, start-up founders have gained more control over their companies as investors have agreed to give up more of their authority to get a piece of the hottest firms. Mark Zuckerberg, a founder of Facebook, and Snap’s founders, Evan Spiegel and Bobby Murphy, all control voting rights at their companies, for example.
Benchmark’s suit shows that the balance of power is delicate. Investors will go to great lengths to undercut a company founder if they believe their investment is endangered.
“This is a power struggle over management,” Steven Hill, author of a book on Uber’s economic impact, said of Benchmark’s lawsuit. “The board looked the other way for years while Travis engaged in all sorts of unethical and even illegal behavior. He is their monster.”
Benchmark declined to comment further on its suit, which was earlier reported by Axios. Uber also declined to comment.
A spokesman for Mr. Kalanick said, “The lawsuit is completely without merit and riddled with lies and false allegations.” The spokesman said Benchmark was acting in “its own best interests” instead of those of Uber, and added that Mr. Kalanick “is confident that these entirely baseless claims will be rejected.”
Mr. Kalanick is not interested in returning to Uber as chief executive, according to a person involved in the proceedings, who asked to remain anonymous because he was not authorized to talk publicly. Others have said Mr. Kalanick wants to be a shadow leader without necessarily having the chief executive title.
Benchmark invested in Uber six years ago, when the ride-hailing service was a minnow. Bill Gurley, a Benchmark partner, joined the company’s board at the time. Benchmark’s then-20 percent stake in Uber has now ballooned into one worth of billions of dollars.
For years, the relationship between Mr. Kalanick and Mr. Gurley — and by extension Benchmark — was close. But that changed this year when Uber was plunged into a series of scandals. Among other things, the company faced claims that its workplace included sexual harassment, and it was sued by Google’s sister company, Waymo, for stolen trade secrets over self-driving cars. Mr. Gurley distanced himself from Mr. Kalanick, and Benchmark eventually allied itself with other concerned Uber investors to push Mr. Kalanick out.
Benchmark currently owns a 13 percent stake in Uber, and Mr. Kalanick has a 10 percent chunk, according to the suit. Even so, Mr. Kalanick has significant clout over the company.
That’s partly because of a move he made in June 2016, which the suit hones in on. At the time, Mr. Kalanick got Benchmark to approve an amendment to the company’s charter that gave him the right to nominate three new directors to add to Uber’s eight-member board. According to the suit, Benchmark would never have agreed to the move had it known of Mr. Kalanick’s “gross mismanagement and other misconduct at Uber.”
Yet Mr. Kalanick deliberately hid the problems at Uber, Benchmark claimed in the suit, and therefore he obtained the rights over the three new board seats fraudulently.
After Mr. Kalanick stepped down in June, he also left the board seat that is designated for the chief executive, the suit said. Mr. Kalanick then immediately reappointed himself to one of the three new board seats that he controlled through the 2016 amendment. He has since refused to give up control of the other two board seats, according to the suit.
In public, the board said there was a détente. “We look forward to continuing to serve with him on the board,” said the board about Mr. Kalanick in a statement at the time.
But his continued attachment to Uber has taken a toll, the suit said. For weeks, Mr. Kalanick has privately been waging a war against those who pushed for his dismissal, according to current and former Uber employees. And that has interfered with Uber’s chief executive search and other situations, including a possible investment from Japanese conglomerate SoftBank.
Last month, many of Uber’s board members were excited about one prospective candidate for chief executive, Meg Whitman, who is the chief executive of Hewlett Packard Enterprise. But Mr. Kalanick was not part of that group and had his own preferred candidates. Ms. Whitman eventually posted on Twitter that “Uber’s C.E.O. will not be Meg Whitman.”
In the suit, Benchmark said it was seeking a judgment that the 2016 amendment to Uber’s corporate charter should be voided, and asked for an injunction to stop Mr. Kalanick from participating in Uber board matters.
“Kalanick’s improper actions, if allowed to continue, would cause irreparable harm to Uber by exposing it to reputational, regulatory and other risks,” Benchmark said in the suit.
Mr. Kalanick, for his part, may have anticipated that this day would eventually come. In a YouTube video dated June 16, 2011, he spoke to a group of young entrepreneurs about his experience helping to create a start-up.
In bold, black lettering splayed across a PowerPoint slide behind Mr. Kalanick was the following phrase: “V.C.s tend to kill founding C.E.O.s.”
“There are forces all around you to take you out,” Mr. Kalanick said in his presentation.