WeWork CEO Steps Down As IPO Stalls

Sep 24, 2019
Originally published on September 24, 2019 7:39 pm

WeWork co-founder Adam Neumann is quitting as CEO amid problems with the workspace sharing company's efforts to go public. The company's valuation, once estimated at $47 billion, reportedly has dropped to less than $20 billion and its initial public offering has been delayed.

Neumann has been a charismatic but controversial figure. He built a worldwide network of leasable office space used by half a million entrepreneurs and businesses. But he's also drawn criticism for his tight control over the company and some unusual moves to enrich himself.

Neumann acknowledged the controversy in a statement Tuesday announcing his resignation. "The scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive," he said.

The company announced that Neumann will retain his title as non-executive chairman. Artie Minson, the company's co-president and chief financial officer, and Sebastian Gunningham, its vice chairman, were named co-CEOs.

WeWork became synonymous with co-working space as it grew to more than 100 cities around the world.

But investors saw two big problems: Neumann had too much control — he controlled a majority of shares and had the power to override any decision — and he was involved in a number of conflicts of interest.

In a couple of unusual moves, the WeWork loaned Neumann several hundred million dollars and he sold hundreds of millions worth of his equity as the company was preparing to go public.

In another controversial move, Neumann trademarked the word "We," then sold the rights back to WeWork for about $6 million. Joey Low, one of WeWork's biggest and earliest investors, said the move was "in bad taste."

"When you're the head of a big company, you do everything in your power to make your company succeed," Low said.

Neumann later returned the money in stock.

Low said he initially intended to invest just a little money in WeWork, but then ended up putting in tens of millions of his personal wealth just on the strength of Neumann's character and vision.

"It was like the Pied Piper," Low said. "He would be playing his flute and people would just follow him."

Low said he continues to believe in the company and that vision. He says there's still great promise in this model of building offices where people can sublease space and be part of a community.

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AUDIE CORNISH, HOST:

The embattled CEO and co-founder of WeWork has stepped down. Adam Neumann is a charismatic and controversial figure. He built a network of leasable office space, now in more than a hundred cities around the world. Joining us to discuss Neumann's swift rise and fall is NPR's Yuki Noguchi.

Welcome to the studio.

YUKI NOGUCHI, BYLINE: Hey, Audie.

CORNISH: What is the reason Neumann gave for stepping down as CEO?

NOGUCHI: The short answer is that Adam Neumann is the central reason the company isn't going forward as planned with its IPO. That's the sale of shares to the public for the first time. WeWork is burning through a lot of cash. He had a lot of conflicts of interest at the company. And most importantly, he wielded too much control over the company. And all of that led to a plummeting of the valuation of the company that he started from close to $50 billion earlier this year to about a third that. You know, WeWork is a household name today, but it didn't even exist a decade ago. And in that short period of time, Neumann and his company built a vast network of office spaces. It's hugely popular among young people and startups, but it's not popular enough to generate a profit yet.

CORNISH: It's one thing for Neumann to be out as CEO, but does that mean he's actually gone from WeWork altogether?

NOGUCHI: No, he's going to continue on as non-executive chairman. That's a position with a lot less responsibility, a lot less power. And removing him as CEO does address some investors' and board members' concern that, you know, he had too much control. You know, as the - as big as the company was, as many big-name investors as it attracted, Neumann still controlled a majority of the company's voting shares, which was a big concern. Now it appears he will cede much of that control. But the way it had been structured, Neumann had the power to override almost any decision, and seldom do you see an executive with that kind of control.

I talked to Charles Elson, an expert on corporate governance at the University of Delaware. He told me he was writing a paper on WeWork's structure.

CHARLES ELSON: It's entitled We Work For Adam Neumann (laughter).

NOGUCHI: All right, so that's a joke. But what it gets at is, you know, what Elson thinks is a problem. Everything led back to Neumann. And Neumann was - also has - you know, as visionary as he was, he had a bit of a reputation for some erratic behavior and for encouraging a hard partying culture at the company.

CORNISH: I mean, it was more than reputation, right? I mean, tell us about some of the other things that made him controversial.

NOGUCHI: Yes. Well, we're talking about his unusual financial dealings with the company. He borrowed several hundred million dollars from his own company over the years, which is unusual. He also sold a big chunk of his shares before the company went public - also unusual for a founder to do. But the thing that really got people exercised was the fact that he trademarked the word we, which is weird enough maybe on its own, but then he sold those rights back to WeWork for about $6 million. I spoke with one of WeWork's earliest and biggest individual investors about this. His name is Joey Low. He's a huge fan of Neumann and WeWork, but this is what he had to say about that trademark deal.

JOEY LOW: When you're the head of a big company, you do everything in your power to make your company succeed, and you're not looking to make what is basically small money for him because he's made so much more. I think that was in bad taste.

NOGUCHI: So in response to such criticism, that deal was unwound. But the reputational damage was already done.

CORNISH: Why didn't anyone catch this sooner?

NOGUCHI: That's a fascinating question. I think Neumann, you know, was a visionary. He had this kind of generational, you know, appeal to investors and employees, and they got excited about it. He was very charismatic. For example, Joey Low, that investor, told me he intended to invest a little bit of money in WeWork but then ended up investing tens of millions just on the power of Neumann's vision.

LOW: You know, it's like the Pied Piper. Like, you know, he would be playing his flute, and people would just follow him.

NOGUCHI: And by the way, Low still believes in the company and that vision. He says there's still great promise in this model of building offices where people can sublease space and be part of a community.

CORNISH: That's NPR's Yuki Noguchi.

Thanks so much.

NOGUCHI: Thank you. Transcript provided by NPR, Copyright NPR.