Major Uber shareholder sues former CEO Travis Kalanick

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Venture capital firm Benchmark, a prominent Uber investor, is suing the ride-hailing company’s founder and former CEO Travis Kalanick—who, under pressure from Benchmark and other shareholders, resigned as CEO in June amidst a number of scandals—to force him off of the board, Reuters reports via NBC News. The suit claims Kalanick “fraudulently obtained” power of appointment over three of the company’s board seats.

In 2016, the board voted to expand its size from eight to 11 members and gave Kalanick unilateral power to appoint the additional members. He used that power to install himself on the board following his resignation. In the suit, Benchmark, which controls 20% of the board’s voting power, says it would never have voted to allow Kalanick to fill the empty board positions had it been aware of his “gross mismanagement and other misconduct at Uber.”

The suit cites the mishandling of a rape case in which an Uber driver in India was the defendant; Kalanick’s alleged knowledge that an Uber engineer had stolen trade secrets from Google; and Kalanick’s purported creation of a “pervasive culture of gender discrimination and sexual harassment”  as specific examples of that “misconduct.”  The document also alludes to “a host of other inappropriate and unethical directives issued by Kalanick.”

The suit says Kalanick “intentionally concealed” that misconduct from the board so that he could secure the power of appointment for the three open board seats. The document claims Kalanick intends to use that power of appointment to “pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny.”

Benchmark invested in a fledgling Uber in 2011 and still owns 13% of the company. Based on privately-held Uber’s $69 billion market capitalization as of 2016, that stake is worth almost $9 billion.

Bill Gurley, Benchmark’s most senior active partner, led the firm’s original investment in Uber, served on the startup’s board for years, and was a mentor and confidant to Kalanick. However, amidst the federal investigation sparked by the sexual harassment allegations, Gurley led the effort to oust Kalanick from the CEO position. On June 21, one day after Kalanick’s resignation became public, Gurley resigned from Uber’s board.

Per CNBC, the suit surprised many investors around Silicon Valley; one called Benchmark’s move toward litigation “the nuclear option.”

Kalanick has released a statement saying the lawsuit “completely without merit and riddled with lies and false allegations,” and accusing Benchmark of  “acting in its own best interests contrary to the interests of Uber.” The statement calls the suit a “transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder.”

Erik Gordon, an entrepreneurship expert at the University of Michigan’s Ross School of Business, says the maligned former executive has a point with regard to Benchmark’s so-called selfishness.  “Even if you assume that Kalanick acted outrageously improperly, where was Benchmark when he was acting out?” Gordon said, per Reuters. ”Did Benchmark fight tooth and nail against Kalanick’s conduct, or were they willing to put up with it as long as the company’s valuation, and the value of their investment in it, skyrocketed?”

The Benchmark suit is just one of several challenges Uber is facing. Following former U.S. Attorney General Eric Holder’s investigation into the aforementioned sexism allegations, Uber lost several of its top executives. Moreover, many important figures in the company’s hierarchy are making their own decisions to step down. On Thursday, Ryan Graves, Uber’s first employee, announced intentions to step down from his role as head of operations and concentrate on his position as a board member. (According to Reuters, Graves was a steadfast supporter of Kalanick.)

Now, Reuters says, Uber’s leadership consists of a mere 14 people. The effort to fill the vacuum at the top of the company continues, but co-founder and chairman Garrett Camp wrote in a letter to shareholders that Kalanick is “not returning as CEO.”

Uber is also juggling a lawsuit from Alphabet’s Waymo over the aforementioned engineer who allegedly stole trade secrets from Waymo.

Featured image via Flickr/Tech Crunch

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