Adam Neumann was forced to step down as chief executive after a lengthy board meeting Tuesday, under pressure from directors and investors after he led a botched attempt to take the closely watched company public
By David Gelles, Michael J. de la Merced, Peter Eavis and Andrew Ross Sorkin
Published: Sep 25, 2019
Adam Neumann, a co-founder of WeWork, in San Francisco, Feb. 12, 2018. Neumann is stepping down of the embattled shared office space business, three people briefed on the decision said on Sept. 24, 2019,, a stunning fall for the entrepreneur who oversaw the meteoric rise of one of the most valuable start-ups to emerge in the last decade. Illustration by Molly Bedford; Photograph by Peter Prato for The New York Times
Adam Neumann turned WeWork into one of the most valuable startups in the world largely through the force of his outsize personality. He persuaded investors to give him billions of dollars and employees to believe that the shared-office company was changing the world.
That same mix of ambition and idealism forced Neumann to step down as chief executive after a lengthy board meeting Tuesday. He was under pressure from directors and investors after he led a botched attempt to take the closely watched company public. The announcement marked a swift and stunning fall for Neumann, who had enormous control over WeWork and spoke about the company with missionary zeal — he has said the company aimed to “elevate the world’s consciousness.”
WeWork expanded with breakneck speed in recent years, putting coworking locations in dozens of countries and becoming the largest commercial tenant in Manhattan. It attracted a private valuation of $47 billion as recently as January, with top Wall Street bankers telling Neumann that his company could be worth a lot more once its shares traded on the stock market.
Neumann, 40, was the company’s charismatic frontman, a towering, hard-partying Israeli with long hair and a penchant for leather jackets and tequila. He used the company to fund his pet projects, maintained a lavish lifestyle complete with private jets and luxury homes. And Neumann was highly impulsive — he once banned meat at the company, forcing executives to quickly come up with a rationale for why.
When it came time to list WeWork on the stock market, this all proved too much for the institutional investors who make or break the fortunes of publicly traded companies. After the company filed its offering documents with the Securities and Exchange Commission last month, investors began scrutinizing its business model and Neumann’s behavior, and sentiment quickly turned against WeWork.
Last week, the company decided to delay its offering after bankers and investors signaled that the company might be worth just $15 billion. Now, with his resignation as chief executive, Neumann joins an ignominious club that includes Travis Kalanick, who was ousted as the chief of Uber before he could take it public.
“Spending too much too soon on unproven business models only heightens the risk that a company’s race for global domination can become a race to oblivion,” said Len Sherman, an adjunct professor at Columbia Business School and an expert in entrepreneurship.
Neumann will be nonexecutive chairman of WeWork’s parent, the We Company. WeWork named two current executives, Sebastian Gunningham and Artie Minson, co-chief executives. The company will conduct a search for a new permanent chief executive, according to four people who asked for anonymity to discuss a delicate subject.
A WeWork spokeswoman, Gwen Rocco, said in an emailed statement, “There is no search for another chief executive either underway or planned.”
Neumann, who controlled a majority of the shareholder votes, was ultimately the one who decided to step down. But he did so after he lost the support of some of his key backers, including SoftBank, the Japanese technology giant, which is WeWork’s biggest outside investor.
On Sunday, Neumann met with the chairman and chief executive of JPMorgan Chase, Jamie Dimon, and later in the day had dinner with Bruce Dunlevie, a partner at Benchmark Capital and a director of the We Company, to discuss his options. Then on Tuesday, Neumann and his board met at the Midtown Manhattan offices of JPMorgan to nail down the management shake-up, according to two people familiar with the meeting.
In a statement, Neumann said the scrutiny of his personal life and management was hurting the company. “Since the announcement of our IPO, too much of the focus has been placed on me,” he said in a note to employees that was reviewed by The New York Times.
The management shake-up is the most significant step the company has taken to win over Wall Street after the botched initial public offering and signals that power may be swinging away from the founders of fast-growing businesses toward investors. Other high-flying startups, including ride-hailing companies Uber and Lyft, have also struggled this year, and their share prices have fallen sharply after their stock market debuts.
“Investors saw through Lyft, and they saw through Uber as well,” said Matt Stoller, a fellow at the Open Markets Institute, a Washington think tank. “This one has simply been rejected. Investors are saying, ‘We’re not going to tolerate this nonsense anymore.’”
One of investors’ biggest concerns has been that Neumann exercised too much control over the company through special voting shares. He will now lose much of his power over the company.
Each of his special shares will have three votes, down from 20 votes earlier this year, according to two people briefed on the change, who were not authorized to disclose it. Neumann will not be able to control more than a minority of the board’s directors, and he won’t have control over any of the board’s committees, according to one of those people.
Analysts also criticized deals in which Neumann took stakes in buildings and leased them to WeWork, an arrangement that might have allowed him to personally profit at the company’s expense. A WeWork entity later took over the management of the properties, a move designed to eliminate conflicts of interest. He also returned a $5.9 million payment the company made to him for use of the trademarked word “We.”
“The fundamental question here is: Does it help to be a really strong and at times abrasive personality to be innovative?” said Walter Isaacson, a professor of history at Tulane University who knows Neumann. “The answer is it doesn’t always help, and at times it goes too far.”
Still, Neumann’s departure as chief executive might not be enough to bolster interest in WeWork’s shares. Investors have also expressed concerns that the company is spending too much money and is unlikely to turn a profit in the foreseeable future.
WeWork is now considering slowing down that growth sharply. It could lay off as many as 5,000 employees, according to one person briefed on the matter. We employed more than 12,500 employees as of June 30, according to its regulatory filings.
The company’s losses have ballooned as it has spent huge sums taking on new leases and refurbishing its locations. In the first half of the year, its operating losses totaled $1.37 billion, about twice as much as it lost in the same period last year. The company used up nearly $1.5 billion to run its business and expand in the first half of the year and had just under $2.5 billion in cash at the end of June.
WeWork had hoped to raise up to $4 billion from the public offering and up to $6 billion more in bank loans that were contingent on the IPO. The new chief executives will now have to perform a delicate dance with investors: They probably need to slow WeWork’s expansion to allay fears about its finances, but not so much that the company loses its allure as a turbocharged business.
“Our core business is strong, and we will be taking clear actions to balance WeWork’s high growth, profitability and unique member experience while also evaluating the optimal timing for an IPO,” Minson and Gunningham said in a statement.
Despite the company’s problems, analysts say, Neumann and WeWork have been the driving force in the flexible-office-space business, which is transforming commercial real estate. Professionals, startups and big corporations alike are flocking to locations run by WeWork and others, attracted by shorter leases and nicely designed spaces.
But it might take a more seasoned chief executive who has run businesses with a steady hand to convince investors that WeWork can become a sustainable business, not just a fast-growing one.
Other so-called unicorn companies — businesses backed by venture capital firms that are worth more than $1 billion — have had to make similar transitions. In 2017, under pressure from investors, Kalanick resigned as chief executive of Uber. He was replaced by Dara Khosrowshahi, a former chief executive at Expedia, who set about trying to improve the culture at Uber and preparing the company for an IPO.
Uber and WeWork have something else in common: Their growth was fueled in part by money from SoftBank. The Japanese company has plowed billions of dollars into WeWork and other startups. Softbank’s chief executive, Masayoshi Son, has given founders of those businesses wide leeway and has looked the other way at excesses until investors in the public markets push back.