Hot on the heels of reports that Uber-founder Travis Kalanick has been trying to sabotage the search for his replacement as CEO of the company, board member Benchmark Capital is suing him and Uber for fraud, breach of contract, and breach of fiduciary duty. According to the suit, the investment firm wants Kalanick removed from his position on the board altogether, effectively ending his tenure at the company.
It’s hard to overstate how unusual it is for a venture capital firm to file a lawsuit against the company that is its biggest investment. This added drama can only futher damage Uber’s reputation and value. But according to Recode, Benchmark claims that its hand was forced because Kalanick has failed to sign paperwork that would turn over control of two seats on the board. He currently controls three out of 11 seats on the board, one of which he occupies.
First reported by Axios, the lawsuit was filed in a Delaware court today and only names Uber because of statutory requirements. It concerns an agreement between Kalanick and investors in June of 2016. The decision expanded Uber’s board from eight to 11 seats and gave Kalanick control of three seats. Now, Benchmark claims that his failure to disclose the “gross mismanagement and other misconduct at Uber” invalidates the agreement. From the lawsuit:
Kalanick, the former CEO of Uber, to entrench himself on Uber’s Board of Directors and increase his power over Uber for his own selfish ends. Kalanick’s overarching objective is to pack Uber’s Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO—all to the detriment of Uber’s stockholders, employees, driver-partners, and customers...
The pervasive cultural issues explored in Covington’s investigation were known to and facilitated by Kalanick at the time of the amendments to the Certificate of Incorporation and the Prior Voting Agreement, but Kalanick did not disclose these matters to Uber’s Board or Benchmark at the time.
Benchmark says that when Kalanick was pushed out as CEO, he agreed in writing that he would turn over the board positions to independent parties. The New York Times’ Mike Isaac claims this is a copy of that agreement:
The full lawsuit is well worth reading just to see how dirty Benchmark is willing to get in order to rid itself of Kalanick. It straight up accuses the Uber founder of overseeing a culture that tolerated sexual harassment and discrimination. And it says that Benchmark wouldn’t have agreed to the board expansion if it had known about the alleged theft of intellectual property from Waymo that has embroiled Uber in a separate lawsuit.
Benchmark owns 13 percent of Uber, which is valued at $70 billion. That’s a lot of money to put at risk over a personal grudge against one guy. But Kalanick has reportedly been telling friends that he’s “Steve Jobs-ing it” and wants to finagle his way back into the CEO position. At the end of July, the New York Times reported that Kalanick resisted hiring Hewlett Packard Enterprise CEO Meg Whitman to take over his old role—and he’s apparently been stalling every step of the way. All of this public and private drama will only make it more difficult to find a suitable candidate for the job.
The lawsuit is completely without merit and riddled with lies and false allegations. This is continued evidence of Benchmark acting in its own best interests contrary to the interests of Uber, its employees and its other shareholders. Benchmark’s lawsuit is a transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder and to silence his voice regarding the management of the company he helped create. Travis will continue to act in the interests of Uber and all of its stakeholders and is confident that these entirely baseless claims will be rejected.
Benchmark hopes to invalidate the 2016 agreement, eliminate the extra seats on the board, and completely remove Kalanick from any decision making at the company. Apparently, even going through the (certain to be messy) discovery process in court is worth it. For Kalanick, his baby will be taken away if he loses, but he’ll still own 10 percent of the company.