Uber is being pressured to strengthen its board of directors before its blockbuster IPO by dumping former Merrill Lynch CEO John Thain.
Thain currently chairs Uber’s audit committee, putting him in charge of oversight of the company’s financial reporting, legal compliance and corporate governance.
CtW Investment Group, an adviser to pension funds, says it is concerned about Thain because of his role in the 2008 financial crisis. It also criticized his “close relationship” with Uber CFO Nelson Chai, which the firm fears could cloud Thain’s judgment.
“Based on his past record of poor decision making, Thain is an unsuitable steward of shareholder funds,” Dieter Waizenegger, CtW’s executive director, wrote in the April 30 letter to Uber Chairman Ronald Sugar.
The criticism comes ahead of Uber’s IPO on the New York Stock Exchange.
CtW said the union-sponsored pension funds it works with have more than $250 billion in assets under management and “intend to become substantial” shareholders in Uber.
Uber declined to comment. Thain did not respond to inquiries.
“As the cries grow louder, Uber will have to address this,” said David Becher, a finance and corporate governance professor at Drexel University. “If they believe he is a valuable board member, they will have to clearly lay that out.”
In Uber’s IPO filing, the company said it built a “seasoned, qualified” board of directors in 2017 and 2018 by adding independent directors like Thain and former Xerox (XRX) CEO Ursula Burns.
“Mr. Thain was selected to serve on our board of directors because of his experience as chief executive officer of several global companies and his financial expertise” from his previous roles, Uber said in the filing.
Thain currently serves on Deutsche Bank’s (DB) supervisory board and was previously a senior exec at Goldman Sachs (GS) and CEO of NYSE Euronext.
Recalling Thain’s role in the crisis
But he is best known as the final CEO of Merrill Lynch.
In the fall of 2008, Thain watched nervously as smaller rival Lehman Brothers neared collapse. Seeking to avoid that fate, Thain shrewdly orchestrated a shotgun wedding between Merrill Lynch and Bank of America (BAC).
But Merrill Lynch’s business deteriorated rapidly as its mortgage bets imploded. While Thain saved Merrill Lynch, the sale cost Bank of America shareholders dearly and required hefty support from the federal government.
And Thain was widely criticized for a $1.2 million renovation of his office that reportedly included a $35,000 commode and a $1,400 waste can.
Thain also served as CEO of midsize commercial lender CIT Group (CIT) between February 2010 and March 2016. While US stocks surged during that period, CIT’s share price declined slightly.
As CEO, Thain presided over the company’s takeover of OneWest Bank — a deal The Wall Street Journal later called one of the worst banking deals of the post-crisis era. In 2017, CIT essentially admitted it overpaid for OneWest by taking a $327 million writedown on the deal.
“Thain’s history of poor business judgment on financial matters puts Uber shareholders at risk,” CtW wrote.
Helped recruit Uber’s CFO
Thain arrived at Uber in 2017 when the company was in turmoil due to a series of scandals. He was recruited to join the board by Travis Kalanick, the company’s founder who was ousted as CEO in June 2017.
In August 2018, Thain put his deep rolodex to use by helping to find one of Uber’s missing pieces: a credible chief financial officer. Filling a role that had been vacant since 2015, Uber hired Chai, a key lieutenant of Thain’s at Merrill Lynch, CIT and NYSE Euronext.
But now CtW is worried that Thain’s too cozy with Chai, noting that Fortune once called him Thain’s “sidekick.”
“We believe that Thain’s close relationship with Chai may inhibit him from effectively evaluating Chai’s performance as CFO,” CtW wrote.
Becher, the Drexel professor, said that rather than remove Thain from the board, one solution would be let someone else be chairman of the audit committee.
“Directors, by definition, have connections. I’m hesitant to say that a connection is a bad thing,” Becher said.
Are Uber’s directors too busy?
While CtW’s first demand is to remove Thain, the group is also urging Uber to limit directors’ outside commitments and to devise a “refreshment plan” aimed at establishing a “truly independent” board by September 1.
For instance, CtW pointed out that in addition to being Uber’s chairman, Sugar serves as a director of four public companies that include Apple and Chevron (CVX). Sugar is lead independent director of Chevron (CVX), which is in the middle of a bidding war over Anadarko Petroleum (APC).
“This is particularly concerning since as Uber’s chair you will be required to oversee Uber as it navigates its own challenges,” CtW wrote.