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Executive Responsibilities and Consequences: A Case Study of Uber’s Data Breaches

Individuals potentially face criminal charges for failing to disclose a data breach.

Organizations at risk of a data breach (that’s every organization, by the way) can learn something from Uber’s data privacy missteps. Squire Patton Boggs attorneys Colin Jennings, Ericka Johnson and Dylan Yépez offer key takeaways from the company’s high-profile data breaches.

On August 19, 2020, the former Chief Security Officer (CSO) for Uber Technologies Inc. (Uber) was charged with obstruction of justice and misprision of felony for allegedly trying to conceal from federal investigators a cyberattack that occurred in 2016, exposing the data of 57 million riders and drivers. Although an extreme case, it is a good reminder for companies and executives to take data breach disclosure obligations seriously.

The criminal complaint, filed in the U.S. District Court for the Northern District of California (“the Complaint”), appears to claim that Uber, through its former CSO, Joseph Sullivan, should have reported the 2016 data breach to federal investigators. But a business’s duty to disclose a data breach is not always clear, and there are often a myriad of laws, regulatory practices and consumer expectations when navigating a breach. Using Uber’s 2016 breach as a case study, company executives must be aware of and recognize the business and personal consequences associated with breach response, and specifically with intentionally concealing a breach.

The Obligation to Report a Data Breach is Often Not Straightforward

Across the world, countries have widely varying laws related to the protection of personal information and even greater variance on the requirements to disclose a breach of such information. Even within the United States, the definitions of “personal information” and “data breach” differ greatly from state to state, with no two state laws being identical, so businesses, particularly those operating on a national or global scale, must conduct multijurisdictional analyses to determine whether an obligation to disclose a given breach exists and, if so, the scope of the obligation. Often there are inconsistent laws and obligations, and regulatory and consumer expectations can vary greatly based on the nature, scope and context of the breach.

Many laws require disclosure of a data breach only if there is a “reasonable risk of harm” to the individual(s) whose personal information was unlawfully accessed and/or exfiltrated. This requires businesses to determine whether, based on the totality of circumstances, it is reasonably likely that a breach of personal information will harm affected individuals. On the other hand, some laws do not require any risk of harm. Further, given that the forensic review of a data breach evolves over time, it is not uncommon for the initial findings to change dramatically over the course of a breach response. What often appears to be a limited attack can become a wholesale loss of sensitive consumer or business data – and oftentimes both simultaneously.

The legal analysis is then complex, fact-specific and ever changing. Perhaps, for example, only a portion of the sensitive data was exposed (e.g., only the last four digits of a social security number or only an individual’s last name). Maybe, due to insufficient logs, forensic investigators cannot rule out the possibility that an unauthorized third party accessed the sensitive data or moved laterally into human resources data or databases containing consumer financial information. Or perhaps evidence suggests that the cybercriminals appear to be staging sensitive data for exfiltration, but have destroyed any evidence that data was actually taken. These are but a few examples of factors that can make the obligation to report far from straightforward.

As Uber’s 2016 breach response indicates, the difficulty of ascertaining a business’s breach notification obligations is not a defense to those company executives who intentionally conceal a breach. As discussed below, company executives who ultimately have to decide whether to disclose a breach should take notice of the potential consequences of making the wrong decision.

A Case Study in Intentionally Failing to Report a Breach

The Complaint alleges that, in response to Uber’s 2016 breach, former CSO Joseph Sullivan “engaged in a scheme to withhold and conceal from the [Federal Trade Commission] both the hack itself and the fact that that data breach had resulted in the hackers obtaining millions of records associated with Uber’s users and drivers.”

At the time of the breach, Sullivan was helping oversee Uber’s response to a Federal Trade Commission (FTC) investigation into Uber’s data security practices, which had been triggered, in part, by another Uber data breach that occurred in or around 2014. Sullivan was “intimately familiar with the nature and scope of the FTC’s investigation.”

About 10 days after providing sworn testimony to the FTC, however, Sullivan received an email from “[email protected],” claiming to have found a “major vulnerability in uber [ sic ],” and threatening that the hacker “was able to dump uber [ sic ] database and many other things.” Within days, Sullivan’s security team realized that an unauthorized person or persons had accessed Uber’s data and obtained, among other things, a copy of a database containing approximately 600,000 driver’s license numbers for Uber drivers.

Based on available information, this massive data breach likely triggered Uber’s duty to notify under numerous jurisdictions’ data breach laws. By contrast, the 2016 breach appeared significantly more expansive than the 2014 breach, in which a cybercriminal accessed over 100,000 individuals’ personal information on a cloud-based data warehouse.

Based on the Complaint, Sullivan allegedly took affirmative measures to conceal the data breach and the resulting exposure of data. Among other things, he allegedly:

• negotiated with the cybercriminals to pay $100,000 in exchange for the hackers to sign a nondisclosure agreement (NDA), “falsely represent[ing] that the hackers had not obtained or stored any data during their intrusion,” even though “[b]oth the hackers and Sullivan knew at the time that this representation in the NDA was false;”
• “instructed his team to keep knowledge of the 2016 breach tightly controlled;”
• “never informed the FTC of the 2016 data breach, even though he was aware that the FTC’s investigation focused on data security, data breaches and protection of [Personally Identifiable Information];” and
• “removed certain details … that would have illustrated the true scope of the [2016] breach” from a prepared summary for the new Uber CEO – changes which “resulted in both affirmative misrepresentations and misleading omissions of fact.”

Sullivan’s alleged motives to cover up the 2016 hack and data breach are the concerns that all companies must assess in connection with their breach notification responsibilities.

First , the Complaint appears to allege that one motive to conceal the breach was to prevent further reputational harm to the company. Like Uber’s customers, individuals entrust their data to companies on a daily basis, from making purchases to requesting services. Companies know, therefore, that they risk losing revenue if their customers lose confidence in the protection of their data.

Understanding this dynamic, he “became aware the attackers had accessed [the cloud] in almost the identical manner the 2014 attacker had used,” according to the Complaint. “That is, the attackers were able to access Uber’s source code on GitHub (this time by using stolen credentials), locate [a cloud] credential and use that credential to download Uber’s data.” As such, the Complaint appears to allege that both the embarrassment of falling victim to the same attack vector and the associated reputational consequences may have motivated Sullivan to conceal the breach.

