There is plenty of blame to go around for the debacle that in two dizzying months took WeWork from expecting to raise billions of dollars in an initial public offering to counting how many weeks’ cash it had left.
Some have laid it at the many doors of Adam Neumann, the co-founder known for his consciousness-elevating conflicts of interest. Others have pointed at SoftBank for assigning a $47bn valuation to such a determinedly lossmaking company, or the bankers who seemed so keen to put the greater fool theory into practice.
But as David Erickson, a senior finance fellow at Wharton business school, puts it, the problem with blaming the bankers “is that you don’t get hired for telling somebody that their baby’s ugly”.
So we should spare a moment to remember the board, which has a responsibility to provide the kind of ugly-baby feedback that could have spared WeWork some of its agonies.
Crowded out by such larger-than-life characters as Mr Neumann and SoftBank’s Masayoshi Son, WeWork’s directors have had only bit parts in this drama. Their uniform maleness was noticed only when investors absorbed the company’s norm-flouting listing document.
Employees, landlords and other WeWork stakeholders have heard little from the board, except for canned statements from Benchmark Capital’s Bruce Dunlevie and former Coach chairman Lew Frankfort thanking Mr Neumann for his leadership when he ceded his chief executive position last month.
Even then, Mr Frankfort raved that “Adam is that very rare breed of entrepreneur who has the vision and drive to conceptualise an enormous business opportunity and then attack it relentlessly”.
A month later, they and other directors signed up to a SoftBank rescue. Mr Neumann surrendered his chairmanship, leaving him to contribute his vision as a mere board observer — albeit one with a $185m consultancy fee, a $500m loan facility and a chance to tender $1bn of the stock he had not already sold pre-IPO.
Without hearing directors’ accounts of what was going on in WeWork’s boardroom before its crisis, outsiders must judge from what they can see. That includes a definition of corporate governance that was extraordinarily accommodating to Mr Neumann, a willingness to approve accounting novelties such as “community-adjusted ebitda” and a tolerance of the profligate spending that appeared to accelerate into the company’s cash crunch.
Few WeWork directors can claim to be independent. Mr Dunlevie’s Benchmark fund was one of the company’s earliest investors — so early it is still in the money. John Zhao represents Hony Capital, WeWork’s partner in China. And both Ron Fisher and Mark Schwartz have ties to SoftBank.
That said, the high-vote shares that gave Mr Neumann majority control would have made it difficult for the board to exert much independence even if they had objected to his personal behaviour or business decisions.
These factors should concern any stakeholder outside the magic circle of founders and executives at a company like WeWork. They should also offer a warning to the millions of people who either work for or have money indirectly invested in the growing number of large, entrepreneurial businesses that use their private status to perpetuate founder-friendly governance arrangements.
The record sums of venture capital that have let emerging companies stay private for longer have also allowed them to avoid the kind of board structures that evolved to keep public companies out of trouble. According to CB Insights, the world now has 410 “unicorns”, or private companies valued above $1bn. Together, they are worth $3tn, and many are governed much as WeWork has been.
Shareholders’ overlapping governance roles in venture-backed start-ups create tensions between the interests of founders, investors, executives and employees, Loyola Law School’s Elizabeth Pollman showed in a pertinent paper this year. The longer the company stays private and the more complex its capital structure becomes, the greater those tensions will become.
US corporate law, she notes, does not say much about who should be gripping a unicorn’s reins. But, as the social and economic impact of private start-ups grows, somebody needs to.
Corporate governance sounds dry beside the tales of marijuana-scented private jet flights now emerging from WeWork. But for 4,000 people who went to work for Mr Neumann and now expect to lose their jobs, it is anything but academic.
Sorry. No data so far.