The naive hope of culture change: The one pattern Silicon Valley refuses to see
Back in September, SoFi's CEO had to step down amid some pretty terrible allegations. From the New York Times:
Mr. Cagney, a married father of two... was seen holding hands and having intimate conversations with another young female employee, according to six employees who saw the two together. At late-night, wine-soaked gatherings with colleagues, he bragged about his sexual conquests and the size of his genitalia, said employees who heard the comments.
Mr. Cagney’s actions were echoed in other parts of SoFi. The company’s chief financial officer talked openly about women’s breasts and once offered female employees bonuses for losing weight, according to more than a dozen people who heard his comments. Some employees said on a few instances, they caught colleagues having sex with supervisors at SoFi’s main satellite office in Healdsburg, Calif., which was the subject of a sexual harassment lawsuit filed last month.
[Mr. Cagney's] conduct was described by more than 30 current and former employees, most of whom asked to remain anonymous for fear of retribution.
Showing not an ounce of contrition the company responded by emphasizing the parts of the piece that were about SoFi's business performance. Yep, that was the takeaway.
Pretty soon, we're going to see if the markets agree with that assessment.
Having tried to sell itself for some $8 billion or more—double its last valuation—and failed, the question will become what investors do next. Does SoFi's price increase, despite the fact that the scandal reportedly caused the company to shelve plans to obtain a banking license, which would have boosted its valuation significantly?
In other words, morality aside: These actions have directly cost investors money... but do incoming investors care?
This is a test for investors: We know they don't believe the copious data showing that diversity makes companies better, as un-diverse companies are routinely rewarded with higher valuations, and there's no real pressure coming from VCs to change that.
But what about toxic cultures of harassment and sex in the workplace? When your culture is so admittedly broken that your CEO has to leave. Does that too get an upround at the Valley's top companies?
Of course, the answer won't likely be up to traditional Silicon Valley venture capitalists, these late stage put-off-the-IPO-at-any-cost deals are mostly being done by foreign players right now.
Indeed, a similar test is playing out when it comes to a long-rumored deal between Softbank and Uber. It's been a strange deal all along, given Softbank's heavy investments in multiple Uber competitors, but then again Alphabet's investment arm just led a $1 billion round in Lyft, taking a board seat a few years after it was kicked off the board of Uber. And Softbank's own Didi has invested in Lyft, Grab, Ola and others, while it ostensibly has a partnership with Uber. Ties between investors and startups in this space long ago ceased being anything we could consider normal.
The deal—if it finally comes to pass—would be a monster $10 billion round, that like so many of Softbank's deals, puts off the need for Uber to grow up, go public, and act like a company with any real accountability.
Reminder: This company is engaged in a major board battle, has an untested new CEO pulled between investors and the former CEO who still controls the board, has still not implemented the recommendations of its own internal sexual harassment audit, and is also embroiled in a major multi-billion trade theft lawsuit and several government investigations.
But sure, this total lack of oversight is going so well, let's give the dysfunctional board that Travis Kalanick still controls another $10 billion.
What else could go wrong? No, seriously, I'm actually wondering at this point. Uber has continually plumbed the depths of corporate morality under Kalanick's leadership, not even stopping at "Should we obtain a rape victim's medical documents in a potential attempt to smear her?" Uber's broken culture has actually inspired a major movie about just how fucked up the culture is.
And while everyone wants to point out, "Hey! There's now a new, much-beloved CEO in charge!" I keep pointing out, that new CEO still reports to the guy who controls the board: Travis Kalanick. All we've done is migrate everyone's title up a level. Like when Seed investors started to do Series A rounds, and we had to create a new category named "pre-seed." It's like cutting the calorie count on a package of cookies by decreasing the serving size. These are new labels, not change.
And yet, given the desire for Softbank's nearly $100 billion vision fund to invest in anything that could become a dominant company in any geography—at seemingly any price -- in some sense, it's a knock on Uber that the deal has been so contentious and taken so long to close. It seems to be hinging on price and whether or not board members can shut their mouths for five seconds. (A big if, thanks again to that incredibly toxic culture.)
