The state’s highest court made it much harder for companies like Uber to classify workers as contractors rather than employees.
The German carmakers said they will merge their car-sharing and other digital businesses, amid threats from the likes of Uber and Google.
Because of the proposal to reduce voting rights, it is “essential that the full board be in place for proper deliberation to occur,” Mr. Kalanick said in a statement.
In its own statement, Uber said Mr. Kalanick’s move “came as a complete surprise to Uber and its board.” That is why, it added, the company is “working to put in place world-class governance.”
The moves underscore the increasingly dysfunctional relationship between Uber and Mr. Kalanick, the company’s co-founder. Mr. Kalanick stepped down as chief executive after some of Uber’s investors said he could not remain. Since then, the former chief, who holds a seat on Uber’s board, has battled with other board members, including Benchmark, a venture capital firm that was an early investor in the company.
Benchmark had previously contended that Mr. Kalanick had too much power over Uber and had sued him in an attempt to reduce that control. That suit has been moved to arbitration, allowing Mr. Kalanick to keep his fight with Benchmark — and any potentially damaging disclosures — out of public view. Benchmark declined to comment on Friday.
Credit Scott Olson/Getty Images
The back-and-forth also presents a problem for Mr. Khosrowshahi, who has to deal with a deeply divided board. Mr. Khosrowshahi had already had a taste of Uber’s ups and downs in recent days, when the company was told that it would lose its operating license for London, one of the biggest cities where it does business.
The power plays on Uber’s board are centered on a move made by Mr. Kalanick last year that allowed him to obtain outsize control of several board seats. At the time, he 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. Mr. Kalanick occupies one of those seats, and he has contended that he gets the right to fill the other two seats.
To prevent Mr. Kalanick from exercising that right, Uber and Goldman Sachs proposed on Thursday to reduce his voting rights. If approved, the proposal would also reduce voting power for other early Uber shareholders and board members, including Benchmark, Lowercase Capital and Menlo Ventures.
Credit Rob Kim/Getty Images
Uber is also negotiating a sale of some of its existing shares to new investors, including the Japanese conglomerate SoftBank. Goldman Sachs is also one of the financial firms that is managing Uber’s potential share sale to SoftBank.
The fight over voting speaks to the balance of power at young Silicon Valley start-ups. In recent years, entrepreneurs have asked for — and been given — more voting rights by venture capitalists and other investors who are eager to get into a hot deal. Other companies, like Snap and Facebook, also have structures that allow their founders to hold disproportionate voting power.
These sorts of bare-knuckle fights usually unfold behind the scenes in venture capital, where investors and founders have incentives to maintain a positive public persona. Entrepreneurs start companies more than once, and have to tap the same pool of firms for money over time. And the firms need to be perceived as founder friendly in order to cozy up to the most promising deals.
Mr. Kalanick’s two new appointees are well known in the business world. As chief executive of Xerox, Ms. Burns was the first African-American woman to run a Fortune 500 company. Ms. Burns, 59, received a master’s degree in mechanical engineering from Columbia University and worked at Xerox her entire career, beginning as an intern in 1980 and becoming the head of the company in 2009.
Mr. Thain, 62, was one of Wall Street’s best-known figures until the financial crisis hit Wall Street in 2008. He became the head of the New York Stock Exchange in 2004, then the chief executive of Merrill Lynch in 2007. He sold the firm to Bank of America during the financial crisis and was later chief executive of CIT Group, a lender to small and midsize businesses, until he retired in 2015.
Uber’s board said in a statement that Mr. Kalanick had “always put Uber first” and that his stepping down as chief executive would give the company “room to fully embrace this new chapter in Uber’s history.” An Uber spokesman declined to comment further.
The move caps months of questions over the leadership of Uber, which has become a prime example of Silicon Valley start-up culture gone awry. The company has been exposed this year as having a workplace culture that included sexual harassment and discrimination, and it has pushed the envelope in dealing with law enforcement and even partners. That tone was set by Mr. Kalanick, who has aggressively turned the company into the world’s dominant ride-hailing service and upended the transportation industry around the globe.
