Sideways: WeWork hasn’t worked

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By:
Jon Macaskill
Published on:

The fiasco of the failed IPO of WeWork has embroiled some of the most prominent figures in global finance, including SoftBank chairman Masayoshi Son and JPMorgan chief executive Jamie Dimon.

Neumann Christ_780

WeWork founder Adam Neumann wasn’t the messiah, he was a very naughty boy

Experienced financiers were beguiled by WeWork founder Adam Neumann, who is often described as a ‘charismatic’ leader, but seemed more of a charlatan, with his outlandish claims for the transformative potential of an office rental firm that was branded as a technology company.

Earlier this year, Neumann expanded the ambitions of WeWork, which was founded in 2010 as a co-working office space renter in downtown New York, by announcing the creation of the WeCompany. 

“WeWork’s mission is to create a world where people work to make a life, not just a living. WeLive’s mission is to build a world where no one feels alone. WeGrow’s mission is to unleash every human’s superpowers,” Neumann said in a blog. “The WeCompany’s guiding mission will be to elevate the world’s consciousness.”

Nonsensical statements such as these did not deter Wall Street’s finest from pursuing business with Neumann, even though there were tangible warning signs about the fragility of WeWork’s business model, including high losses and its use of bizarre metrics such as “community adjusted” earnings that excluded many of its core costs. 

Haphazard

The haphazard nature of IPO valuation estimates by banks was demonstrated by the range of quotes made by firms including Goldman Sachs and Morgan Stanley, before JPMorgan was mandated as lead adviser to explore a deal that has so far failed to emerge. 

Wall Street heads were then further embarrassed in the wake of the ousting of Neumann as head of WeWork, when reports emerged that both Dimon and Goldman chief executive David Solomon were personally involved in courting the founder of the firm while he was behaving ever more erratically.

No one has ever accused Dimon or Solomon of lacking in self-regard. But Son seems to have an almost messianic belief in his own ability, 

The financing already provided by banks to WeWork and to Neumann as an individual borrower may or may not prove problematic, and probably won’t be big enough to cause more than discomfort for Dimon and Solomon (although nobody on Wall Street likes to look gullible).

The problems faced by WeWork could have wider implications for SoftBank’s chief executive Masayoshi Son, however.

No one has ever accused Dimon or Solomon of lacking in self-regard. But Son seems to have an almost messianic belief in his own ability, which could help to explain why he was willing to sink so much money into WeWork, where his group built a collective stake of close to a third.

Grandiose

Neumann is in many ways a Masa Son ‘Mini-Me’, and there is a striking similarity in their predilection for grandiose comments and enormous bets that rely on large amounts of financing from traditional funding sources.

Son has said that SoftBank hopes to become “a company that has the greatest impact on humanity over 300 years” and the “company that makes (the) most contribution to human evolution”.

Son has recently accompanied his star-gazing mission statements with more mundane steps to improve the corporate governance of SoftBank, but even here there can be a dichotomy between stated goals and what a reasonable investor in a public company might expect.

In June, SoftBank updated its corporate governance framework but retained its underlying guiding philosophy of “Information revolution – Happiness for everyone.” 

Just three months later, SoftBank drove the ousting of Neumann from WeWork after the failure of the IPO threatened to further erode the value of its massive investment in the firm. 

It seems not everyone could be happy with the slump in the nominal value of WeWork; Neumann had to go.

WeWork has not yet managed the transition to public status, but SoftBank is a listed company and its investors might eventually decide they want some more old-fashioned attention to the details of corporate governance.