What Silicon Valley can learn from Uber's rise and fall

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It's common knowledge that Uber, once touted as the company behind the future of transit, has had a highly publicized fall from grace over the last few months.

In April, the company reported losses of $2.8 billion and has seen senior executives leave the company amid claims of sexual harassment and ongoing lawsuits, according to Bloomberg.

Since June, the ride-sharing app has been seeking a new CEO to revamp the company after co-founder and former CEO Travis Kalanick stepped down due to pressure from investors.

Marsha Ershaghi, head of compliance and corporate culture at LRN, a firm that helps businesses build ethical cultures and has partnered with companies like Kodak, Dell and Ford, tells CNBC Make It that Uber's toxic company culture stems from one main issue: a lack of oversight from company leaders.

Notably, Uber is currently going through a cultural shift and listening to what employees want, a company spokeswoman tells CNBC Make It.

But the ride-hailing app's past struggles highlight why tech companies should address toxic company culture right away. Here's what else Silicon Valley can learn from Uber's tumultuous experience:

Toxic culture can start from the top but must be stopped early

Toxic cultures are often bred within isolated parts of an organization, says Ershaghi. "Companies are not necessarily toxic as a whole but have micro segments of toxicity," she says.

In Uber's case, she says the company's cultural toxicity permeated the entire organization because it came from the top down and was allowed to spread unchecked.

'The Profit' star Marcus Lemonis: How a controlling boss can destroy a company
'The Profit' star Marcus Lemonis: How a controlling boss can destroy a company

For instance, Ershaghi points to a bizarre 2013 email that Uber's ousted CEO wrote to his employees. The letter, which starts with "you better read this or I'll kick your --s," served as a guideline for employees who were headed to Miami to celebrate the company's success, according to ReCode, which published the email in its entirety.

"The mere fact that [Kalanick] felt that he had the right to speak so rawly and openly like that shows what type of company culture they had," Ershaghi says.

Ershaghi partly blames the widespread culture on Uber's board of directors and shareholders. A company's most senior leaders should not allow inappropriate professional behavior. Instead, they must hold the CEO accountable, she says.

Companies need to provide a safe space for reporting misconduct

Although Uber's "bro-culture" and sexism had reportedly been known internally for years, it wasn't until former engineer Susan Fowler blasted the company in a 2017 blog post that others started to speak up. The news prompted Kalanick to order an "urgent investigation."

Ershaghi says that employees often refrain from reporting wrongdoing in the workplace due to fear of retaliation, especially if they see that their company has a lack of respect for its workers and puts business profits over its employees.

However, organizations have a "duty to provide platforms for employees to report misconduct," says Ershaghi. Companies can provide this service through an anonymous hotline but employees usually prefer reporting misconduct to direct supervisors, she says.

This means that a company must encourage employees to point out improper behavior and make it known that workers will be protected if they do speak out, says Ershaghi.

Calling an uber from the iphone application
David Ramos | Getty Images

Businesses should have policies to govern behavior, especially during periods of 'rapid growth'

Ershaghi says that Uber's rapid growth created the perfect storm for a toxic company culture, which should prompt other tech companies to take note.

Ariana Huffington, who joined Uber's board in 2016, admits that the start-up's rapid expansion has been part of Uber's problem as structures and processes failed to keep pace.

Ershaghi points out that this is common in the tech space: The industry is built on the backs of ideas and venture funding. This results in tech companies with little to no regulation because investors want "free-spirited innovation" and "rapid growth," Ershaghi says.

She suggests that tech companies create and implement policies, or a code of conduct, to dictate behaviors from employees at all levels.

One driver spent thousands to create the "Ultimate Taxi"
One driver spent thousands to create the "Ultimate Taxi"

Investors need to hold leaders accountable for creating a healthy company culture

Change begins with a company's investors, shareholders and board members, Ershaghi says. These senior executives must hold those under them accountable for the company's work culture and "should no longer be sitting on the sidelines."

For specific teams, she suggests that supervisors practice short, targeted dialogues with their staff to build a culture of trust and open communication lines. At the more senior levels, leaders can be held accountable by receiving pay based on performance incentives.

In June, Uber announced that it hired two women to join the leadership team, showing that it wanted to repair its reputation as a "fratty" workplace.

Apple Music's Bozoma Saint John was appointed as chief brand officer and is tasked with bringing humanity and an "emotional connection" to the brand, Huffington said at the iCONIC Conference in June. Harvard Business School's Frances Frei was chosen to oversee strategy and leadership.

Leaders should take an 'ethical stand' against a toxic culture or profit and employee retention suffers

Ershaghi says that it's in a company's best interest to take an ethical stand as soon as they see a toxic company culture forming. Why? Because in this digital age, employees will expose you.

However, board members and shareholders oftentimes don't address toxic cultures as long as they are making a profit, which she calls both "short-sighted and short-lived." Once a company's reputation is marred, the "money will stop rolling in," Ershaghi says.

A company that has a reputation of putting profits before workers will have trouble attracting top employees, she explains.

"Just the mere perception that an organization has a history or allowance of a toxic culture can lead to a tank in stock value and an exodus of employees, who will go to competitors," says Ershaghi. "This is how companies that are quickly built also quickly fall."

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See also:

Meet 5 people who could replace Travis Kalanick as Uber's next CEO

3 ways Uber CEO Travis Kalanick says he plans to grow as a leader

In 'Option B,' Sheryl Sandberg presents meaningful work as an antidote to trauma

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