Uber Investigation Leads to Shake-Up
Mr. Kalanick’s troubles began earlier this year after a former Uber engineer detailed what she said was sexual harassment at the company, opening the floodgates for more complaints and spurring internal investigations. In addition, Uber has been dealing with an intellectual property lawsuit from Waymo, the self-driving car business that operates under Google’s parent company, and a federal inquiry into a software tool that Uber used to sidestep some law enforcement.
Uber has been trying to move past its difficult history, which has grown inextricably tied to Mr. Kalanick. In recent months, Uber has fired more than 20 employees after an investigation into the company’s culture, embarked on major changes to professionalize its workplace, and is searching for new executives including a chief operating officer.
Mr. Kalanick last week said he would take an indefinite leave of absence from Uber, partly to work on himself and to grieve for his mother, who died last month in a boating accident. He said Uber’s day-to-day management would fall to a committee of more than 10 executives.
But the shareholder letter indicated that his taking time off was not enough for some investors who have pumped millions of dollars into the ride-hailing company, which has seen its valuation swell to nearly $70 billion. For them, Mr. Kalanick had to go.
Our Previous Uber Coverage
The five shareholders who demanded Mr. Kalanick’s resignation include some of the technology industry’s most prestigious venture capital firms, which invested in Uber at an early stage of the company’s life, as well as a mutual fund firm. Apart from Benchmark, they are First Round Capital, Lowercase Capital, Menlo Ventures and Fidelity Investments, which together own more than a quarter of Uber’s stock. Because some of the investors hold a type of stock that endows them with an outsize number of votes, they have about 40 percent of Uber’s voting power.
Benchmark, Lowercase, First Round, Menlo Ventures and Fidelity did not respond to requests for comment.
But on Twitter, Mr. Gurley of Benchmark, one of the earliest supporters of Mr. Kalanick at Uber, said of the executive, “There will be many pages in the history books devoted to @travisk — very few entrepreneurs have had such a lasting impact on the world.”
Mr. Kalanick’s resignation opens questions of who may take over Uber, especially since the company has been so molded in his image. And Mr. Kalanick will probably remain a presence there since he still retains control of a majority of Uber’s voting shares.
Taking a start-up chief executive to task so publicly is relatively unusual in Silicon Valley, where investors often praise entrepreneurs and their aggressiveness, especially if their companies are growing fast. It is only when those start-ups are in a precarious position or are declining that shareholders move to protect their investment.
In the case of Uber — one of the most highly valued private companies in the world — investors could lose billions of dollars if the company were to be marked down in valuation.
Uber, which has raised more than $14 billion from investors since its founding in 2009, has a wide base of shareholders apart from the ones who signed the letter. Uber’s investors also include TPG Capital, the Public Investment Fund of Saudi Arabia, mutual fund giants like BlackRock and wealthy clients of firms like Morgan Stanley and Goldman Sachs.
In the letter, in addition to Mr. Kalanick’s immediate resignation, the five shareholders asked for improved oversight of the company’s board by filling two of three empty board seats with “truly independent directors.” They also demanded that Mr. Kalanick support a board-led search committee for a new chief executive and that Uber immediately hire an experienced chief financial officer.
Mr. Kalanick is stepping down as Uber works to improve its relationships with some of its constituencies. Earlier Tuesday, the company emailed its drivers, who work as contractors, to let them know they would soon be allowed to take tips, which drivers had not been able to accept previously. The tipping change was among several new initiatives announced for drivers.
“Over the next 180 days we are committed to making driving with Uber better than ever,” the company said. “We know there’s a long road ahead, but we won’t stop until we get there.”
In the United States, its rival Lyft has been growing its market share — and that growth has fueled a huge haul of fund-raising — but it still remains a distant second in the market. And remember, this is a supposedly hobbled Uber, one plagued by internal strife, an exodus of executives, a rapidly deteriorating brand and an existential lawsuit stemming from the shady origins of its purchase of a self-driving car start-up.
But what Uber lacks in autonomous tech it makes up for in autonomous customers. No matter what it does, a lot of us just can’t seem to quit Uber. I’m not judging. I used Uber a dozen times in the past month, including three times last week. I use it for the same reason you do — it works really well.
Across many cities in the United States, Uber is one of the cheapest, safest, most convenient ways to get around. In many parts of the world, Uber is even more than that. This year, I met drivers in India who said the company had significantly improved their lives.