Second , the Complaint appears to allege that another motive for concealing the breach was to prevent additional regulatory scrutiny. In the United States, companies like Uber are subject to many state- and industry-specific regulators (e.g., state Attorneys General, the Securities and Exchange Commission, FTC) — often simultaneously. Additionally, outside of the United States there are numerous laws and data protection or other authorities that govern data breaches.

At the time of the breach, Sullivan was actively responding to the FTC’s inquiries to assist in reaching a settlement related to the 2014 breach. For example, he approved language to the FTC representing that “‘all new database backup files’ had been encrypted since August 2014,” when in fact, they had not. Sullivan’s fears may not have been misplaced. In light of the new information regarding the 2016 breach, the FTC effectively withdrew its previous settlement terms and added requirements to the resolution with Uber.

Ultimately, it appears that such attempts to rationalize and avoid Uber’s breach notification responsibilities may have led Sullivan to engage in the actions he did.

Lesson Learned

In a public statement, the FBI advised that, “[w]hile this case is an extreme example of a prolonged attempt to subvert law enforcement, we hope companies stand up and take notice.” In effect, the consequences of failing to disclose a data breach are the most extreme in cases where a notification obligation clearly exists and the company and its officers consciously decide to circumvent that obligation during the course of an ongoing investigation. While companies have incentives to rationalize and avoid their disclosure obligations (e.g., reputational harm, regulatory oversight, expense), this incident highlights the potential consequences executives should be aware of when weighing the business decision to disclose a breach. Disclosure and direct individual notification of a data breach is now the expectation, and the decision to not disclose must be very carefully weighed – taking into account law, regulatory practice and consumer/customer expectations. One size does not fit all, and the nature, scope and circumstance of the specific breach must be carefully assessed in real time.

Ultimately, the legal analysis to determine whether an obligation exists and the business decision to disclose the same are nuanced and complex. If you experience a data breach, it is best to retain counsel who is highly experienced in the nuances of data breaches and the complexities of data breach notification laws for help determining whether and how to disclose a given breach.

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Fixing a toxic culture like Uber’s requires more than just a new CEO

Assistant Professor of Psychology, Villanova University

Assistant Professor of Psychology and Human Resource Development, Villanova University

Disclosure statement

Katina Sawyer owns and operates K. Sawyer Solutions, LLC, a consulting firm that specializes in selection, assessment, leadership development and diversity in organizations. Katina Sawyer receives funding from National Science Foundation and Society for Human Resource Management. She is affiliated with Dawn's Place, The Philadelphia Society for People and Strategy, Women of Tomorrow, Women's Way, and Women's Resource Center.

Christian Thoroughgood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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In times of organizational crisis, some companies are able to right the ship, while others sink under the pressure.

Recently, Uber has been under fire for a bad corporate culture , which promoted, among other things, sexism and other forms of toxic behavior. This led to a four-month investigation and pressure from the board for founder and CEO Travis Kalanick to take an indefinite leave of absence . He suddenly resigned as CEO on June 20 after several major investors demanded he step down.

Unfortunately, Uber is not the only company to come under public scrutiny in recent months for its toxic culture. Fox News and Sterling Jewelers have also been accused of widespread sexual harassment. And other companies, such as Volkswagen and Wells Fargo , have been in the media spotlight for unethical behavior.

Many have focused on the role of leaders in allowing toxic cultures to fester, which is what led to the ousting of Fox founder Roger Ailes and Kalanick’s departure. While this is certainly a necessary step, it’s not enough.

Our research shows that companies need also to root out a bad leader’s followers among the rank and file and make other important internal changes. Otherwise, a moral meltdown like Uber’s is likely to happen again.

Harassment in the workplace

Sexual harassment is a widespread problem in U.S. workplaces, and its effects are pervasive and corrosive.

It is estimated that 58 percent of women in the U.S. have encountered potentially harassing behaviors at work, while 24 percent have experienced sexual harassment.

Victims tend to suffer in many ways, including through lower job satisfaction, damaged physical and mental health and symptoms of post-traumatic stress disorder. Employees who witness sexual harassment at work are likely to experience the same negative outcomes.

Harassment is more likely to occur in organizations in which managers have a lot of unchecked power over lower-level employees, as seems to be the case at Uber and Fox, with their powerful and charismatic founders.

Importantly, these toxic behaviors do not start and stop with those at the top. They may become embedded in the organization’s underlying culture, which begs the question: Once a toxic culture takes hold, what can a company do to reverse it?

Our work on toxic leadership demonstrates how toxic, unethical, flawed or otherwise ineffective leaders can do a lot of damage in organizations.

But the damage can also run both ways. Susceptible followers, a lack of checks and balances and other cultural elements can help create or reinforce bad leadership.

Thus, while it is easy to fire leaders when a culture becomes toxic, there are many other factors that must be addressed for true organizational transformation to occur. Our research suggests some best practices for addressing these factors and reversing a culture gone wrong.

Conformers and colluders

With respect to followers, there are certain types of individuals who are likely to remain obedient to toxic leaders, turn a blind eye to their behavior and even participate in the leader’s destructive activities.

Based on established theory and research across a wide range of scientific disciplines, our recent work proposes five types of followers who are particularly susceptible to the influence of toxic leaders.

We break these groups into two overarching categories: “conformers” (individuals who are prone to obedience) and “colluders” (those who actively align themselves with toxic leaders).

In terms of conformers, “lost souls” are insecure individuals who lack a clear sense of self and who find a sense of identity, purpose and belonging through their affiliation with strong, powerful leaders and their groups. “Authoritarians” are those who rigidly adhere to social hierarchies and tend to simply follow orders, whether ethical or unethical, from senior leaders.

Finally, “bystanders” are fearful individuals who remain silent and turn a blind eye to a leader’s toxic behavior to prevent any negative consequences to themselves.

In terms of colluders, “opportunists” are those who ingratiate themselves with toxic leaders for personal gain, while “acolytes” share the same values, beliefs and goals as the leader.

What to do with followers

Importantly, when toxic leaders are replaced, these followers remain. How should organizations deal with each of these follower types?

First, in terms of colluders, it should be obvious that acolytes and opportunists need to be rooted out and let go. Opportunists are sure to put their own self-interests ahead of any ethical concerns and the greater good of the organization, while acolytes are likely to possess the very same values and beliefs that got their leaders into trouble to begin with.

