Uber, You Can't Buy a Social License

Like a teenager with a new sports car, Uber has been cruising around town looking for trouble. The "ride sharing" service has kept the expansion pedal to the metal, but they've done so with the top down in the midst of a gathering storm.

Let’s review their recent turns.

Banned in France (as well as Spain, Thailand, and prominent cities around the world)?

Claim that the Parisian regulation "isn’t precise enough," while police actively ticket your drivers.

Journalists are critical of the firm?

Suggest that you might quietly spend up to $1 million to dig up dirt on the writers and their families.

Had a driver accused of raping a passenger in New Delhi, India?

Offer passengers a Panic Button on the Uber app. (Also available in Chicago, Illinois.)

Hackers stole identifying information for 50,000 of your drivers?

Wait five months to share this information before offering effected drivers a year of free identity theft protection.

Things have gotten so bad that Funny or Die has released a video spoofing the firm's handling of such issues. As Chris Taylor writes, "The company has been coming on like a frat house version of Orwell's Big Brother... it appears to have absolutely no self-awareness about the fact, and keeps digging itself in deeper trouble." One could be forgiven for thinking we’re just an epic crash short of an object lesson in hubris.

Then again, there are the financials.

A recent memo from the firm’s CEO claims the firm grew 6x over the prior year, while he and his co-founder landed on Forbes’ billionaire list. So, asking what's wrong with their approach, when their financial success seems assured, is a reasonable question.

I'd respond by saying that the success of the founders appears safe, but that of the firm (and more pointedly, recent investors) is far from certain. A $1.2 Billion investment of venture capital in December of 2014 raised the firm's valuation to $40 Billion, but what happens to the valuation if management decisions start pumping the brakes on the firm's progress?

Uber has had a nice joy ride, but it's time to consider the perils of reputational risk. I thought the CSR Commitment Pyramid, which I based off of an HBR article on the prevailing CSR justifications: license to operate, reputation, sustainability, and moral obligation, might be a useful tool with which to review the firm's standing in the marketplace.

[bctt tweet="Uber has had a nice joy ride, but it's time to consider the perils of reputational risk. " via="no"]

A quick overview of the pyramid should help make this clear.

• Level 1. Social License to Operate: This is society's permission to operate your business. It's basically an implied license which a community bestows on businesses, and it's one which they can revoke at any time. (If you're selling snake oil, you'll know you've lost your social license when you get run out of town on a rail.)

• Level 2. Reputation: The collective gain or loss you take for the perception you build with your actions in the market. In essence, are you gaining or losing trust?

• Level 3. Sustainability: This speaks to the idea of the triple bottom line - the idea of balancing the firm's economic interests with those of the environment and society. Porter and Kramer suggest that this "works best for issues that coincide with a company’s economic or regulatory interests."

• Level 4. Moral Obligation: The top-level refers to doing things in a way which tends toward being collectively accepted by society.

[bctt tweet="If you're selling snake oil, you'll know you've lost your social license when you get run out of town on a rail." via="no"]

Let’s take a look at Uber's performance along these lines starting at the top.

• Level 4. Moral Obligation: Starting at the top of the pyramid, we could say that this is a morally objectionable business as its leadership team has displayed a blatant disregard for cultural norms, as well as for the well-being of their employees. They've determined that a Panic Button makes sense in some areas, but they're not providing it in all markets. Does a market need to have a related problem to have the feature enabled locally? And aren't they putting themselves at risk of major lawsuits in the areas where it is not available?

• Level 3. Sustainability: Uber might argue that they’re leading to fewer cars being made due to their service’s ability to substitute for ownership, and fewer miles driven due to lower ownership rates, but what about the economic and regulatory concerns? Uber is the first sharing economy firm to have to deal with a strike, as drivers contend that the frequent lowering of prices has made it difficult for them to earn a living. And, as previously mentioned, the firm is facing legal challenges in several cities and countries around the world.

