Dr. Bernice Ledbetter Offers Insight into Corporate Governance in Los Angeles Business Journal

August 10, 2016  | 3 min read

In a recent article on Soylent CEO Robert Rhinehart’s unusual choice of housing (a shipping cargo container) and subsequent criminal charges for code violations and unpermitted construction, Dr. Bernice Ledbetter speculated on how the Soylent board might respond to the actions of their leader. “It can play out as an interesting entrepreneur, techie guy doing something off the beaten path, drawing attention to his company,” Dr. Ledbetter told the Journal. “Or, it can be perceived as reckless and teenager like and call into question his judgment and leadership.” Either way, she surmised, from a corporate governance perspective, Rhinehart’s position at Soylent, a meal-replacement startup, appears to be safe – at least in the near term. Read more here or see below.

 

Meal Replacement CEO Served Up Futile Fight

FOOD: Soylent chief’s ‘housing’ container clash par for eccentric course?

By GARRETT REIM  Friday, August 5, 2016

 

Soylent Chief Executive Robert Rhinehart is used to getting bad press about his company’s meal-replacement product, which critics have described as plaster like and tasteless.

But Rhinehart himself has received a wave of negative coverage after being charged late last month with four criminal counts for his refusal to move an unpermitted, abandoned, and vandalized shipping container from his Montecito Heights property.

While Rhinehart referred to the container on his personal blog as “an experiment in sustainable housing,” Los Angeles City Attorney Mike Feuer countered in a statement that unpermitted structures constitute a “safety risk.”

“They also can be unsightly and erode the quality of life in a neighborhood,” Feuer added.

Rhinehart, who has since removed the container, is schedule to be arraigned on the misdemeanor charges next month, and if convicted could face $4,000 in fines and up to two years in jail.

For Soylent, which has received $24.5 million in investment from high-profile venture capital firms such as Menlo Park’s Andreessen Horowitz, the incident is a distraction from its focus on growing sales and raising additional venture capital.

The company’s powder, which it claims is packed with “optimum” nutrients needed to survive, is consumed after mixing with water and sold through a $54 monthly subscription.

Rhinehart appears ready to put the incident behind him. He removed the container after the charges were filed and penned a public apology posted on his blog.

“In the future,” he wrote, “I will ensure that I do my due diligence with regard to all city and neighborhood regulations.”

For tech investors, it’s yet another example of a tech entrepreneur’s odd personal behavior making ugly headlines. Other recent examples include Tinder’s Sean Rad, who endured a bitter sexual harassment lawsuit filed in 2014 by the dating app’s co-founder that resulted in a temporary demotion and subsequent settlement; and Snapchat’s Evan Spiegel, who was forced to apologize for misogynistic emails he sent while an undergraduate at Stanford University that became public in 2014.

“Entrepreneurs … have eccentric personalities,” said William Hsu, managing partner of Santa Monica’s Mucker Capital, not referring to any particular individual. “We expect them to do the impossible; they often do the ill-advised and improbable. It is the cost of doing business.”

The bright red container, which sat on a parcel owned by Rhinehart atop Flat Top Hill, included carve-outs for a door, sunroof, and windows. What it didn’t include, however, were the necessary city permits. The Department of Building and Safety ordered him to remedy violations relating to grading and construction on the vacant lot, and subsequently, the container itself, once it was placed there in April. Rhinehart allegedly refused to comply with those demands.

The charges came after the city and Rhinehart could not come to a resolution and subsequent investigations found windows in the container had been smashed and its walls covered in graffiti.

Soylent’s board could respond to the CEO’s hot water in several ways, said Bernice Ledbetter, professor of organizational theory and management at Pepperdine University’s Graziadio School of Business and Management.

“It can play out as an interesting entrepreneur, techie guy doing something off the beaten path, drawing attention to his company,” she said. “Or, it can be perceived as reckless and teenager like and call into question his judgment and leadership.”

Rhinehart, through a spokesman, declined an interview request. Soylent board member and Andreesen Horowitz General Partner Chris Dixon was not available for comment. Other Soylent investors did not respond to interview requests.

Erik Deutsch, a principal at Hollywood’s ExcelPR Group, said Rhinehart’s saga continues a narrative of tech entrepreneurs behaving badly.

“There are plenty of examples of young CEOs of highly valued companies often acting foolishly with an enormous sense of entitlement,” he explained. However, because Soylent isn’t a household name, the incident probably won’t hurt sales and might even raise product awareness, he added.

Ledbetter said that Rhinehart’s job probably isn’t in jeopardy.

“My hunch is he’ll get a good talking to, but as long as the company is profitable, they’ll give him a hall pass,” he said.

Tech investors often expect odd behavior from entrepreneurs and have contingency plans in case bigger issues crop up.

Mucker’s Hsu said he takes a hands-on approach in resolving executive controversies and doesn’t see personal mistakes as fatal.

“We expect a plan to remedy the situation in 24 hours and execution in 48 hours,” he said. “It’s about how you make amends and do better next time.”