For example, at Uber, those managers who were identified as active promoters of the culture of harassment that was passed down from the top should be let go . For the same reason, ex-Fox host Bill O'Reilly had to be fired, given the many sexual harassment allegations against him.

But companies obviously can’t fire everyone. And so with conformers, employees who are lost souls or authoritarians are at greater risk of blind obedience to those in power – and being co-opted by another bad manager, thereby making it harder to fix the culture. As such, targeted interventions that seek to retrain these individuals must be a primary goal. Because cultures are sticky, these followers will need to be taught to behave in ways consistent with the new culture.

In particular, it is important that they understand the importance of constructively challenging and holding leaders accountable and that these behaviors are rewarded and expected within the new culture. At Uber, employees who were closely aligned with the staffers it fired after the investigation will need retraining to learn the company’s new value structure.

Finally, bystanders need to be empowered to act when they observe malfeasance, given their fears and natural tendency to turn a blind eye to toxic behavior. This means creating clear, nonpunitive methods for reporting bad behavior and training individuals on all issues surrounding effective whistle-blowing. Fox News, for example, had an anonymous hotline for reporting abuse , but few employees felt comfortable using it. The company will need to empower employees like Gretchen Carlson – the first to publicly raise the issue of sexual harassment.

The road to redemption

Overall, the road to redemption after a scandal or crisis is long and hard. But this may be because most companies think that simply firing the old leader(s) will address the issue. Dealing with their followers throughout the organization is also essential, as is reasserting checks and balances by strengthening board independence.

Past CEOs, such as Alan Mulally of Ford, have demonstrated that you can fix a broken culture. Essential to his success was that he spent a lot of time aligning employees with the automaker’s new values.

We, as the general public, are also important in holding companies accountable. The actions taken in the aftermath of the Uber allegations, for example, may not have occurred if the public shrugged its proverbial shoulders instead of deleting the app from their phones.

So although toxic companies need to do the bulk of the legwork in terms of regulating themselves, we can all play a role in driving more inclusive workplaces worldwide.

This article has been updated to reflect the resignation of Uber CEO Travis Kalanick.

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The Big Problem with Uber’s Big Data: Ethics and Regulation of Data Ownership

“Technology is neither good nor bad; nor is it neutral” (Kranzberg 1986, p. 545)

That is why it is key to understand how we, as users and moderators, give additional meaning to technological features and participate in the complex chain of interactions they bring across society. Living in the mere beginnings of the era of “Big Data”, it is pressing to address the cultural and ethical implications of a phenomenon often idolised and seen as a universal answer by many in the business and scientific spheres (Boyd & Crawford 2012). Who should have access to big datasets? Should the use of Big Data be regulated and how to address the privacy concerns that come with mass information collection? Using the work of Danah Boyd and Kate Crawford “Critical Questions for Big Data”, we will analyse how the gig economy companies, taking Uber as an example, are handling Big Data and why it has caused a series of ethical controversies and recent legislative action.

Questioning Big Data

Boyd and Crawford define Big Data as a “cultural, technological, and scholarly phenomenon that rests on the interplay of technology, analysis, and mythology” (Boyd & Crawford 2012, p.663). This definition breaks away from the understanding that Big Data is just a dataset too large for human comprehension and transforms the term into a more complex phenomenon of social, not scientific, origins. Consequently, this leaves room for theorising and critiquing the role of Big Data in many social shifts. Boyd and Crawford develop six provocative claims about the influence of this phenomenon, three of which have a specific relevance to the case of Uber and will serve as the theoretical backbone of analysis – evaluating how Big Data changed the definition of work but created new ethical issues and failed to deliver on its promise of objectivity. 

Big Data Changes Definitions

Big Data is at the core of Uber’s business model. It collects, analyses, and stores huge amounts of information that is later used to fuel the algorithms of the platform and produce an “optimised” (according to pre-determined criteria in the AI) personalised service. With these abilities, Uber gained an extraordinary market-breaking advantage in the ride hailing industry (Rogers 2015). Most importantly, it redefined how “work” is perceived by introducing the “on-demand digital independent contractor” (Malin & Chandler 2017) model. 

Big Data gave Uber enough power and agency to be able to attract workers with its ease-of-use and escape the classic employee-employer relationship, defining itself as a data-powered platform that serves as a mediator between drivers and consumers (Wilhelm 2018). With this position, Uber solely relies on Big Data and the algorithms that collect and use it to balance the complex relationship between service providers and customers, an approach that seems heavily technologically deterministic. Nevertheless, for good or bad, Uber and the data-powered gig economy have irreversibly changed the way people define work in the service industry – to a point that “app workers” accounts for the majority of the ride-hailing and delivery labour force (Malin & Chandler, 2017).

Just Because it Is Accessible Does not Make it Ethical 

Boyd and Crawford make the important point that Big Data can produce “destabilising amounts of knowledge and information that lack the regulating force” (Boyd & Crawford 2012, p.666). Uber is experiencing this effect more and more recently with a growing amount of legislative action taken against the company’s data collection policies and lack of algorithmic transparency. The ethics of data ownership and availability have become the “next frontier in the fight for gig workers’ rights” (Clarke 2021). 

As Uber drivers are considered independent contractors and not employees, the company has not deemed it necessary to share with its workers the data it collects about their work and how it influences the algorithm’s opinion of individual workers. Drivers also have no way to retrieve their personal data, to erase it, or to migrate it if they decide to start working at a competitive platform (although the GigCV initiative is currently trying to make the latter possible). 

The ethics behind data ownership in the gig economy is a heavily disputed topic, but recent court decisions are turning the debate in favour of workers (Reshaping Work, 2021). In a landmark case of March 2021, Amsterdam’s District Court ruled that Uber must disclose “data used to deduct earnings, assign work, and suspend drivers” and also shed light on how driver surveillance systems are used in the Netherlands (Ongweso Jr, 2021). Similar rulings across Europe suggest that the debate around regulating Big Data is more a “when” and “how” than an “if” question at that point. 

