In a CEO Search Like Uber’s, Is There Haggling Room for Contenders?

Landing the top executive’s job at a prominent company is usually considered a career coup. But a CEO search can also be a troubled company’s hunt for a savior.

A leader facing a turnaround challenge may well ask, “What am I getting myself into?”

Current case in point: Uber, which ticks many boxes on the list of potential concerns.

Uber has an ongoing power struggle on the board; an influential founder, Travis Kalanick, recently ousted as CEO but still controlling board seats and voting shares; restive investors, including one suing Kalanick; an apparently unruly workplace culture; sexual harassment and gender bias claims; a legal battle over key intellectual property; an alleged bent for flouting regulations; accusations of unfairness to the drivers at the heart of the business; a tarnished public reputation; and last, but not least, growing doubts about the company’s profit potential.

So, in situations like this, what powers do CEO candidates have to make sure they’re being given the full picture before they accept an offer? Can the chosen candidate lay down some conditions before taking the job, such as locking in a division of responsibilities and lines of authority among top leadership?

For an inside view of the negotiations behind a CEO hire, Xconomy talked to San Francisco search firm executive Greg Lamboy, head of talent acquisition and partner at Hager Executive Search.

The Hager firm isn’t involved in Uber’s CEO search, but Lamboy shares some general observations. First, to make a good match between company and executive, he says, it’s essential to know where the company wants the new CEO to take it—such as an IPO, an acquisition, or continuing as an independent unit. And what financial targets will the board set for the new leader?

To gauge whether those goals are realistic, a candidate would need to know the full financial picture, Lamboy says. But will the hiring company open the books? “I think it varies from place to place,” he says.

Not all C-suite candidates are given full disclosure before they start a job, and some discover only later “things they weren’t told,” Lamboy says. “It’s kind of ‘candidate beware.’ ”

However, non-public companies may have good reasons to keep their full numbers close to the vest when they interview candidates on their list of prospects, Lamboy says. While candidates routinely sign non-disclosure agreements, in the process of evaluating the challenges of a new job they often consult with trusted friends in business and past mentors. They may also talk it over with family members, he says.

“You can’t give them every single piece of information,” Lamboy says.

A board may interview nine or 10 candidates, and most of them won’t be hired. A leak of information could come from anywhere, and the hiring company might later find out that its financials have come to be known by the CEO of a rival firm, Lamboy says. By diffusing too much information, “you’re risking the future of that company,” he says.

However, Lamboy says that privately held Uber’s situation is unusual enough that it calls for extra vigilance on the part of CEO candidates. “I would definitely get them to ask as many questions as they can about the financial picture,” he says, basing his view on news reports about the company.

Uber, following the pattern of many Internet startups, has been racing to build the world’s largest ride-hailing network in the belief that profits will follow from market power. Uber has gained popularity by offering lower fares than traditional taxi companies, and subsidizing those fares with billions of investor dollars. The question looming now is whether the company can ever break even, or achieve profitability, if it eventually raises fares to cover the full cost of its rides. Competition from rivals such as Lyft could keep fares low.

Uber periodically releases selected financial figures, and this week it disclosed to Axios that its gross billings reached $8.7 billion in the second quarter, while its quarterly loss fell to $645 million (adjusted earnings before interest and taxes). Uber says it still had a cash reserve of $6.6 billion at the end of the second quarter, compared with $7.2 billion at the close of the first quarter, Axios reported. But much is yet to be known about key details, such as the various sources of those billings, the cost of generating revenue, and the way Uber defines each item in its financial reports.

Uber’s multi-billion-dollar valuation is in question, in part due to turmoil at the company. Uber has recently been considering proposals by investment groups to buy blocks of shares from existing investors at a price that would not line up with the $68.5 billion valuation ascribed to the company by its primary financial backers, as the New York Times reported. The depth of that proposed discount hasn’t been disclosed. On the secondary market for Uber shares, the company’s valuation was pegged as low as $50 billion back in April, according to TechCrunch. Reuters reported this week that four mutual fund companies recently marked down the value of their own holdings in Uber shares by as much as 15 percent. Doubts about Uber’s future profit potential could be a serious challenge for a new CEO if the board is bent on teeing the company up for a rich IPO.

In the case of any company, Lamboy says, board members in search of a CEO will have financial targets in mind, but they’ll also ask promising candidates how they would try to reach them. A fully informed candidate could tell a board whether its goals seem feasible, he says.

“Setting realistic expectations is [crucial], so when that person gets into that position, they’re not set up to fail,” Lamboy says.

In the give-and-take of hiring negotiations, prospective CEOs can bring up other company issues that could be dealbreakers if left unresolved, Lamboy says. They can seek commitments on how a particular problem would be collectively handled by the leadership team, and make it a condition of accepting the job, he says.

“They can say anything they want,” Lamboy says. Of course, that doesn’t mean they’ll get everything they ask for, he says.

Among the possible desires of a candidate is a commitment to certain principles, such as hiring diversity or accounting rigor, that would elevate the reputation of both the CEO and the company. A CEO with a good reputation can encourage high-quality candidates to join the company, Lamboy says, while a CEO with a poor reputation would raise the hurdles for recruitment.

One area where CEOs often have considerable clout is the choice of … Next Page »

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Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy

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