SoftBank turning against Adam Neumann, WeWork’s parent CEO
According to four reports, SoftBank Group, WeWork owner We Co.’s biggest shareholder, is seeking ways to remove Adam Neumann as CEO of the U.S. office-sharing company.
The unprecedented clash between SoftBank and one of its largest acquisitions occurs after We Co. delayed its initial public offering last week after pushback from potential investors, not only because of its growing losses but also because of Neumann’s exceptionally firm grip on the company.
The change was a disappointment for SoftBank, anticipating We Co’s IPO will raise its earnings as it tries to attract shareholders for its second $108 billion Vision Fund. In January, it invested in We Co. at a cost of $47 billion. Nevertheless, the reluctance of stock market shareholders prompted the company to seek a possible IPO price of as little as $10 billion earlier this month.
What was the biggest upset in the venture capital sector is now morphing into one of the highest-profile boardroom scandals of corporate America?
Several board members of We Co. were considering how to succeed Neumann as CEO, said Sunday the sources.
It is not clear exactly how many managers objected to Neumann.
Benchmark Capital, another influential We Co. shareholder, still needs Neumann to step aside, said one of the sources. Benchmark, SoftBank, and Hony Capital, a Chinese private equity firm, each have one representative on the seven-member board of We Co.
The stance of Hony Capital on whether Neumann would stay CEO could not be determined instantly.
An officially non-affiliated We Co. board member former investment banker Mark Schwartz of the Goldman Sachs Group, who had also served on the board of SoftBank.
Neumann has not yet been questioned, the sources added. This week a conference on the board of We Co. would take place, and the question of his leadership could then be discussed, sources added.
One choice discussed by SoftBank is to allow Neumann to become a temporary CEO while recruiting a headhunting company to find an external successor, said the first report.
Since the issue is classified, the sources asked not to be identified. We Co. and SoftBank refused to comment, while Neumann, Schwartz, Benchmark Capital, and Hony Capital could not be reached for comment instantly. SoftBank was first mentioned by the Wall Street Journal to seek ways to replace Neumann as CEO.
As co-founder of We Co., Neumann owns unique voting shares that require him to fire the managers of the dissident board and shoot down any threat to his authority. SoftBank might choose not to support We Co’s IPO, though, or provide more financing to it. It has already sponsored the $10 billion cash-burning venture and explored contributing a further $1 billion to the IPO.
We Co. said it aimed at becoming a publicly-traded company by the end of the year last week.
In an indication of a souring partnership between SoftBank and WeWork, Neumann did not take part in a SoftBank-backed company executive meeting conducted last week in Pasadena, California, hosted by SoftBank CEO Masayoshi Son based on two sources familiar with the issue.
If a board revolt proved successful against Neumann, it could fit the model of Uber Technologies Inc. Uber co-founder Travis Kalanick quit in 2017 as CEO of the ride-hailing company after experiencing an uprising from his management over a series of scandals involving accusations of promoting a chauvinistic and hostile work culture. Uber replaced Kalanick with an outsider, former Expedia Group CEO Dara Khosrowshahi, and launched his IPO last May. It is not unusual for leaders of fast-growing companies to be excentric and tightly control their enterprises, even as they try to attract investors in the stock market. Neumann, though, was blamed for agreements by shareholders and corporate governance analysts that went beyond the typical practice of managing plurality representation by different groups of stocks.
These included offering his property a big say in his successor as CEO and relating the stock voting power to how much he donates to charitable causes.
Over the years, Neumann has entered into several transactions with We Co. rendering the firm a client in some of its property and charging rent to it. He has obtained a credit line of $500 million from banks using corporate inventory as leverage.
Neumann committed to some compromises, amid pressure from potential investors, without giving up majority control. He agreed to give We Co. all income he earns from real estate deals with the start-up based in New York.
Any member of the family of Neumann will be on the board of the firm, and the commission must choose the replacement, scrapping a deal for his spouse and co-founder, Rebekah Neumann, to help pick the successor.
Such reforms did little to address concerns regarding We Co’s business model, which rents storage to buyers on short-term contracts even though under long-term leases, it pays rent on its own. The combination of long-term debt and short-term profits has raised questions among shareholders as to how an economic downturn will withstand the firm.