Claims to Objectivity and Accuracy Are Misleading 

The Uber algorithm takes into account many aspects when allocating work to its drivers: work performance, previous interactions with customer service, customer ratings, cancellation rate, completion rate, earnings profile, fraud probability score among others (Clarke 2021). However, nobody truly knows the exact extend of data collection and the way algorithms utilise this information. Uber is notoriously reluctant to share such data with researchers, policymakers, or the public. Nevertheless, there are jurisdictions where Uber has been legally forced to provide certain datasets to data scientists, most notably in Chicago. This lead to the discovery of bias and racial discrimination in the company’s dynamic pricing algorithms in a study on over 68 million Uber rides in Chicago (Wiggers 2020). Critiquing Big Data with a study based on Big Datasets is exactly the kind of self-reflexivity that is often lacking in the scientific community (Boyd and Crawford 2012), but this trend can also be explained by the lack of openly accessible datasets that deem a larger territorial study on the subject impossible.

We Are Our Tools

There is a “deep industrial drive toward gathering and extracting maximal value from data” (Boyd & Crawford 2012) and that is not inherently negative. However, we should remain mindful and question the ethical implications of this new data-driven society. As the example of Uber showcased, Big Data is not a magical universal solution, and its flawed collection and interpretation can cause serious social divides and issues. “We are our tools” (Boyd and Crawford 2021, p.675) and we should be aware and responsible for the consequences they cause.

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Award winner: Uber and the Ethics of Sharing: Exploring the Societal Promises and Responsibilities of the Sharing Economy

This case won the Ethics and Social Responsibility category at The Case Centre Awards and Competitions 2019.

Celebrating the win

Author perspective, who – the protagonist.

Travis Kalanick , co-founder of Uber .

Uber is the ride-hailing service, worth $60billion, which has taken the world by storm.

The company is popular and controversial in equal measure. Whilst boasting tens of millions of customers worldwide, Uber’s reluctance to abide by government regulations, and threatening the very existence of the taxi industry, has angered many.

In the last few years the sharing economy has exploded, with internet platforms and smartphone applications such as Uber, Airbnb and JustPark allowing people to rent out their driving, accommodation and parking services, to name just a few.

But with this growth, has the sharing economy lived up to the early vision of ‘sharing’ among ‘peers’? Aggressive market share tactics deployed by companies like Uber suggest not.

Uber was founded in San Francisco but has since gone on to operate in 300 cities worldwide.

Uber, then Ubercab, started operations in the San Francisco area in summer 2010, but by 2016 taxi drivers in Paris were rioting in the streets in protest of Uber's lack of respect for rules and regulations of the trade. Other protests have happened in Boston, London, Rio de Janeiro, Guangzhou and Mexico City.

Sharing economy companies rocketed up the agendas of the world’s highest-ranking governing agencies in recent years.

The European Commission was seriously considering whether to regulate ridesharing on a European level, while the Democrats and Republicans in the US have taken the opposing views of lining up on the side of the regulations and calling for unfettered free enterprise.

AUTHOR PERSPECTIVE 

Topical issues

Craig said: “My three awards in the Ethics and Social Responsibility category have each been for cases that tackle significant current issues, so labour rights in the supply chain ( Walmart ), access to essential medicines ( GSK ), and now the ethics and responsibilities of the new digital economy businesses such as Uber. So, I think they have been timely and resonated well with faculty and student interests.”

Healthy debate

He continued: “Most students have mixed feelings about Uber. They welcome it as a much-needed innovation in the transportation sector but have misgivings about its business practices. Some will argue that it can do no wrong – even to the point of breaking the law. Others suggest it could have – and should have – achieved as much without the misconduct, albeit more slowly.

“Perhaps better described as an “on-demand” economy business, many are sceptical of the sharing economy sustainability benefits it originally seemed to offer, though they wouldn’t be without it!”

Focusing on the ethics

He added: “Uber is a fascinating company in many ways, not least in its phenomenal growth and disruption of the transportation sector.

“However, unlike many of the other cases out there on Uber, this case focuses explicitly on HOW the business has grown from an ethics and social responsibility perspective, particularly in its social and environmental impacts.

“It also provides ample scope for generalisation beyond the one company, asking fundamental questions about the extent to which digital platforms like Uber, Airbnb or Facebook have the same responsibilities as the traditional businesses they are replacing (taxi companies, hotels, etc.).”

Perfect length

Craig commented: “The length provides the depth that can be essential to a detailed discussion of the case. However, it has lots of pictures, so it is not as long as it might seem!

“It is also an easy read, benefitting from the excellent writing of the case writer, Erin McCormick, who also happens to be an award-winning journalist.”

Future plans

He concluded: “We have developed another Uber case (with Erin) that I’m currently testing in the INSEAD classroom and will be released shortly. This is focused on sexual harassment.”

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Hear from Craig

When we visited Craig to present his award we took the opportunity to talk to him about his winning case. Watch what he had to say here.

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Educators can login to view a free educator preview copy of this case and its teaching note.

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Uber’s Strategy for Global Success

How can Uber adapt its business model to compete in unique global markets?

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As Uber entered unique regional markets around the world – from New York to Shanghai, it has adapted its business model to comply with regulations and compete locally. As the transportation landscape evolves, how can Uber adapt its business model to stay competitive in the long term?

Harvard Business School assistant professor Alexander MacKay describes Uber’s global market strategy and responses by regulators and local competitors in his case, “ Uber: Competing Globally .”

HBR Presents is a network of podcasts curated by HBR editors, bringing you the best business ideas from the leading minds in management. The views and opinions expressed are solely those of the authors and do not necessarily reflect the official policy or position of Harvard Business Review or its affiliates.

BRIAN KENNY: The theory of disruptive innovation was first coined by Harvard Business School professor Clayton Christensen in his 1997 book, The Innovator’s Dilemma . The theory explains the phenomenon by which an innovation transforms an existing market or sector by introducing simplicity, convenience, and affordability where complication and high cost are the status quo. Think Netflix disrupting the video rental space. Over the years, the term has been applied liberally and not always correctly to other examples, but every so often, an idea comes along that really fits the bill. Enter Uber, the ridesharing behemoth that turned the car service industry on its head. In a few short years after launching in 2010, Uber became the largest car service in the world, as measured in ride count. Last year, Uber drove 6.2 billion riders. Today’s case takes us to London in 2019, where Uber is facing the latest in a long list of challenges from regulators threatening their ability to continue operating in that important market. In this episode of Cold Call , we welcome Alexander MacKay to discuss the case entitled, “Uber: Competing Globally.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents network.

Alexander MacKay is in the strategy unit at Harvard Business School. His research focuses on matters of competition, including pricing, demand, and market structure. Alex, thanks for joining us on Cold Call today.

