WeWork Woes

By FASPE Business Fellows Brian Hathaway and Courtney Kaplan

After years of explosive growth as a leading provider of shared office space, WeWork expected to fund further expansion by raising billions of dollars in an initial public offering (IPO) and billions more in loans tied to the IPO. Those plans are now in jeopardy. In recent weeks, investors have brought numerous complaints about questionable governance practices relating to the company's co-founder and CEO, Adam Neumann. The controversy threatens to engulf WeWork's future and speaks to an important trend in start-ups where founders exercise near-absolute power.

Among other issues, Neumann has effectively cashed out $700 million in stock ahead of his company's IPO; arranged for transactions in which the company paid millions of dollars to other companies he owns; gained full control over decision making by having 20 votes per share owned; and hired or contracted with with numerous family members. Neumann is not the first founder-CEO to be face scrutiny while maintaining near-absolute control: Mark Zuckerberg's influence is a persistent issue for Facebook, and Snap founder Evan Spiegel was widely criticized when the company lost billions in market valuation after going public. Founders now have such leverage that they can recruit sympathetic venture capitalists and board members who allow them to retain control indefinitely.

While an IPO typically represents a triumphant moment for "unicorn" start-ups, WeWork is now scrambling to allay fears in the investing community. The company may reduce its valuation from $37 billion to below $20 billion, is facing pressure to delay or abandon its IPO, and has added leadership expert Frances Frei to its board. More broadly, we expect the battle for control between founders and outside investors to be an important and increasingly prevalent phenomenon to track.

Read more at The Wall Street Journal.