And many transportation scholars are giddy over Uber’s potential. They say it could improve congestion and expand access to transportation to the poor and people with disabilities. It could reduce our dependence on private cars, the most expensive, dangerous and inefficient machines we buy. It could become a catalyst for public transportation systems — a way to solve the “last-mile problem” that bedevils commuter trains — or perhaps a replacement for them: What if, instead of building fixed bus lines, cities subsidized Uber rides, allowing people the flexibility of car travel for the price of a bus?
Yet while it’s plausible that a generic car-sharing company could become such a global force for good, the whole idea begins to seem naïve when you start talking about Uber specifically. In addition to the internal recklessness cited in Mr. Holder’s report, this is a company that has repeatedly deceived, threatened, defied or simply ignored regulators and the press. It has systematically mistreated its drivers. (It has promised to address their concerns in a coming report.)
Even riders aren’t safe from its misbehavior. Last week, the technology news website Recode reported that an Uber executive, Eric Alexander, conducted his own investigation after an Uber passenger in India was raped by a driver in 2014. Mr. Alexander obtained the victim’s medical records, and he shared them with other Uber officials, including Mr. Kalanick. The executives reportedly even wondered whether the victim’s story was a conspiracy cooked up by Uber’s Indian rival, Ola.
In April, when my colleague Mike Isaac asked Uber about the executives’ conspiracy theory, Mr. Alexander denied it through a spokesman. That was a lie, but Mr. Alexander was fired only last week after other reporters began asking. Uber declined to comment.
If you can’t trust a company to respect your medical records when you report a rape on its service — and can’t expect that its executives will tell the truth when confronted about it — how could we begin to trust it on some of the loftier civic goals it and its boosters outline?
We can’t, obviously. Instead, it’s your job and mine to verify. Uber says it’s going to make its workplace more inclusive. It will abandon many of its brash cultural values. Its war room will become a peace room (literally). It will become Uber 2.0.
We should all hope it does. But we should do more than hope: There’s an Uber app on your phone. Think twice about tapping it, because if Uber remains terrible after this, we have only ourselves to blame.
Any reduction of his involvement in Uber — even if temporary — would be significant, given that he molded the ride-hailing service in his own brash image. Mr. Kalanick has faced particular scrutiny in recent months as Uber has worked to overcome scandals, including employees detailing sexual harassment and systematic attempts to evade law enforcement personnel in some cities.
The discussions by the nine-member board preceded a report from Mr. Holder’s investigation, scheduled to be released on Tuesday. In recent months, Uber has fired more than 20 employees for infractions including sexual harassment and discrimination.
“This starts at the very top,” said Micah Alpern, a principal at A. T. Kearney, a top management and consulting firm. “They need to start from scratch to create a new culture entirely.”
Uber declined to comment on the company discussions, which were held at the Los Angeles offices of Covington & Burling, the law firm where Mr. Holder works. Mr. Kalanick, through a spokesman, declined to comment. News of the discussions was previously reported by Reuters.
The internal drama at Uber has gripped the broader technology industry, as the ride-hailing company has come to symbolize how start-up culture can go awry. Yet even in Silicon Valley, where propriety can take a back seat to profits, the claims about Uber’s corporate culture have been startling, including widespread sexual harassment and the mishandling of the medical records of a woman raped by an Uber driver.
Uber Investigation Leads to Shake-Up
Uber’s current crisis stems from claims in February from a former engineer, Susan Fowler, that she had been routinely sexually harassed when she worked at the company and that the human resources department had done little to help her. An outpouring of other cases followed, and Uber retained at least two law firms — including Covington & Burling — to look into the matters.
Uber has since faced other problems, including an intellectual property dispute over self-driving car technology with Waymo, the self-driving car business that operates under Google’s parent company. Uber also is dealing with a Justice Department investigation into tools that it used to evade law enforcement personnel in cities where the authorities were trying to shut down its ride-hailing service. Many executives have left the company in recent months.
Even so, Mr. Kalanick’s position has for months seemed secure, especially because of how the company is structured. Uber’s board follows a “founder-friendly” governance structure, made popular in Silicon Valley by Google and Facebook. Seven of Uber’s nine board members hold so-called super-voting shares, allowing them to have a stronger say in the board room. Four director seats are empty.
Because Mr. Kalanick and a few allies hold a majority of those shares, his position has been safe — and would most likely remain so, even if he took a leave.