ALEX MACKAY: Thank you, Brian. Very happy to be here.

BRIAN KENNY: The idea of Uber seems so simple, but it was revolutionary in so many ways. And Uber has been in the headlines many times for both good and bad reasons in its decade of existence. So we’re going to touch on a lot of those things today. So thanks for sharing the case with us.

ALEX MACKAY: Brian, I’m very happy to. It’s a little funny, we’ve actually started to see the first few students who have never hailed a traditional taxi in our classrooms. So I think increasingly, the contrast between the two is going to be pretty difficult for people to fully understand.

BRIAN KENNY: Let me ask you to start by telling us what your cold call would be when you set up the class here.

ALEX MACKAY: The case starts off with the current legal battle going on in London. And so the first question I just ask to start the classroom is: What’s the end game for Uber in London? What do they look like 10 years from now? In the midst of this ongoing legal battle, there has been back and forth, some give and take from both sides, Transportation for London, and also on the Uber side as well. And there’s actually a recent court case that has allowed Uber to have a little more time to operate. They bought about 18 more months of time, but this has been also brought with additional, stricter scrutiny, and 18 months from now, they’re going to be at it again trying to figure out exactly what rules Uber’s allowed to operate under.

BRIAN KENNY: It seems like 18 months in the lifetime of Uber is like a decade. Everything seems to happen so quickly for this company. That’s a long period of time. What made you decide to write this case? How does it relate to the work that you’re doing in your research?

ALEX MACKAY: A big focus of my research is on competition policy, particularly the realms of antitrust and regulation. And here we have a company, Uber, whose relationship with regulation has been really essential to its strategy from day one. And I think appreciating the effects of regulation and how its impact Uber’s performance in different markets, is really critical for understanding strategy and global strategy broadly.

BRIAN KENNY:  Let’s just talk a little bit about Uber. I think people are familiar with it, but they may not be familiar with just how large they are in this space. And the space that they’ve sort of created has also blown up and expanded in many ways. So how big is Uber? Like what’s the landscape of ridesharing look like and where does Uber sit in that landscape?

ALEX MACKAY: Uber globally is the biggest ridesharing company. In 2018, they had over $10 billion in revenue for both ridesharing and their Uber Eats platform. And you mentioned in the introduction, that they had over 6 billion rides in 2019. That’s greater than 15 million rides every day that’s happening on their platform. So really, just an enormous company.

BRIAN KENNY: So they started back in 2010. It’s been kind of an amazing decade of growth for them. How do you explain that kind of rapid expansion?

ALEX MACKAY: They were financed early on with some angel investors. I think Kalanick’s background really helped there to get some early funding. But one of the critical things that allowed them to expand early into many markets that helped their growth was they’re a relatively asset light company. On the ground, they certainly need sales teams, they need translation work to move into different markets, but because the main asset they were providing in these different markets was software, and drivers were bringing their own cars and riders were bringing their own phones, the key pieces of hardware that you need to operate this market, they really didn’t have to invest a ton of capital. In fact, when they launched in Paris, they launched as sort of a prototype, just to show, “Hey, we can do this in Paris without too much difficulty,” as their first international market. So being able to really scale it across different markets really allowed them to grow. I think by 2015, their market cap was $60 billion, five years after founding, which is just an incredible rate of growth.

BRIAN KENNY: So they’re the biggest car service in the world, but they don’t own any cars. Like what business are they really in, I guess is the question?

ALEX MACKAY: They’re certainly in the business of matching riders to drivers. They’ve been able to do this in a way that doesn’t require them to own cars, just through the use of technology. And so what they’re doing, and this is I think pretty well understood, is that they’re using existing capital, people who have cars that may be going unused, personal cars, and Uber is able to use that and deploy that to give riding services to different customers. Whereas in the traditional taxi model, you could have taxis that you didn’t necessarily own, but you leased them or you rented them, but they had the express purpose of being driven for taxi services. And so it wasn’t using idle capital. You kind of had to create additional capital in order to provide the services.

BRIAN KENNY: So you mentioned Travis Kalanick a little bit earlier, but he was one of the co-founders of the company, and the case goes a little bit into his philosophy of what expansion into new markets should look like. Can you talk a little bit about that?

ALEX MACKAY: Certainly. Yeah. And I think it might even be helpful to talk a bit about his background, which I think provides a little more context before Uber. He dropped out of UCLA to work on his first company, Scour, and that was a peer-to-peer file sharing service, a lot like Napster, and actually predated Napster. And where he was operating was sort of an evolving legal gray area. Eventually, Scour got sued for $250 billion by a collection of entertainment companies and had to file for bankruptcy.

BRIAN KENNY: Wow.

ALEX MACKAY: He followed that up with his next venture, Red Swoosh, and that was software aimed at allowing users to share network bandwidth. So again, it was a little bit ahead of its time, making use of recent advances in technology. Early on though, they got in trouble with the IRS. They weren’t withholding taxes, and there were some other issues with his co-founder, and there was sort of a bad breakup between the two. Despite this, he persevered and ended up selling the company for $23 million in 2007. And after that, his next big thing was Uber. So one thing I just want to point out is that at all three of these companies, he was looking to do something that leveraged new technology to change the world. And by nature, sometimes businesses like that operate in a legal gray area and you have very difficult decisions to make. Some other decisions you have to make are clearly unethical and there’s really no reason to make some of those decisions, like with the taxes and with some other things that came out later on at Uber, but certainly one of the things that any founder who’s looking to change the world with a big new technology company has to deal with, is that often, the legal framework and the regulatory framework around what you’re trying to do isn’t well established.

BRIAN KENNY: Obviously drama seems to follow Travis where he goes. And his expansion strategy was pretty aggressive. It was almost like a warlike mentality in terms of going into a new market. And you could sort of sum it up as saying ask forgiveness. Is that fair?

ALEX MACKAY: Yeah. Yeah. Ask for forgiveness, not permission. I think they were really focused on winning. I think that was sort of their ultimate goal. We describe in the case there’s this policy of principle confrontation, to ignore existing regulations until you receive pushback. And then when you do receive pushback, either from local regulators or existing sort of taxicab drivers, mobilize a response to sort of confront that. During their beta launch in 2010, they received a cease-and-desist letter from the city of San Francisco. And they essentially just ignored this letter. They rebranded, they used to be UberCab, and they just took “Cab” out of their name, so now they’re Uber. And you can see their perspective in their press release in response to this. They say, “UberCab is a first to market cutting edge transportation technology, and it must be recognized that the regulations from both city and state regulatory bodies have not been written with these innovations in mind. As such, we are happy to help educate the regulatory bodies on this new generation of technology and work closely with both agencies to ensure compliance.”

