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April 14, 2019, 10:31 a.m. EDT

Uber, 2 years after getting spanked, acts like a grown-up in its IPO

If co-founder Kalanick had been scandal free, Uber would be just like other tech deals with dual-class shares

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By Therese Poletti, MarketWatch


Getty Images
Uber co-founder Travis Kalanick was forced out as CEO two years ago, leading to a rarity in Silicon Valley: Strong corporate governance at IPO time.

Two years ago, Uber Technologies Inc. was the quintessential Silicon Valley problem child, exposed for a ridiculous series of detestable deeds that it performed in attempts to “disrupt.”

Yet when the most highly valued Silicon Valley tech startup finally filed for its initial public offering on Thursday, it portrayed itself as the grown-up among its peers. After ridding itself of Chief Executive Travis Kalanick, Uber crowed (as much as a company can in an IPO filing) about its mature corporate governance, especially offering one vote for each share, a rarity in this age.

That is a mantra most institutional investors want to hear. Whether it will win them over while knowing that it is only because of the exposed bad actions, and after they weed through Uber’s massive 285-page plus filing, is another question.

Read more: Uber officially files for most anticipated Silicon Valley IPO since Facebook

While Uber’s scale is enough to put it far ahead of startups that are sticking with the type of founder control that has given Mark Zuckerberg a lifetime throne at Facebook Inc. /zigman2/quotes/205064656/composite FB -2.36%  — including ride-hailing app rival Lyft Inc. /zigman2/quotes/208999293/composite LYFT -4.38% /zigman2/quotes/208999293/composite LYFT -4.38% /zigman2/quotes/208999293/composite LYFT -4.38% and Pinterest Inc. /zigman2/quotes/211319641/composite PINS -2.62% /zigman2/quotes/211319641/composite PINS -2.62% /zigman2/quotes/211319641/composite PINS -2.62% /zigman2/quotes/211319641/composite PINS -2.62% /zigman2/quotes/211319641/composite PINS -2.62% /zigman2/quotes/204763189/composite LEVI -3.14% — its massive size also comes with daunting losses and confusing financial statements. Uber hopes that the news that it has embraced good corporate governance practices and that it has eschewed dual-class shares will make it more appealing to a large number of investors.

It’s also a distinguishing feature compared with many tech IPOs, which are more frequently embracing dual-class structures. These structures, where the founders typically control the stock and the votes, are sadly becoming the norm, especially in Silicon Valley with its bad case of founder worship.

Read: With Lyft offering, the IPO casino is now open

“We have significantly improved our governance structure and are adopting policies that are similar to those adopted by leading Fortune 500 companies, and we believe these governance improvements will benefit our performance,” the company said in its regulatory filing. The company also noted that its chairman and CEO positions are separate.

Uber’s move to have a single voting class structure had already been executed, since its co-founder Travis Kalanick gave up his super voting shares in November, 2017, a move that cleared the way for an investment in the car-hailing-app company by SoftBank Group Corp. Kalanick, who had fostered a toxic culture of aggressive behavior where executives looked the other way at sexual harassment, was forced out as CEO amid demands by five of Uber’s big investors.

Read: More about Uber CEO Dara Khosrowshahi

Kalanick still retains 117.5 million shares, or about 9% of Uber stock, according to the prospectus. Any control he may have had through his two appointees to Uber’s board have been usurped by Uber’s larger board size, which is now 12.

It’s clear that if none of Kalanick’s shenanigans had made it into the press, he would not have been asked to give up his super-voting stock, and he would still be a controlling co-founder. Its investor-friendly corporate governance structure is now a result of its past mistakes. Companies that have chosen the dual-class route for their IPOs should take note of Uber’s big switch, which fortunately was done before it went public. It’s an example of what can happen when a founder acts like a problem child and has too much control.

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$ 177.75
-4.29 -2.36%
Volume: 17.33M
Aug. 23, 2019 4:00p
P/E Ratio
30.12
Dividend Yield
N/A
Market Cap
$507.07 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/208999293/composite
US : U.S.: Nasdaq
$ 49.11
-2.25 -4.38%
Volume: 9.57M
Aug. 23, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.38 billion
Rev. per Employee
$450,139
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/zigman2/quotes/208999293/composite
US : U.S.: Nasdaq
$ 49.11
-2.25 -4.38%
Volume: 9.57M
Aug. 23, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.38 billion
Rev. per Employee
$450,139
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/zigman2/quotes/208999293/composite
US : U.S.: Nasdaq
$ 49.11
-2.25 -4.38%
Volume: 9.57M
Aug. 23, 2019 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$14.38 billion
Rev. per Employee
$450,139
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/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 34.50
-0.93 -2.62%
Volume: 5.01M
Aug. 23, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.72 billion
Rev. per Employee
N/A
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/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 34.50
-0.93 -2.62%
Volume: 5.01M
Aug. 23, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.72 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 34.50
-0.93 -2.62%
Volume: 5.01M
Aug. 23, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.72 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 34.50
-0.93 -2.62%
Volume: 5.01M
Aug. 23, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.72 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/211319641/composite
US : U.S.: NYSE
$ 34.50
-0.93 -2.62%
Volume: 5.01M
Aug. 23, 2019 6:30p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$18.72 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/204763189/composite
US : U.S.: NYSE
$ 16.66
-0.54 -3.14%
Volume: 769,045
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P/E Ratio
16.29
Dividend Yield
N/A
Market Cap
$6.54 billion
Rev. per Employee
$369,234
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Therese Poletti is a senior columnist for MarketWatch in San Francisco. Follow her on Twitter @tpoletti.

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