At the 2017 commencement speech at Baruch College, Adam Neumann said he spent his early days in New York after arriving from Israel, mainly going to clubs, “hitting on every girl in the city,” and figuring out how to get rich. And yes, rich he became!
During his CEO tenure at the helm of privately held company WeWork, Adam Neumann liquidated more than $700 million through a mix of stock sales, and debt. In the aftermath of the company’s failed Initial Public Offering (IPO), by agreeing to the Softbank buyout offer, Neumann will pocket an additional $1.7 billion to cede control of his shares, wipe out an existing debt of $500 million, and potentially walk away without any consequences.
Adam Neumann is a charlatan whose reckless behavior and gross negligence towards managing WeWork, brought the company to the brink of an existential crisis. The employees, investors, and various business stakeholders have been severely harmed.
According to the August 14, 2019, S1, WeWork IPO prospectus, the company was valued at $47 billion in its last private placement, with Softbank being its largest shareholder. WeWork is rapidly depleting cash, and its balance sheet is heavily debt loaded. As of June 30, 2019, the company had $2.5 billion in cash and a burn rate of $700 million per quarter.
WeWork IPO prospectus could not garner public interest, even down to a $10-15 billion de-valuation. There were many issues raised by the public markets, such as: sloppy IPO prospectus filing that tried to obfuscate financials using provisions of the 2012 Jumpstart Our Business Startups (JOBS) Act; colossal debt load and ongoing increasing losses; business model with no clear path to profitability; laissez-faire corporate governance; lack of executive oversight, and numerous unusual financial transactions by the then CEO Adam Neumann. Now in the aftermath of the IPO debacle, the company is forced to accept distress money at a significant devaluation, with substantial haircuts to existing shareholders, employees, and other stakeholders.
According to October 22, 2019, media reports, Softbank is expected to take over the company with a down round valuation of about $8 billion. As part of the deal agreed by WeWork Board, Adam Neumann, and Softbank, Neumann will be further allowed to liquidate nearly $1.7 billion. Softbank will purchase $1 billion of Neumann’s WeWork shares; extend Neumann a $500 million credit line to repay an existing loan led by JPMorgan and pay an additional $185 million for a consulting fee agreement. The Softbank share purchase is part of a $3 billion tender offer, that is being extended to company employees and other shareholders.
At the face of it, the liquidation deal offered to the defunct CEO Adam Neumann seems to be ludicrous, egregious, and a grotesque reward for running WeWork to the ground. On the contrary, the deal is the payout by Softbank to take control of the company away from Adam Neumann. It is overdue, but unfortunately, an after-the-fact corrective measure, to cordon and insulate the company from further possible harm by Neumann’s reckless decisions and gross negligence towards his fiduciary responsibilities. In this saga, the deal may also be a face-saving act for Softbank.
At present, the employees are looking at layoffs, financial instability, and possibly having their equity in the company reduced to a pittance.
During Neumann’s tenure, nepotism and cronyism were rampant in WeWork senior management ranks. Neumann ruled WeWork through a tight-knit coterie of family and friends. The Vice-Chairman; the Chief Brand and Impact Officer; the Chief Product Officer; the head of Canadian and Israeli Operations; the EVP/ex CFO, and the head of Security/VP Special Projects, were all members of the Neumann family and friend’s cabal. Double-dipping and self-dealings by Neumann were unchecked. WeWork leased space in several buildings owned by Neumann, generating hundreds of millions in revenue. He also trademarked the term “We” and then forced the company to buy it for $5.9 million (after facing criticism, this transaction was reversed).
Neumann was a jockey, made to run with the mantra: breakneck growth at any cost. The lax corporate governance and his deification have led to WeWork’s breakdown. At the original IPO filings, Neumann’s shares had a voting supremacy power of 20 to1. The Board approved his large liquidations much before the IPO filing. Banks facilitated a $500 million personal loan to Neumann. Investment banks aided and supported the superlative valuation of the company, with a proposed IPO plan to offload the shares to the public at an even higher valuation. Goldman and JP Morgan were suggesting an IPO valuation range of $60 billion to $90 billion.
A kibbutz boy with ambitions to become rich was handed an open checkbook and granted unbridled authority. Surrounded by a coterie of sycophants, and deified by stakeholders, Neumann transitioned into a despotic reckless leader. This has culminated in the ensuing financial disaster for the company, its employees, and its stakeholders. Probably, Napoleon Bonaparte is having a deja vu and smirk lying in his tomb.
Neumann has mused about many grandiose prophetic sovereign-like proclamations, which expose his narcissism and hubris:
Run for “President of the World.” Become the world’s first trillionaire. Live forever. In 2017, he declared that WeWork’s size and valuation were “much more based on our energy and spirituality than it is on a multiple of revenue.” “The influence and impact that we are going to have on this Earth are going to be so big,” he said last year at a summer camp southeast of London. According to media reports, at a January 2017 all-hands meeting, Neumann told the staff that he planned to have his family control WeWork indefinitely.
Neumann’s narcissistic grandiose utopia had been fueled by hubris, unchecked egregious self-dealing, and hundreds of millions of dollars in his bank account. In time, he began to sound like a messiah, yet his machinations were designed to line up his pocket. He is an ambitious charlatan, a demagogue, drunk on hubris, who used every trick in the playbook to garner money and power for himself.
There are also reports of him smoking weed on a private jet and serving employees tequila shots after discussing layoffs. He has been known to be inebriated during meetings with company clients. These reckless behaviors relating to WeWork could be the result of excessive dependency on drugs and alcohol.
Did Adam Neumann breach his fiduciary duties by selling his stakes while pumping WeWork to private investors as a great investment? Did he breach his fiduciary duties by his reckless behavior and profligate management style? Were the shareholders, employees, and other stakeholders severely harmed by Neumann’s breach of fiduciary duties?
It is time to investigate Adam Neumann and hold him responsible.
