Article: Newsmaker of 2019: WeWork’s new millionaire and a jobless workforce

#Rewind2019

Newsmaker of 2019: WeWork’s new millionaire and a jobless workforce

WeWork buyout was the most talked about and perhaps the most controversial event of 2019. While the founder Adam Neumann, the mastermind behind the tony co-working spaces, WeWork exits from a company with a $1.7 BN bounty, we delve deeper into how this buyout impacted WeWork employees.
Newsmaker of 2019: WeWork’s new millionaire and a jobless workforce

The sign of WeWork’s success is a prime example of how a bad leadership and inability of managing ‘huge’ funding can lead to fall of what was flashed to be a new emerging empire in the Silicon Valley with Adam Neumann to join the lines of Bill Gates of Microsoft, Mark Zuckerberg, Founder of Facebook and Travis Kalanick, Uber’s Founder.

Earlier, this August the funding led by Softbank lifted WeWork to a staggering $47 BN valuation against the media warnings like “A $20 Billion Startup Fueled By Silicon Valley Pixie Dust” by The Wall Street Journal in 2017, followed by “WeWork Does Not Deserve a $20 Billion Price Tag,” concluded by Financial Times. The company descent began when The We Company, the parent company of WeWork, planned to go public by filing for an IPO. However, the document revealed an austere picture of the company’s financial state $900 MN in losses in the first half of 2019 and $47 BN in lease obligations. 

While the company doubled its revenue annually, We, the parent company of WeWork was losing $1 for every dollar it made.

The company’s growing losses led investors universally to reject any investments, which further led to the valuation of the company going down by 75 percent. 

Amid dealing with huge debts, WeWork was also dealing with even a more severe challenge of an egomaniacal leadership. There are vivid accounts of his heavy drinking, marijuana use, and habit of making grandiose pronouncements like wanting to be elected president of the world, live forever, and become humanity’s first trillionaire.

  • Ahead of the IPO, the company paid Neumann $5.9 million for the privilege of using the name “We,” according to Business Insider. The CEO had retorted the rights. 
  • Further,  Neumann cashed out more than $700 MN in advance of the IPO through debt and sales of shares in the business. This move comes amid the times when the company’s valuation almost went down by half.
  • Serious doubts were raised when Rebekah Paltrow Neumann was made the strategic partner of the company and was given the rights to decide on her husband’s behalf. The inside staff shared their views in US media and publications sharing she had an outsized influence on hiring and new business ideas. Her influence and leadership on leading ‘WeGrow’ a primary school run under WeWork HQ led multiple employees to lose their jobs.

WeWork, in many instances, provided loans to Neumann at times. That can raise questions on whether a loan was a form of untaxed pay. Even if there is nothing irregular, it can lead to lower morale and attention diverted from running the business to any inquiries.

While the boss of WeWork, Adam Neumann, has exited the company, he still walks out as a wealthy millionaire. However, the fall of WeWork has put risk on the future of employees. 

People may argue that ‘making money’ is the whole point of getting into the business. However, real leadership needs something beyond personal gains.

Recently, the company has announced laying-off 2,400 employees, who constitute 19 percent of the workforce. Reports are circulating that workers are pressured into accepting job offers with outside contractors or face termination as a part of a restructuring. WeWorkers Coalition, a group formed by WeWork employees demands Neumann should pay severance and restitution to workers. The decline of WeWork has not only put the future of its employees in jeopardy but has also impacted the career of employees working in Meetup, acquired by WeWork in 2017 for $200 MN. Meetup, the company which help people foster in-person connections by facilitating events across the globe, was forced to cut 25 percent of its workforce as WeWork initiated cutting costs following Neumann’s exit. Meetup also shed 10 percent of its workforce when it got acquired by WeWork.

Kamal Karnath, Xpheno shares, "This is not the first time corporate governance has come to haunt the investors and board. Many boards in the past have been caught napping while maverick CEOs or founders got away with unfair practices. Any organisation small or big needs to have adequate whistleblower policies so that the board or investor can be tipped off for any potential dangers. Unfortunately, many boards and investors are enamored by their CEOs that they take time till they go public to make their corporate governance stricter. It's unfortunate that in this case employees have been shortchanged. I doubt if employees could have done anything different as they wouldn't have had access to some of the sensitive information for them to even react."

The ongoing situation at WeWork has left employees demotivated. They feel the overall environment is toxic and feel all their hard work boils down to nothing, especially when the management is making the situation more ambiguous. 

It is also reported that We, the parent company of WeWork will run out of money after the first quarter of 2020.

Topics: #Rewind2019, C-Suite, Leadership, Employee Relations

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