Some Uber board members have expressed support for Mr. Kalanick. Garrett Camp and Ryan Graves, who have been with Uber since its early days, have long believed that Mr. Kalanick’s leadership was necessary to buck an aggressive incumbent taxi industry. Arianna Huffington, the founder of the Huffington Post who is also an Uber board member, has publicly attested to Mr. Kalanick’s willingness to change.
J. William Gurley and David Bonderman, two venture capitalists and independent board members who also hold super-voting shares, were worried about the company’s management, the people with knowledge of the matter said. Outside investors were also nervous about the string of scandals and have called board members directly about their concerns.
Mr. Kalanick’s executive allies were in a trickier position. One of the recommendations in Mr. Holder’s report was that Mr. Michael, Uber’s senior vice president of business and a close confidant of Mr. Kalanick’s, be asked to leave the company, according to the three people. The firm’s recommendations also include other sweeping changes at the company.
Mr. Michael has not resigned, nor has he been asked to do so, according to a person familiar with the matter, but he was evaluating his options.
This year, Uber’s general counsel and some board members recommended that Mr. Michael take leave from his position at the company until the results of the Holder report were delivered, according to three people familiar with the matter.
Mr. Michael, who has been at the center of three controversies at Uber, refused to step down, and Mr. Kalanick did not force him to do so.
Mr. Michael did not respond to a request for comment.
Employees and close watchers of the company worry that even the most damning conclusions of the Holder investigation could be ignored.
“Any response without complete buy-in from the top is a complete waste of time,” said Stephen Hirschfeld, a partner at the labor law firm Hirschfeld Kraemer who regularly investigates corporate harassment issues. “It can have an even worse impact on company morale if people already know it’s a total joke.”
At the time, Uber had just started its ride-hailing service in Portland without seeking permission from the city, which later declared the service illegal. To build a case against the company, officers like Mr. England posed as riders, opening the Uber app to hail a car and watching as miniature vehicles on the screen made their way toward the potential fares.
But unknown to Mr. England and other authorities, some of the digital cars they saw in the app did not represent actual vehicles. And the Uber drivers they were able to hail also quickly canceled. That was because Uber had tagged Mr. England and his colleagues — essentially Greyballing them as city officials — based on data collected from the app and in other ways. The company then served up a fake version of the app, populated with ghost cars, to evade capture.
Video by The Oregonian
At a time when Uber is already under scrutiny for its boundary-pushing workplace culture, its use of the Greyball tool underscores the lengths to which the company will go to dominate its market. Uber has long flouted laws and regulations to gain an edge against entrenched transportation providers, a modus operandi that has helped propel it into more than 70 countries and to a valuation close to $70 billion.
Yet using its app to identify and sidestep the authorities where regulators said Uber was breaking the law goes further toward skirting ethical lines — and, potentially, legal ones. Some at Uber who knew of the VTOS program and how the Greyball tool was being used were troubled by it.
In a statement, Uber said, “This program denies ride requests to users who are violating our terms of service — whether that’s people aiming to physically harm drivers, competitors looking to disrupt our operations, or opponents who collude with officials on secret ‘stings’ meant to entrap drivers.”
The mayor of Portland, Ted Wheeler, said in a statement, “I am very concerned that Uber may have purposefully worked to thwart the city’s job to protect the public.”
Uber, which lets people hail rides using a smartphone app, operates multiple types of services, including a luxury Black Car offering in which drivers are commercially licensed. But an Uber service that many regulators have had problems with is the lower-cost version, known in the United States as UberX.
UberX essentially lets people who have passed a background check and vehicle inspection become Uber drivers quickly. In the past, many cities have banned the service and declared it illegal.
That is because the ability to summon a noncommercial driver — which is how UberX drivers using private vehicles are typically categorized — was often unregulated. In barreling into new markets, Uber capitalized on this lack of regulation to quickly enlist UberX drivers and put them to work before local regulators could stop them.
After the authorities caught on to what was happening, Uber and local officials often clashed. Uber has encountered legal problems over UberX in cities including Austin, Tex., Philadelphia and Tampa, Fla., as well as internationally. Eventually, agreements were reached under which regulators developed a legal framework for the low-cost service.