BRIAN KENNY: It’s a little arrogant.

ALEX MACKAY: Yeah, so you can see right there, they’re saying, what we’re operating in is sort of this new technology-based realm and the regulators don’t really understand what’s going on. And so instead of complying with the existing regulations, we’re going to try to push regulations to fit what we’re trying to do.

BRIAN KENNY: The case is pretty epic in terms of it sort of cuts a sweeping arc across the world, looking at the challenges that they faced with each market they entered, and none more interesting I think the New York City, which is obviously an enormous market. Can you talk a little bit about some of the challenges they faced going into New York with the cab industry being as prevalent as it was and is?

ALEX MACKAY: Yeah, absolutely. I mean, I think it’s pretty well known for people who are familiar with New York that there were restrictions on the number of medallions which allowed taxis to operate. So there was a limited number of taxis that could drive around New York City. This restriction had really driven up the value of these medallions to the taxi owners. And if you had the experience of taking taxis in New York City prior to the advent of Uber, what you’d find is that there were some areas where the service was very, very good. Downtown, Midtown Manhattan, you could almost always find a taxi, but there are other parts of the city where it was very difficult at times to find a cab. And when you got in a cab, you weren’t sure that you were always going to be given a fair ride. And so Uber coming in and providing this technology that allowed you to pick up a ride from anywhere and sort of track the route as you’re going on really disrupted this market. Consumers love them. They had a thousand apps signups before they even launched. Kalanick mentioned this in terms of their launch strategy, we have to go here because the consumers really want us here. But immediately, they started getting pushback from the taxicab owners who were threatened by this new mode of transportation. They argued that they should be under the same regulations that the taxis were. And there were a lot of local government officials that were sort of mobilized against Uber as well. De Blasio, the Mayor of New York, wrote opinion articles against Uber, claiming that they were contributing to congestion. There was a lot of concern that maybe they had some safety issues, and the taxi drivers and the owners brought a lawsuit against Uber for evading these regulations. And then later on, and this was the case in many local governments, de Blasio introduced a bill to put additional restrictions on Uber that would make them look a lot more like a traditional taxi operating model, with limited number of licenses and strict requirements for reporting.

BRIAN KENNY: And this is the same scenario that’s going to play out almost with every city that they go into because there is such an established infrastructure for the taxi industry in those places. They have lobbyists. They’re tied into the political networks. In some instances, it was revealed that they’ve been connected with organized crime. So not for the faint of heart, right, trying to expand into some of the biggest cities in the United States.

ALEX MACKAY: Absolutely. Absolutely. And what’s sort of fascinating about the United States is it’s actually a place where a company can engage in this battle over regulation on the ground. And de Blasio writes his opinion article and pushes forward this bill. Uber responds by taking out an ad campaign, over $3 million, opposing these regulations and calling out de Blasio. So again, we sort of have this fascinating example of Uber mobilizing their own lobbyists, their lawyers, but also public advertising to sort of convince the residents of New York City that de Blasio and the regulators that are trying to come down on them are in the wrong.

BRIAN KENNY: Yeah. And at the end of the day, it’s consumers that they’re really making this appeal to, because I guess my question is, are these regulations stifling innovation? And if they are, who pays the ultimate price for that, Uber or the consumer?

ALEX MACKAY: Consumers definitely loved Uber. And I don’t think any of the regulators were trying to stifle innovation. I don’t think they would say that. I think their biggest concern, their primary concern was safety, and a secondary and related concern here was losing regulatory oversight over the transportation sector. So this is a public service that had been fairly tightly regulated for a long time, and there was some concern that what happens when this just becomes almost a free market sector. At the same time, these regulators have the lobbyists from the taxicab industry and other interested parties in their ear trying to convince them that Uber really is like a taxi company and should be regulated, and really emphasizing the safety concerns and other concerns to try to get stricter regulations put on Uber. And part of that may be valid. I think you certainly should be concerned about safety and there are real concerns there, but part of it is simply the strategic game that rivals are going to play between each other. And the taxicab industry sees Uber as a threat. It’s in their best interest to lobby the regulators to come down on Uber.

BRIAN KENNY: And what’s amazing to me is that while all this is playing out, they’re not turning their tails and running. They’re continuing to push forward and expand into other parts of the world. So can you talk a little bit about what it was like trying to go into countries in Latin America, countries in Asia, where the regulations and the regulatory infrastructure is quite different than it is in the US?

ALEX MACKAY: In the case, we have anecdotes, vignettes, one for each continent. And their experience in each continent was actually pretty different. Even within a continent, you’re going to have very different regulatory frameworks for each country. So we sort of pick a few and focus on a few, just to highlight how the experience is very different in different countries. And one thing that’s sort of interesting, in Latin America, we focus on Bogota in Colombia, and what’s sort of interesting there is they launched secretly and they were pretty early on considered to be illegal, but they continue to operate despite the official policy of being illegal in Colombia. And they were able to do that in a way that you may not be able to do it so easily in the United States, just because of the different layers of enforcement and policy considerations that are present in Colombia and not necessarily in the United States. Now, when I talk about the current state of Uber in different countries, this is continually evolving. So they temporarily suspended their operations early in 2020 in Columbia. Now they’re back. This is a continual back and forth game that they’re playing with the regulators in different markets.

BRIAN KENNY: And in a place like Colombia, are they not worried about violence and the potential for violence against their drivers?

ALEX MACKAY: Absolutely. So this is true sort of around the world. I think in certain countries, violence becomes a little bit more of a concern. And what they found in Colombia is they did have more incidents where taxi drivers decided to take things into their own hands and threaten Uber drivers and Uber riders, sometimes with weapons. Another decision Uber had to make that was related to that was whether or not to allow riders to pay in cash. Because in the United States, they’d exclusively used credit cards, but in Latin America and some other countries like India, consumers tended to prefer to use cash to pay, and allowing that sort of opened up this additional risk that Uber didn’t really have a great system in place to protect them from. Because when you go to cash, you’re not able to track every rider quite as easily, and there’s just a bigger chance for fraud or for robbery and that sort of thing popping up.

