International review Investigation

For New Uber CEO Dara Khosrowshahi, Fresh Challenges Emerge

Dara Khosrowshahi in 2012. Source: PAUL SAKUMA/ASSOCIATED PRESS.

This material belongs to: WSJ.

Ride-hailing company faces federal bribery probe and a spotlight on its search for a leader.

Even before he takes the job as Uber Technologies Inc.’s new chief executive, fresh challenges confront Expedia Inc. CEO Dara Khosrowshahi, with news of a federal bribery probe into Uber and public disagreement over how the board’s decision to hire him unfolded.

News of the probe, reported by The Wall Street Journal on Tuesday, came after Mr. Khosrowshahi made his first public comments since being voted in as CEO by Uber directors on Sunday. He would succeed Travis Kalanick, the Uber co-founder who was pressured to resign in June following a series of scandals and amid infighting on the board. Mr. Khosrowshahi was selected over two more seasoned executives in Jeff Immelt, chairman of General Electric Co. and Meg Whitman, chief of Hewlett Packard Enterprise Co.

Speaking with the Journal at Expedia’s headquarters Tuesday morning, Mr. Khosrowshahi said his contract with Uber still needs to be finalized, but indicated he would take the job. He said Mr. Kalanick would remain involved with Uber and described as “budding” his relationship with the ex-CEO. “I think there’s mutual respect there,” he said.

“He’s the founder of the company, he’s an incredible visionary, so he will be involved with the company going forward,” Mr. Khosrowshahi said. “Exactly how, exactly when, is something that’s really up to Travis and the board.”

The Justice Department has taken preliminary steps to investigate whether managers at Uber violated a U.S. law against foreign bribery, according to people familiar with the matter. The agency is reviewing allegations that Uber may have violated the Foreign Corrupt Practices Act, which bans the use of bribes to foreign officials to get or keep business, these people said.

Based on what it finds, the Justice Department may or may not decide to open a full-fledged FCPA investigation into Uber. It is unclear whether U.S. authorities are focused on one country or examining activities in several countries where the company operates.

An Uber spokesman confirmed the company is cooperating with the Justice Department on the preliminary investigation. A Justice Department spokeswoman declined to comment.

The choice of Mr. Khosrowshahi was intended to bring stability to the world’s most valuable venture-backed startup after a year of tumult. But at a time when the ride-hailing company was supposed to be celebrating the end of its nine-week CEO search, Ms. Whitman spoke out on the selection process.

In a statement to the Journal on Monday night, Ms. Whitman said she hadn’t been a candidate for the job until Friday, when an Uber director she didn’t name called to see if she would reconsider after the board couldn’t decide between Mr. Immelt and Mr. Khosrowshahi. Ms. Whitman had reiterated to the Journal Wednesday that she wasn’t “going anywhere.”

Ms. Whitman said she laid out her terms: Uber must strengthen its governance structure, and Benchmark Capital, one of Uber’s biggest investors, must settle its lawsuit with Mr. Kalanick over control of board seats.

“By midday Sunday it was becoming clear that the board was still too fractured to make progress on the issues that were important to me,” she said in the statement.

Her sentiment echoed the situation with Mr. Immelt, who publicly pulled his name from consideration early Sunday after making a formal presentation to directors, apparently spooked by what he felt was a fractious and disorganized board, according to a person familiar with his thinking. In particular, this person said, Benchmark wanted Mr. Kalanick off the board and Mr. Immelt wouldn’t say that the ex-CEO should be removed. By Saturday morning, Mr. Immelt planned to withdraw his name, this person said.

But people familiar with the board’s deliberations say it was clear the 61-year-old Mr. Immelt wouldn’t have enough votes to become CEO. So the recently retired GE CEO attempted to save face by tweeting that he decided not to pursue the job, these people said. Mr. Immelt wasn’t immediately available for comment.

Ms. Whitman’s description of the process cast a spotlight on the chaotic buildup to Mr. Khosrowshahi’s appointment.

Ms. Whitman, 61, has longstanding ties to Benchmark, which has pushed for her candidacy, say people familiar with the matter. The venture firm, which has denied it was a prime advocate for Ms. Whitman, led the push for Mr. Kalanick’s ouster in June after a series of scandals rocked Uber, and sued him last month, fueling a public battle among shareholders that remains unsettled.

Soon after pulling her name from the running with a tweet in late July, Ms. Whitman began working to get back into consideration, the people familiar with the board deliberations said. And even as she said that she no longer wanted the job, arrangements were being made behind the scenes to present her vision for the company to directors, these people said.

Ultimately, Ms. Whitman made a formal presentation on Saturday for at least an hour—including PowerPoint slides—at a hotel in San Francisco where the board had assembled to consider the candidates, these people said.

In the end, Mr. Khosrowshahi’s relative youth at 48 years old, his lengthy scandal-free tenure at the helm of Expedia, and what some described as a strong presentation Friday were enough to win him the unanimous vote, people familiar with the decision said.

In a statement late Tuesday, Uber’s board sent a note to employees announcing Mr. Khosrowshahi’s appointment, emphasizing the board vote’s was unanimous. The company plans to introduce him to employees at an all-hands meeting in San Francisco Wednesday morning, the note said.

Mr. Khosrowshahi declined to discuss the controversy around the CEO search, saying “there has been too much obsession with the process.”

Despite the drama at Uber, Mr. Khosrowshahi said the offer to run it was too good to pass up. “It took a couple of pokes to get me interested,” he said, “but the opportunity at Uber is once in a lifetime.”

He said his first priority at Uber would be focusing on the employees, who have been without a leader for more than two months. “That part of the business maybe hasn’t been focused on as much,” he said, “and that comes first for me.”

As Mr. Khosrowshahi steps in, Uber faces growing pressure from U.S. authorities. In addition to the preliminary bribery probe, the Justice Department is separately pursuing a criminal investigation into “Greyball,” a software tool employees used to evade law-enforcement officials, people familiar with the matter said in May. Uber hasn’t commented on the probe.

And earlier this month, Uber settled Federal Trade Commission charges that it didn’t offer sufficient privacy protections for its users. The company didn’t admit nor deny the allegations as part of the settlement.