London Puts a Leash On Uber

(Bloomberg Opinion) -- London may just have laid out a roadmap for how to prevent Silicon Valley recidivism.

A judge's decision to grant Uber Technologies Inc. a limited license to operate in the city — predicated upon passing regular audits — sets a precedent that others might want to follow. In recent years, European regulators have repeatedly punished the likes of Apple Inc. and Alphabet Inc. over their corporate behavior. But those punishments have, as my colleague Leonid Bershidsky has written, all too frequently failed to stop them re-offending.

Uber's nine-year existence has been characterized by a general dismissiveness toward regulations and employment norms. Back in September, the body running public transportation in London said it would ban the ride-hailing company because of safety and governance concerns. This followed a litany of misbehavior by the firm. The potential ban in one of Uber's most profitable markets was perhaps the strongest sign yet that it would have to change.

The company's appeal reached court this week, with the judge awarding it a 15-month license — essentially putting it on probation.

Since September's London ban bombshell, Uber has certainly tried to show it's listening. Transport for London listed an initial 25 complaints, and the San Francisco-based company has addressed many of them — though by no means all. That's why audits of its behavior next year and any subsequent renewal of the license will be significant. Uber still has to demonstrate that it has profoundly changed its culture under new CEO Dara Khosrowshahi, rather than simply giving the appearance of having done so.

Needless to say, Khosrowshahi will breathe more easily now. Beyond the classic London Black Taxi trade, it hasn't suffered the same crippling price wars in the U.K. capital as it has in other cities when competing with the likes of Lyft Inc. and Didi Chuxing. Uber is now home to about 38 percent of the 114,054 active private hire drivers in the EU's largest city. London is a huge part of the financial story as the company gears up for an IPO as soon as next year.

This doesn't mean its London problems are all over. It still awaits the results of an employment tribunal that could force it to pay drivers overtime and for holidays. That would really crimp its profitability, since drivers are Uber's chief cost. The company generally keeps less than a quarter of each fare. Even after nine years, Uber still posts heavy losses.

Still, treating drivers fairly is a pretty central part of being a good corporate citizen, and if the company's valuation must moderate to take that into account then so be it. London's short leash on the company looks like a smart way of reining in the worst excesses of the gig economy. But if Khosrowshahi is really serious about doing things differently, he needn't wait to do what's right.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

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