Joan C. Williams recently wrote in Harvard Business Review that companies in the unicorn era maximizing for valuation are chasing masculinity more than they are chasing actual money. So it's not surprising the lengths the two parties are going to reward Softbank and the rest of the syndicate for investing in a company that's clearly so broken, and yet allow Uber to say it's absurd nearly $70 billion valuation is still in tact.
The new investors, which include SoftBank, Dragoneer and General Atlantic, will purchase between $1bn and $1.25bn of new preferred shares from Uber. They will pay the same price of $48.77 that buyers paid last year, which implies a valuation of Uber of $68bn. Those preferred shares will come with a high degree of investment guarantees, making them more valuable than Uber’s common stock.
However, the bulk of the transaction, likely between $5bn and $8bn, will be a purchase of shares from existing shareholders through a tender offer, which will take place at a lower price, with a likely a valuation for the company of between $48bn and $51bn. While most people close to the deal believe that it will still happen, several say they have been frustrated by the eleventh-hour bickering among board members and major shareholders.
As someone who has followed Uber closely since its earliest days, let me make clear that one thing that has been a constant: Giving it more capital at higher prices never fixes its culture. It pours gasoline on the flames.
The most disengious part of it all, is that it flies in the face of what Silicon Valley tells itself about the cult of the founder and culture: Once its set, it's very hard to change. Almost impossible. And if what's rotten about the culture is deeply tied into its founders' own demons... well, are there any examples of this working?
She devotes nearly 100 pages to her time going back and forth between her day job running Reddit and her side-hustle of a trial against her powerful former employers, Kleiner Perkins. Watching this from the outside at the time—and her unceremonious ouster from Reddit after the trial wrapped—I wanted to scream, "How did you think this was going to end up, Ellen?" Reddit was known to have one of the most toxic underbellies of the Web, making Twitter look like a haven of puppies and rainbows. Given her trial, she was clearly not a fan of racism and misogyny, even the unconcious kind.
Her book finally answers my question: Like so many others at Uber and SoFi right now, she was naïve (her word in the book at one point, actually) enough to believe the culture could change with new leadership and a slow, sustained, steady plan of action.
She brought in a new diverse team. She ended a culture of binge drinking at the office and company events. She fought to have the Balkanized company pulled into the same headquarters. She started out slowly banning the most toxic sub-Reddits first. She achieved some definite wins. She was ultimately undone by-- duh duh duhhhhh!-- a co-founder who reported directly to the board and not her. A co-founder whose actions were outside the purview of the new CEO charged with changing the culture.
According to her book, it was Alexis Ohanian who made the decision to terminate the popular moderator of Reddit's AMA's Victoria Taylor, which lead to the user revolt, that ultimately lead to Pao's ouster and the co-founders again regaining control. Nevermind, Pao opposed the decision at the time.
It was almost like.... they "Steve Jobs-d it." You know, the very thing Travis Kalanick has reportedly bragged to friends he intends to do at Uber. What happened next at Reddit shows just how hard it is to change the DNA of a company. Despite so many improvements Pao felt she had made, the other co-founder Steve Huffman took over as CEO and announced immediately his team culture leader should "find us the coolest bar in town and we'll all go out and celebrate tonight!"
The team culture leader felt this was in poor taste, given Pao hadn't even yet packed up her stuff, and put the celebration off a few days. She writes, "Some cheers went up. Several people were clearly excited about being able to do shots at an official work event again. Others looked confused and upset."
It gets worse:
At the Yay-Steve celebration—which Max delayed until Tuesday—people got, by all accounts, loaded. There was a lot of bad behavior. And a woman employee got groped.
The woman later told me she complained to Steve about it, and he said defensively, "That's hearsay. Do you know what hearsay means?"
She asked him, "Do you know what hearsay means? It's not hearsay if I'm telling it to you and it happened to me."
When I heard the story, I felt crushed. We'd worked so hard to change the culture, and it felt like all that effort had been undone in one day.
But, yeah. Give SoFi and Uber more cash at higher prices by all means. That should fix it.
Pao adds later: "I found out from multiple sources that Steve and Alexis had been plotting for years to regain control of reddit from Conde Nast. I was collateral damage."
Yep, that sounds like the situation at no $70 billion company I know...
Isn't Silicon Valley supposed to be all about pattern recognition?