October 22, 2019 / 7:34 PM / 2 months ago

Breakingviews - WeWork mess should end the cult of the founder

A WeWork logo is seen at a WeWork office in San Francisco, California, U.S. September 30, 2019. REUTERS/Kate Munsch

NEW YORK (Reuters Breakingviews) - Adam Neumann’s reign at WeWork is over – with a reward for failure. The office-sharing firm’s board has chosen a nearly $10 billion rescue package from existing backer SoftBank, valuing the business 83% below its $47 billion peak, the Wall Street Journal reported on Tuesday. Whether that’s enough for WeWork parent The We Company to build a profitable foundation won’t be apparent for some time. Investors can, however, ensure Neumann is the last founder able to run amok.

SoftBank is buying $1 billion of shares from Neumann, lending him $500 million to repay a loan from JPMorgan, and handing him a so-called consulting fee of $185 million. In effect that’s paying him to go away, buying out the voting control which he commanded despite owning only a minority stake.

That will grate with other investors and employees. Neumann was, after all, responsible for the near-demise of WeWork as well as its meteoric ascent. Supporters initially signed up to his mumbo jumbo, like wanting to “elevate the world’s consciousness.” But the lack of focus on what amounts to a real-estate business soured the market on the company’s planned initial public offering, which had to be abandoned.

Conflicts of interest abounded, too. These ranged from Neumann owning properties that were leased to WeWork to his receiving $5.9 million in payment for trademarks – an amount he had to give back as advisers tried to rescue the IPO. Meanwhile the company was incinerating cash – $2.2 billion last year, more than its revenue.

The scrutiny the IPO process brought to The We Company’s inner workings has prevented public-market shareholders from becoming stuck in the morass. SoftBank, though, is stumping almost as much again as it had already injected into WeWork. That ought to be a lesson to investors with their own grand visions.

Another lesson is the danger of allowing anyone unchecked power over outside investors’ money. Neither SoftBank nor earlier WeWork supporters like Benchmark Capital can blame anyone but themselves for that. Charismatic tech founders such as Neumann are treated like deities, but they aren’t always the right people to run a big organization – Benchmark, for one, should have learned that from Travis Kalanick at Uber Technologies. It’s past time to end the cult of the founder.

Breakingviews

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