BRIAN KENNY: Going into Asia was also quite a challenge for them. Can you talk a little bit about some of the challenges they faced, particularly in China?

ALEX MACKAY: They had very different experiences in each country in Asia. China was a unique case that is very fascinating, because when Uber launched there, there were already existing technology-based, you might call them, rideshare companies, that were fairly prominent, Didi and Kuaidi, And these companies later merged to be one company, DiDi, which is huge. It’s on par with Uber in terms of its global presence as a ridesharing company. When Uber launched there, they didn’t fully anticipate all the changes they would have to make to going into a very different environment. In China, besides having established competitors, Google Maps didn’t work, and they sort of relied on that mapping software to do their location services. So they had to completely redo their location services. They also, again, relied on credit cards for payments, and in China, consumers increasingly used apps to do their payments. And this became a little bit of a challenge because the main app that Chinese customers used, they used WeChat and Alipay primarily, they were actually owned by parent companies of the rival ridesharing company. So Uber had to essentially negotiate with its rivals in order to have consumers pay for their ridesharing services. And so here are a few sort of localization issues that you could argue Uber didn’t fully anticipate when they launched. The other thing about competing in China that’s sort of interesting is that Chinese policy regarding competition is very different from policy in the United States and much of Europe. For the most part, there’s not the traditional antitrust view of protecting the consumers first and foremost. That certainly comes into play, but the Chinese government has other objectives, including promoting domestic firms. And so if you think about launching into a company where there’s a large established domestic rival that certainly increases the difficulty of success, because when push comes to shove, the government is likely to come down on the side of your rival, which is the domestic company, and not the foreign entrant.

BRIAN KENNY: Yeah, which is understandable, I guess, to some extent. This sounds exhausting, to be sort of fighting skirmishes on all these fronts in all these different places in the world. How does that affect the morale or tear at the fabric maybe of the culture at a company like Uber, where they’re trying to manage this on a global scale and running into challenges every step of the way?

ALEX MACKAY: It certainly has an effect. I think Uber did a very good job at recruiting teams of people who really wanted to win. And so, if that’s the consistent message you’re sending to your teams, then these challenges may be actually considered somewhat exciting. And so I think by bringing in that sort of person, I think they actually fueled this desire to win in these markets and really kept the momentum going. One of the downsides of this of course is that if you exclusively focus on winning and getting around the existing regulations, there does become this challenge of what’s ethical and what’s not ethical? And in certain business areas, there actually often is a little bit of a gray line. I mean, you can see this outside of ridesharing. It’s a much broader thing to think about, but regulation of pharmaceuticals, regulation of use of new technologies such as drones, often the technology outpaces the regulation by a little bit and there’s this lag in trying to figure out what actually is the right thing to do. I think it’s a fair question whether or not you can disentangle this sort of principle of confrontation that’s so pervasive throughout the company culture when it comes to regulation from this principle confrontation of other ethical issues that are not necessarily business driven, and whether or not it’s easy to maintain that separation. And I think that’s a fair question, certainly worthy for debate. But what I think is important is you can set up a company where you are abiding by ethical issues that are very clear, but you’re still going to face challenges on the legal side when you’re developing a new business in an area with new technology.

BRIAN KENNY: That’s a great insight. I mean, I found myself asking myself as I got through the case, I can’t tell if Uber is the victim or the aggressor in all of this. And I guess the answer is they’re a little bit of both.

ALEX MACKAY: Yeah. I think it’s fair to characterize them as an aggressor, and I think you sort of need to be if you want to succeed and if you want to change the world in a new technology area. In some sense, they’re a victim in that we’re all the victim as consumers and as firms of regulations that are sometimes difficult to adapt in real time to changing market conditions. And there’s a good reason why they are sticky over time, but sometimes that can be very costly. Going back to something we talked about earlier, I think there are hardly any consumers that wanted Uber kicked out of New York City. I think everyone realized this was just so much superior to any other option they had, that they were really willing to fight to keep Uber around in the limited ways they could.

BRIAN KENNY: So let’s go back to the central issue in the case then, which is, how important is it to them, in terms of their global strategy, to have a presence in a place like London? They’re still not profitable by the way, we should point that out, that despite the fact that they are the largest in the space, they haven’t turned the corner to profitability yet. I would imagine London’s kind of important.

ALEX MACKAY: Absolutely. London is a key international city, and a presence there is important for Uber’s overall brand. So many people travel through London, and it’s a real benefit for anyone who travels to be able to use the same service at any city you stop in. At the same time, they’re facing these increasing regulatory pressures from London, and so it’s a real question whether or not, 10 years from now, they look substantially different from the established taxi industry that’s there. And you can kind of see this battle playing out across different markets. As another example, in Ghana. When they entered there, they actually entered with a framework for understanding. They helped build the regulations for ridesharing services in Ghana when they entered. But over time, that evolved to additional restrictions as the existing taxi companies pushed back on them. So I think a key lesson here in all of this is that the regulations that you see at any given point in time aren’t absolutely fixed, for anyone starting a technology-based company, there will be regulations that do get created that affect your business. Stepping outside of transportation, we can see that going on now with the big tech firms and sort of the antitrust investigations they’re are under. And the policymakers in the US and Europe are really trying to evolve the set of regulations to reflect the different businesses that Apple, Facebook, Microsoft, Google are involved in.

BRIAN KENNY: One thing we haven’t touched on, and it’s not touched on in the case obviously because it just sort of started fairly recently, is the pandemic and the implications of the pandemic for the rideshare industry as fewer people find themselves in need of going anywhere. Have you given any thought to that and whether that’s going to have any effect on the regulations?

ALEX MACKAY: It certainly could. Uber is in a somewhat fortunate position, at least if you judge by their market capitalization, with respect to the pandemic. Initially their stocks took a pretty big hit, but rebounded pretty quickly, and part of this is because the primary part of their business is the transportation through Uber X, but they do also offer the delivery services through Uber Eats, and that business has really picked up during this pandemic. There’s certainly a mix of views about the future, but I think most people do believe that at some point we’ll get back to business as usual, at least for Uber services, when we come up with a vaccine. I think most people anticipate that they’ll be resuming use of Uber once it becomes safe to do so. And I think, to be frank, a lot of people already have resumed using Uber, especially people who don’t have cars or who see it as a valuable alternative or a safer alternative to public transit.