• Level 2. Reputation: I assume we could agree that Uber is trending highly negative here. (Yes, many people still enjoy the service, but the list of issues at the top is setting a troublesome precedent.) The farther they move in that direction, the more likely it is that the business will shortcut its own meteoric rise.

• Levell 1. Social License to Operate: This is the area which has largely been ignored in recent years, but which I expect to steadily gain in importance. Lack of a community’s support has led to a number of legal challenges. In many cases, the firm is doing something which hadn't been anticipated by the law. When you're in that lane, the road ahead is uncertain. You might get pulled over and have your new ride sent to the impound, or you might get a nod and wave as you're motioned to keep on trucking. In this situation, the way you're perceived is likely to weigh heavily. If you're seen as a net contributor to the community, you're probably a lot more likely to get a free pass than those that viewed as a detriment.

If the social license argument seems a stretch, I'd recommend that you take a look at the recent list of membership defections experienced by the American Legislative Exchange Council (ALEC). Amazon, Coca-Cola, McDonald’s and Wal-mart all jumped off in the wake of Trayvon Martin's death due to ALEC's work in support of Stand Your Ground laws. More recently, AOL, Emerson Electric, Facebook, Google, Microsoft, Northrop Grumman, Occidental Petroleum, SAP America, Union Pacific, Wells Fargo, Yelp, Yahoo, and BP have all followed suit.

ALEC hasn't broken any laws in fostering this mass exodus. What they've broken is trust. And that's exactly what a social license is. In Uber's case, waking the slumbering regulatory beast, will likely impact others, so the firm may soon find itself becoming a Silicon Valley pariah.

We could flip this argument on its head by looking at the issues in Indiana, where the state's "religious liberty" bill had business leaders lining up to express their displeasure with the law's potential for discriminatory actions, while threatening to cut ties with the state.

The days of damn the torpedoes capitalism are over. Being an accepted member of the community (or an acceptable community in which to be a member) matters. That goes double for facilitators of the sharing economy.

[bctt tweet="The days of damn the torpedoes capitalism are over."]

Are they charting a new course?

Recent efforts suggest a desire to clean up the firm's image (if not their act). Uber has partnered with UN Women in looking to hire five million women drivers by the year 2020. This looks admirable on the surface, but the firm doesn’t treat its drivers as employees and thus the only benefits they receive come from negotiated discounts on products and services provided by third parties, so this feels a bit of an empty promise. Saying that you'll sign up millions of women to drive for the firm is no promise of gainful employment. It's a vague offer of "work," and nothing more.

Further, the Uber announcement prompted a quick response from Phumzile Mlambo-Ngcuka, the Executive Director of UN Women. Ms. Mlambo-Ngcuka’s video statement negated Uber’s claim, but the program announcement remains on the Uber blog.

More recent news seems to offer a bit more promise as Uber has announced that it will purchase taxi licenses for its drivers in Germany. The firm has often brazenly defied government orders in the past, so this could be the u-turn that's needed, or it may just be the result of a rational cost-benefit calculation. They've also just hired away Facebook's Chief Security Officer, a move I'll tentatively view as a turn for the better.

It will be interesting to follow Uber's follow on moves. (I'm sure it’s challenging to stay grounded with a trunk full of gold, but I hope Uber's leaders are learning from their fender benders.) If it really has been "Douche as a tactic, not a strategy," it's time to switch gears. We're all forced to live in glass houses thanks to the radical transparency afforded by ubiquitous connectivity. As such, it's best to avoid having things to hide, and to work to ensure that you're taking care of your employees and customers. Otherwise, they will continue to lose customers to other options. But in filling the firm's coffers with obscene wealth, the firm's investors are stating that Uber can do no wrong.

Uber has reached a fork in the road. It’s time they took the one less traveled.

[bctt tweet="Uber has reached a fork in the road. It’s time they took the one less traveled."]

5/19/2015 Update: Uber is planning to develop self-driving cars, which one estimate suggests would lead to the loss of 10 million jobs.