Companies like Uber are staying private longer. Without public market scrutiny, who’s holding them accountable?

Former Uber CEO Travis Kalanick speaks at a technology conference in Beijing in 2016. (Photo by Wang K’aichicn / VCG/VCG via Getty Images)

When publicly traded companies are caught behaving badly, markets can hold their feet to the fire. Stock prices take a hit, as Volkswagen witnessed after its emissions scandal. Activist investors mobilize, like when Yahoo shareholders criticized the company’s direction. Executives are forced to backtrack and apologize, as with United Airlines after a man was dragged off a plane.

Privately held companies, on the other hand, don’t answer to the stock market.

Power tends to be concentrated in the hands of a few. And even those who are in a position to govern — such as board members and early-stage investors — aren’t compelled to perform even the most rudimentary intervention. Just look at Uber, where a lack of oversight allowed a culture of bullying and harassment to take root.

Going public used to mean exposing a company to the sunshine that would sanitize its problems. But a growing number of companies — Uber among them — are choosing to stay private longer. The number of initial public offerings in recent years has fallen from a high of 275 in 2014 to 105 in 2016, the lowest number since the global financial crisis, according to Renaissance Capital’s U.S. IPO Market Annual Review.

So if companies won’t go public, who’s responsible for holding them accountable when the supposed adults in the room drop the ball?

The answer, according to corporate governance experts, is you.

“It’s essentially public outrage,” said Cindy Schipani, a professor of business law at the University of Michigan’s Ross School of Business. “If the monitors are behaving badly, there won’t be any monitoring. Then we need to rely on employees to speak up, whistle-blowing, and customers putting pressure on companies once these issues come to light.”

That was the case when Uber’s co-founder and chief executive, Travis Kalanick, resigned from the company last month after its scandals came to a head. The ride-hailing giant was known for sparring with regulators, fighting lawsuits from drivers, and Kalanick’s inappropriate gaffes (the founder once referred to the company as “Boober” when describing how Uber’s success helped him attract women). As a privately held company that didn’t answer to the public market, though, Kalanick and the company’s executives received pass after pass, and Uber’s board of directors — made up largely of venture capitalists with big stakes in Uber, and Kalanick’s personal allies in the firm — took no action.

It wasn’t until a former employee, software engineer Susan Fowler, penned a damning blog post detailing systemic sexual harassment at the company, that the wheels of disciplinary action were put in motion. And even then, it was only after that blog post went viral.

There used to be a perception that, as a private company, you could hide your warts until you go public — Paul Wilke, public relations professional

“In the private sector, venture capitalists can act quickly when they want to, but they might not unless there’s public pressure,” Schipani said.

Uber’s public pressure came in the form of consumer boycotts, a Twitter campaign urging customers to delete the app from their phones, and a declining public image. In a June survey of Uber customers nationwide conducted by media and technology company Morning Consult, 23% of respondents said Uber’s scandals made them use the service less frequently; 19% said they had deleted the app entirely. Of those who had stopped using the service, 28% said they would return if the company fired Kalanick.

Four months after Fowler published her allegations, Kalanick announced he would go on indefinite leave. A week after that, the company’s venture capital investors successfully pressured him to resign.

It’s not surprising that investors in private companies (who commonly double as board members) can sometimes be slow to act, according to corporate governance experts, because many want to believe the founder whom they invested in can be trusted. But it’s also because of a fundamental difference between the responsibilities of private and public boards.

“The board of a private company is there at the behest of the CEO, the owners, and the investors, so your responsibility is to enhance the value of that enterprise,” said Eric Flamholtz, a professor emeritus at UCLA’s Anderson School of Management. “In a public company, you have a responsibility to help the company, but you also have a responsibility to make sure the company is on the straight and narrow.”

Flamholtz, who has also served on the board of a publicly traded company, said the standards of governance at public companies are simply higher: disgruntled shareholders can bring resolutions to the board, board members are up for election after serving out their term, and if a complaint is made they can’t just “brush it off.”

“I would bet that 99% of the problems at Uber would not have been allowed to happen at a public company,” Flamholtz said.

Although there are always exceptions, such as the alleged sexual harassment scandal rocking 21st Century Fox’s news channel, being public creates more opportunities for information to get out. There are mandatory regulatory filings, quarterly financial reports, and the need to answer to shareholders at annual meetings. Investors will short stocks at the slightest hint of trouble; activist investors will publicly pressure boards.

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