BRIAN KENNY: Yeah, that’s a really good point. And the Uber Eats thing is interesting as another example of how it’s important for businesses to re-imagine the business that they’re in because that, in many ways, may be helping them through a really tough patch here. This has been a really interesting conversation, Alex, I want to ask you one final question, which is, as the students are packing up to leave class, what’s the one thing you want them to take away from the case?

ALEX MACKAY: So I would hope the students take away the importance of regulation in business strategy. And I think the case of Uber really highlights that. And if you look at the conversation around Uber I’d say for the first 10 years of their existence, it was essentially around the superiority of their technology and not so much how they handled regulation. If you think back to the cease-and-desist letter that San Francisco issued in 2010, if Uber had simply stopped operations then, we wouldn’t have the ridesharing world that we have today. So their strategy of principle confrontation with respect to regulation was really essential for their future growth. Again, this does raise important ethical considerations as you’re operating in a legal gray area, but it’s certainly an essential part of strategy.

BRIAN KENNY: Alex, thanks so much for joining us on Cold Call today. It’s been great talking to you.

ALEX MACKAY: Thank you so much, Brian.

BRIAN KENNY: If you enjoy Cold Call, you might like other podcasts on the HBR Presents Network. Whether you’re looking for advice on navigating your career, you want the latest thinking in business and management, or you just want to hear what’s on the minds of Harvard Business School professors, the HBR Presents Network has a podcast for you. Find them on Apple podcasts or wherever you listen. I’m your host, Brian Kenny, and you’ve been listening to Cold Call , an official podcast of Harvard Business School on the HBR Presents Network.

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• Feb 9, 2021

Ethical Issues at Uber - Sexual Harassment - Case Study

This is a case study review about Uber – a global, app based Taxi Company. Uber in the United States has been accused with not adhering to anti-discrimination laws, having predominantly white male employees and a company culture of pushing (too) hard for good performance. Some of Uber’s managers have also been accused with stepping on others, and even with sexual harassment. Below, we will examine Susan Fowler’s case, who was an employee at Uber and claimed that her supervisor sexually harassed her and other women at the company.

Employment Law

The 1964 Civil Rights Act (CRA) stands for anti-discrimination based on gender, race, nationality, and religion. Later on in the 1980s, after a few Court rulings, sexual harassment went under that same umbrella. Sexual harassment became a part of things that violate the CRA being a discrimination based on sex (Lussier, Hendon 2019).

Type of Harassment

Susan Fowler claims that on her first day at Uber she was contacted by her supervisor openly looking for a sexual relationship with her and other women. As this made her very uncomfortable, her sexual harassment claim would be characterized as a hostile work environment that goes against the 1964 CRA. Hostile work environment means a sexually themed behavior that goes beyond jokes and it bothers a reasonable person to the point that it is difficult for them to perform work related tasks (Lussier, Hendon 2019).

Uber’s Actions

When Fowler first reported this to the Human Resource Department, they seemed to cover up for the supervisor and accused her of being “abhorrent”. But as later things blew up, Uber quickly apologised for some of the managers’ actions, had female executives give positive testimonials on how good it is to work for this company, and examine workplace policies and procedures (Lussier, Hendon 2019).

EEOC and Affirmative Action

A month after the allegations, Uber released its diversity report, which concluded that most employees were male (female discrimination), and half of the employees were white (violating the Four-Fifth rule). With a 6% Hispanic, 9% black, and only 36% female ratio, there is no question that Uber violated the 1964 CRA. Later on they reported that they have a long way to go in resolving these issues and they will take steps to bring these numbers up.

Diversity Matters

There are many reasons why diversity matters. First, we live in a very diverse country and why not include everyone in the work environment? Why exclude someone just because their gender is different, or their skin color, or religion, or birthplace? It is not fair. Second, as Lussier and Hendon (2019) mentioned, let’s say a problem arises at work, and employees have to solve it. It is better to have people from different backgrounds look at the problem and come up with different solutions because of their different thinking. Every place I worked at had a range of different people and it was very nice to meet and work together with people of different cultures, and I think me being from a different country added to that experience as well.

Uber is a global company with services in over 70 countries, so for them it is extremely important to be diverse. Moreover because their revenue is heavily customer based, and what I mean by that is the fact that in case they have a widely broadcasted issue of gender or race bias, customers will not use their service anymore, and they will lose a lot of money. Uber executives stated that they are working on bringing in more women and more people of color into tech (Lussier and Hendon, 2019).

(Photo: skillroads.com)

Benefits/Challenges of a Diverse Workforce

The benefits of a diverse workforce at an organization such as Uber are described above, but there exist challenges as well. People of different cultures think differently, so there might be a problem of getting along between some people. Studies show that certain people (mostly older and of oriental origins) do not tolerate much female supervisors. Another challenge could be the sexual harassment problem. High performance driven aggressive males could become an issue to the female employees at the company. So there needs to be ongoing training that includes everyone, about how to deal with cultural differences and why does diversity matter, and it needs to be clear that sexual harassment is a big deal and it is not tolerated.

Legal Provisions of Uber Case

By the response Susan Fowler got from her HR Department, and news articles I have read in the past regarding the #MeToo movement, I believe HR is not the police here. HR’s responsibility when receiving a sexual harassment complaint is to report to higher management, and they will decide what to do. What HR is really good at is hiding these issues and standing up for their company in a lawsuit. Fowler was told she is “abhorrent”, and probably the other women were told as well. And it shouldn’t be this way. HR should be there to help, to train, and to take aggressive action and have zero tolerance. Even if the person accused is very valuable to the company. An organization with good morals doesn’t cover these things up. And nobody gets away with just an apology.

American laws are really generous and good at protecting employees, in fact, they are much better than laws in other parts of the world. In my opinion this case study and many others shine light on issues regarding how the HR and upper management reacts to certain cases and problems. Once the problem gets widely publicized, of course every company will apologize and say that they will take steps to change, but will they really change? Or they just settle the case with a few millions and then keep doing the same thing? And this applies to any field, but mainly to media, business, and IT.

Lussier, R. N., & Hendon, J. R. (2019). Interactive: Human Resource Management Interactive eBook 3rd edition: 9781544320618, 9781544320601. https://www.vitalsource.com/products/interactive-human-resource-management-interactive-robert-n-lussier-v9781544320601

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