SMITH BRAIN TRUST — Departing General Electric CEO Jeffrey Immelt is a household name to investors on Wall Street, while Uber, scandal-ridden and operating at loss, reportedly is positioning for an initial public offering.
This week's news that Immelt is Uber's new-CEO frontrunner — though seemingly opportunistic — caught some observers off-guard (CNBC's Jim Cramer said Uber is a "free-for-all" and a very different "kettle of fish" than Immelt had at GE). But others, including professors Brent Goldfarb and David Kass at the University of Maryland's Robert H. Smith School of Business, see the rationale. Goldfarb, academic director at the Smith School's Dingman Center for Entrepreneurship, also detailed a laundry list of Uber fixes for Immelt — if he does take the helm.
First, the perception problem. Kass, clinical professor of finance, tells the Washington Post that Immelt overseeing a Fortune 500 firm's vast overhaul may make him "perceived as someone with broad managerial experience to turn Uber around." Plus, his lengthy GE stint might translate into a clearer strategy for Uber and a newly expanded executive team. "It would convey a quality image and help improve its perception by the investment community when they go to the public markets in an IPO," Kass says.
Such perception could underscore Uber's iconic unicorn status: It has the highest private valuation of any startup and a reputation for ambitiously shaking up the transportation industry. But could Immelt sustain this momentum driven by former CEO Travis Kalanick, before he resigned amid reports of sexual harassment and unethical business practices?
Goldfarb, in an earlier Los Angeles Times piece, says that a "really good [CEO] in the eyes of investors is someone with Kalanick's vision combined with the temperament and experience of the [Meg] Whitmans of the world."
Kass says “Meg Whitman is perhaps even better qualified than Immelt, but she apparently is not interested... Immelt just might be the best person available."
And, by targeting Immelt, Uber appears on this track, Goldfarb says. "[Uber needs] a grownup. They need someone who can cut operations that aren't working, make a rational call on the autonomous strategy, has the strength and emotional wits to reset the company culture (likely to require replacing much of the senior personnel), and push this through relentlessly."
Kass similarly says "Uber needs an 'adult in the room,'" and compares an Immelt-Uber arrangement to "Google bringing in Eric Schmidt to run the company after Sergey Brin and Larry Page started it."
One significant move for Immelt would be to stem operating losses caused by subsidizing rides. For example, Uber this summer in San Francisco was offering some passengers 50 percent off their next 10 rides and $3 carpool rides, a cheaper rate than two years ago. "I've gone crosstown in San Francisco for $12," Goldfarb tells Reuters. "There is no way that makes economic sense."
"There is going to come a reckoning and they are going to have to raise prices," he adds, in the same report. "But we know what happens when you raise prices — demand goes down, and perhaps substantially so."
The task will further require "exiting underperforming markets, as they did in China; and raising prices in markets with little competition (difficult in prime North American markets because of Lyft), while sustaining legal battles and balancing their autonomous vehicle strategy," Goldfarb says.
Immelt also would need to improve relationships with drivers who are defecting to Lyft and other competitors, says Goldfarb. "These are massive changes that will take time and test Uber's $7 billion cash reserves."
Kass adds that Immelt, as CEO of Uber, which is currently privately held, "would pursue only those projects where the return on invested capital exceeds the cost of capital, resulting in Uber eliminating those projects that are not meeting this standard and, therefore, destroying shareholder value."
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