How Uber Lost Its Way in London

Sep 26, 2017
Management

Scandals Put License Renewal in Jeopardy, Goldfarb Says

SMITH BRAIN TRUST – "It was predictable," Brent Goldfarb, associate professor of management and entrepreneurship at the University of Maryland's Robert H. Smith School of Business, says of London's decision not to renew Uber's license to operate there. "What is notable," he adds, "is that this probably would not have happened had Uber not had the troubles it had."

Regulators in the U.K.'s largest city announced its decision late last week, saying that Uber was "not fit and proper" to operate in the city, citing the ride-hailing company's failure to report alleged sexual assaults and its lax background checks on its drivers, among other concerns.

Newly minted Uber CEO Dara Khosrowshahi issued a swift apology for "mistakes we've made," striking a tone that sharply contrasted that of his predecessor, co-founder Travis Kalanick, whose bombastic, in-your-face management style was blamed for the company's toxic work culture, employee retention issues and other widespread management problems.

"Uber's new CEO is trying to change the culture," Goldfarb says, citing his push to adopt a new "do no wrong" ideology. "The problem is that people were hired based on the old ethos, so it might be difficult to implement this with the current workforce." Meanwhile, Goldfarb says, the company's troubles made it "politically feasible" for Transport for London to ban Uber.

Uber's board of directors this summer announced a series of changes it would make to address the company's pernicious work culture, which had been blamed for allowing sexual harassment and other misconduct to go unpunished. The changes were recommended after a monthslong investigation by former U.S. attorney general Eric Holder and his law firm. Kalanick stepped down as CEO around the same time.

Uber will appeal the British regulator's decision and can continue operating in London while the appeal is pending.

"It is getting more difficult for Uber not to comply with regulations," Goldfarb says. "And they will probably need to comply or exit London. The problem is that compliance is expensive (or perhaps they'll negotiate and partially comply) and they will need to raise their prices. If they do comply, then this will lead to a chain reaction as other cities will try to force Uber's hand as well. Which is not great for the company."

If Uber ends up losing its appeal, that won't mean the end of ride-sharing in the U.K.'s largest city. Londoners can still turn to apps such as Gett or MyTaxi.

If it wins its appeal, Goldfarb says, "then that is an important sign that it is costly to challenge them."

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About the Expert(s)

GoldfarbBrent

Dr. Brent Goldfarb is Associate Professor of Management and Entrepreneurship in the M&O Department at the University of Maryland's Robert H. Smith School of Business. Goldfarb's research focuses on how the production and exchange of technology differs from more traditional economic goods, with a focus on the implications on the role of startups in the economy. He focuses on such questions as how do markets and employer policies affect incentives to discover new commercially valuable technologies and when is it best to commercialize them through new technology-based firms? Why do radical technologies appear to be the domain of startups? And how big was the dot.com boom? Copies of Dr. Goldfarb's publications and working papers have been downloaded over 1200 times.

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