Contempt for Rules Is Catching Up with Uber

(Bloomberg View) -- Uber is facing a perfect storm. Nothing appears to be going right for the ride-hailing company in recent weeks, and while each individual setback appears fixable, together they attest to a culture within the company that may be far harder to change.

Here's a list of the setbacks and Uber's reactions to them:

• A series of non-U.S. court decisions challenging the company's business model, from a U.K. tribunal's ruling that Uber drivers are employees, not independent contractors, to a recent Australian ruling forcing the company to pay value-added tax like the "legacy" taxi services. Uber has been relatively successful in fighting off similar challenges in the U.S., but courts in the rest of the world tend to see it as another taxi service, not a tech company, and apply treatments that level the playing field. Later this year, the European Court of Justice is set to decide a landmark case on Uber's identity as a platform or a transport company, which will determine the company's tax and labor-law treatment in Europe. If previous practice is any indication, Uber will get no free ride.

Uber's response: Appeal, appeal and appeal.

• After Uber Chief Executive Officer Travis Kalanick joined President Donald Trump's business advisory council and ignored a New York taxi drivers' strike in response to Trump's Muslim travel ban, the company was hit with a boycott. Hundreds of thousands of people deleted the app and switched to Lyft and other competitors.

Uber's response: Kalanick condemned the travel ban and resigned from the advisory council.

• Software engineer Susan Fowler described her year at Uber as one marked by sexual harassment and callous treatment by the company's human resources department, which allegedly retroactively changed her performance assessment for the worse. She also described a company with office politics run amok and managers jockeying for position to the detriment of the product.

Uber's response: Kalanick promised an "urgent investigation" into Fowler's claims and dismissal for everyone who misbehaves toward women. Former U.S. attorney general Eric Holder has been hired to conduct the investigation. (Uber's senior vice president in charge of software development, Amit Singhal, appears to have been the first victim of the purge.) 

• Waymo, the Google self-driving car spin-off, has sued Uber for allegedly stealing its trade secrets by acquiring a company set up by an ex-employee who'd taken valuable designs with him when he left Waymo.

Uber's response: A promise to look into the allegations in the lawsuit.

• The self-driving program, run by the former Waymo employee in question, Anthony Levandowski, has been problematic in other ways, too. Apparently to save time and avoid reporting accidents, Uber failed to apply for regulatory permission to run road tests, though regulators in California specifically told it to do so. In the two months the loudly announced testing program ran in San Francisco, Uber's self-driving cars ran through six red lights -- a fact acknowledged in internal documents but not publicly.

Uber's response: After California revoked the registration of the test cars, the fleet has been moved to Arizona, where the state authorities have been more accommodating. 

All these problems have something in common. They stem from a fundamental disrespect for rules. Uber's initial approach is to ignore rules and then to deal with them as a nuisance -- sometimes an expensive one -- once noncompliance becomes a problem. Kalanick said this about rules in an interview last year:

Any rule has the right to become an old rule and be replaced by a new one. Ultimately, all rules have to bend towards people and progress. Cities, states, countries that allow rules to move forward see quicker progress.

This is a sweeping generalization and, if applied literally, it covers rules on handling employment, safety, the work environment, gender equality, intellectual property, fair business practices, and dealings with investors and governments. Some of these rules may be obsolete, and all of them hold back the development of an international, multibillion-dollar business. Uber, with seemingly unlimited access to other people's money -- $11.6 billion in investor funds raised up until this point -- can afford to cut every possible corner and then try to deal with the fallout retroactively. The investors who are already in are incentivized to accept this, because they want Uber to start making money.

In the third quarter of 2016, however, the company lost $800 million on $1.7 billion in net revenue, raising the nine-month loss to about $2.2 billion. It's not clear whether there's a path to profitability; in recent months, some banks -- including Deutsche Bank and JPMorgan -- declined to sell Uber shares to wealthy clients because the company had failed to provide enough specifics about its business. This reticence, of course, is another symptom of the same contempt for accepted practices that Kalanick's company has shown in every other area.

This contempt is wrongheaded. Technological change may defy certain rules -- but there's nothing inherent in Uber's largely commoditized technology, used by many other ride-hailing companies throughout the world, that allows the company to challenge every rule it encounters. There's nothing new, technologically advanced or progressive about pure chutzpah and hubris. If Uber is to succeed as a business, not just a narrative, these will have to be reined in.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.

To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.net.

To contact the editor responsible for this story: Therese Raphael at traphael4@bloomberg.net.

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