That approach has been costly. Law enforcement officials in some cities have impounded vehicles or issued tickets to UberX drivers, with Uber generally picking up those costs on the drivers’ behalf. The company has estimated thousands of dollars in lost revenue for every vehicle impounded and ticket received.
Credit Mark Ralston/Agence France-Presse — Getty Images
This is where the VTOS program and the use of the Greyball tool came in. When Uber moved into a new city, it appointed a general manager to lead the charge. This person, using various technologies and techniques, would try to spot enforcement officers.
One technique involved drawing a digital perimeter, or “geofence,” around the government offices on a digital map of a city that Uber was monitoring. The company watched which people were frequently opening and closing the app — a process known internally as eyeballing — near such locations as evidence that the users might be associated with city agencies.
Other techniques included looking at a user’s credit card information and determining whether the card was tied directly to an institution like a police credit union.
Enforcement officials involved in large-scale sting operations meant to catch Uber drivers would sometimes buy dozens of cellphones to create different accounts. To circumvent that tactic, Uber employees would go to local electronics stores to look up device numbers of the cheapest mobile phones for sale, which were often the ones bought by city officials working with budgets that were not large.
In all, there were at least a dozen or so signifiers in the VTOS program that Uber employees could use to assess whether users were regular new riders or probably city officials.
If such clues did not confirm a user’s identity, Uber employees would search social media profiles and other information available online. If users were identified as being linked to law enforcement, Uber Greyballed them by tagging them with a small piece of code that read “Greyball” followed by a string of numbers.
When someone tagged this way called a car, Uber could scramble a set of ghost cars in a fake version of the app for that person to see, or show that no cars were available. Occasionally, if a driver accidentally picked up someone tagged as an officer, Uber called the driver with instructions to end the ride.
Uber employees said the practices and tools were born in part out of safety measures meant to protect drivers in some countries. In France, India and Kenya, for instance, taxi companies and workers targeted and attacked new Uber drivers.
“They’re beating the cars with metal bats,” the singer Courtney Love posted on Twitter from an Uber car in Paris at a time of clashes between the company and taxi drivers in 2015. Ms. Love said that protesters had ambushed her Uber ride and had held her driver hostage. “This is France? I’m safer in Baghdad.”
Uber has said it was also at risk from tactics used by taxi and limousine companies in some markets. In Tampa, for instance, Uber cited collusion between the local transportation authority and taxi companies in fighting ride-hailing services.
In those areas, Greyballing started as a way to scramble the locations of UberX drivers to prevent competitors from finding them. Uber said that was still the tool’s primary use.
But as Uber moved into new markets, its engineers saw that the same methods could be used to evade law enforcement. Once the Greyball tool was put in place and tested, Uber engineers created a playbook with a list of tactics and distributed it to general managers in more than a dozen countries on five continents.
At least 50 people inside Uber knew about Greyball, and some had qualms about whether it was ethical or legal. Greyball was approved by Uber’s legal team, led by Salle Yoo, the company’s general counsel. Ryan Graves, an early hire who became senior vice president of global operations and a board member, was also aware of the program.
Ms. Yoo and Mr. Graves did not respond to requests for comment.
Outside legal specialists said they were uncertain about the legality of the program. Greyball could be considered a violation of the federal Computer Fraud and Abuse Act, or possibly intentional obstruction of justice, depending on local laws and jurisdictions, said Peter Henning, a law professor at Wayne State University who also writes for The New York Times.
“With any type of systematic thwarting of the law, you’re flirting with disaster,” Professor Henning said. “We all take our foot off the gas when we see the police car at the intersection up ahead, and there’s nothing wrong with that. But this goes far beyond avoiding a speed trap.”
On Friday, Marietje Schaake, a member of the European Parliament for the Dutch Democratic Party in the Netherlands, wrote that she had written to the European Commission asking, among other things, if it planned to investigate the legality of Greyball.
To date, Greyballing has been effective. In Portland on that day in late 2014, Mr. England, the enforcement officer, did not catch an Uber, according to local reports.
And two weeks after Uber began dispatching drivers in Portland, the company reached an agreement with local officials that said that after a three-month suspension, UberX would eventually be legally available in the city.
