It has been a tumultuous month for WeWork. The company has seen its hopes for a successful Nasdaq listing disappear. On Sunday, Bloomberg reported that the company’s board was considering removing Adam Neumann as the chief executive. In the latest episode, Neumann has reportedly started discussing his future role of the company. According to Reuters, Neumann could become the chairman of the company. Alternatively, he could continue serving as the CEO but with an independent chairman.
Watch: WeWork CEO Adam Neumann is facing investor pressure to relinquish his role at the office-share company. It’s reminiscent of what happened at ride-share company Uber, but WeWork looks more challenged, says @LiamWardProud. https://t.co/9ElREoMUbo
— ReutersBreakingviews (@Breakingviews) September 23, 2019
Adam Neumann removal would be step in right direction
The removal of Adam Neumann would not solve the many problems the company is facing. It won’t return its valuation to where it was a month ago. His replacement will not change the company’s flawed business model. It won’t change investor perception about the company.
For now, his removal could the best thing that could happen for the company. This is because while Neumann is a visionary, he is not the right leader for WeWork. His business practices – like selling the We trademark to WeWork and leasing his properties – are unfathomable.
To be clear, Neumann should not be the only person to leave. The entire board of directors should be shown the door as well. This is because the board surely must have known everything that was wrong about the company. They must have known there was nothing like a community-adjusted EBITDA and a space-as-a-service. They had to know the company was not worth the $47 billion they sold to the market.
The future of WeWork
WeWork has moved from a Unicorn hero to zero within a month. The company has seen its implied valuation drop from more than $47 billion to less than $15 billion. Some analysts even believe that the company is not worth $10 billion.
While the damage has already been done, the company can take some actions to improve its governance and reputation with Wall Street. The decision to remove Neumann is a good starting point. He should be replaced by an experienced real estate operator. In an interview with CNBC, Recode editor-at-large Kara Swisher said that Trump could be a good CEO of the company.
The next step would be to replace the board.
After this, the company’s investors should be patient. They should stop thinking about an IPO for a few more quarters or years. In this period, the company should halt the excessive growth it has made in the past few years. This will help it demonstrate to investors that it can make money.
Obviously, this will mean making many sacrifices. The company will have to forego a $6 billion line of credit that was to come from a slate of banks. The loan was contingent on the company having its IPO this year.
Investing in talent
In addition, the company will need to motivate its already demoralized employees who have seen their net worth decrease within a few weeks. Some of its core technology employees could jump ship to other established companies.
In fact, on Glassdoor, the company has some of the worst reviews among the unicorn companies. Only 59% of the employees would recommend it to a friend, while only 62% of employees approve of him. Compare this with Uber, where 84% and 94% of employees recommend it and approve of its CEO, respectively. As the company attempts a turnaround, improving these scores will be key.
Finally, the new management will need to pray for a recession not to happen during the turnaround period.