In some American cities, small groups of people are already choosing not to own cars by relying on ride-hailing services like Uber, through which consumers can order a ride through their smartphone, and car-sharing companies like Zipcar, where they essentially pick up a car whenever they need to drive one. Eventually, self-driving cars will be a reality, which would let Uber and others field fleets of driverless vehicles that can operate around the clock and further cut the cost of ride services.
“Ride-sharing has huge potential in terms of shaping the future of mobility,” Shigeki Tomoyama, senior managing officer of Toyota, said in a statement about partnering with Uber. “We would like to explore new ways of delivering secure, convenient and attractive mobility services to customers.”
Karl Brauer, an analyst at the research firm Kelley Blue Book, said there was no sign that car-sharing or ride-sharing — sometimes called “mobility services” — was slowing auto sales today. Auto sales in the United States hit a record high in 2015 and are on the rise this year, and China and other international markets will ensure the global auto market continues to grow.
Nevertheless, auto companies are investing in companies like Uber “to be ahead of the curve” if they do shake up car ownership down the road, Mr. Brauer said. “History has shown that if you wait for the market to decide, you’re dead,” he said.
In January, General Motors invested $500 million in Lyft, the ride-hailing app popular with American users, with a focus on developing networks of autonomous vehicles. Ford Motor is making over its Dearborn, Mich., headquarters into a Silicon Valley-like campus of green buildings connected by self-driving shuttles.
And a few weeks ago, Fiat Chrysler and Google agreed to produce a test fleet of driverless minivans. Both BMW and Mercedes-Benz have started to pilot ride services.
Even other technology companies only tangentially related to automobiles are becoming more involved in ride services. Apple, which is working on its own autos project, said this month it had invested $1 billion in Didi Chuxing, a Chinese ride-hailing company that competes fiercely with Uber.
The scale of ride-hailing as a phenomenon is encapsulated in China. Uber operates in more than 30 Chinese cities with plans to expand to 100 by the end of the year. Didi is in well over 300 cities and towns throughout the country.
Last June, Uber said it had approximately 20,000 regular drivers in the Chinese city of Chengdu alone, on par with the approximately 22,000 drivers in San Francisco and 26,000 in New York at the time.
But global expansion requires capital — lots of it. Companies like Uber have tapped venture capitalists, strategic partners and large institutional investors at the rate of about once every six months to amass enough money to keep introducing operations in new cities. In total, Uber has raised more than $10 billion from several firms to wage its land war across multiple continents.
With the Toyota partnership, Uber gets other perks apart from money. The company, based in San Francisco, which was valued at $62.5 billion in December, plans to expand its vehicle financing program with Toyota, whose cars are among the most popular with Uber drivers. Customers can lease Toyota vehicles through the program and are able to pay down the cost by driving for Uber.
Toyota said that in its work with Uber, the companies would also cooperate on trials in countries where ride-hailing is growing.
The companies also plan to develop in-car apps that support Uber drivers, and to share their knowledge and research, they said.
Volkswagen has been slower to jump on the mobility bandwagon, partly because it has been consumed by an emission-cheating scandal involving its diesel models. After those revelations, Volkswagen replaced its chief executive, about a dozen top managers departed, its VW-brand sales skidded in the United States and it set aside $18 billion to cover scandal-related costs.
Next month, Volkswagen is supposed to detail a plan to buy back or repair about 500,000 diesel models that had the cheating software and were sold in the United States.
About the same time, Volkswagen is also planning to unveil a “Strategy 2025” in which mobility initiatives will play major roles. In April, Volkswagen said it intended to set up a separate mobility company to oversee investments and initiatives on this front.
“We aim to become a world leading mobility provider by 2025,” Matthias Müller, chief executive of Volkswagen, said in a statement.
Shahar Waiser, Gett’s chief executive, stressed the synchronicity his company had with Volkswagen’s European sales, and how the companies were focused on both consumer and business clients. Mr. Waiser said Gett had $500 million in revenue, 30 percent of which came from the company’s 4,000 corporate and business clients, and that it was profitable in some markets.
Gett, which is popular in more than 60 European cities, as well as Moscow and New York, said it planned to use the capital to continue expanding its European operations.
“By now, people realize that the landscape is so big — and every market is so different — there will be more than a monopoly or a duopoly,” Mr. Waiser said. “You will always see two, maybe three major players in this space, wherever you go.”