WeWork's IPO went south in a hurry once the details came out. The valuation reportedly took massive hits for two reasons: intense levels of unprofitability and CEO Adam Neumann. The IPO's off the table until later this year, maybe, and now reports say that the board wants Neumann to step down as CEO and become a non-executive chair of the board--despite his recent mea culpa.
That means while he'd have influence on direction, Neumann would no longer be in regular control of WeWork.
While a drastic step, it's not not unknown. Uber's Travis Kalanick found himself in a similar position. He was a founder, had voting control in the company, pushed the company forward through quick growth. And, in doing so, generated so many problems and bad publicity that he became a hindrance.
Being a "good person" has never been an absolute requirement for a CEO. In the Gilded Age, major names like Andrew Carnegie, John Pierpont Morgan, and John D. Rockefeller didn't gain success by being polite. Or kind or humane or fair. The same is true today.
There are many successful people in business that would run you over if you got in their way, or who would be willing to twist your arm and beat you to the ground in a negotiation. But there's something they retain that works in their favor: trust.
That may sound ironic and laughable. Trust would seem to be the last thing you might expect. But trust doesn't mean that you necessarily like someone or put your faith in them without reserve.
According to Merriam-Webster, trust means, among other things, an "assured reliance on the character, ability, strength, or truth of someone or something." You might trust someone to have the strength to pull you up over the edge of a cliff while rock climbing. Leaving kids with a babysitter requires a different sort of trust--the expectation that the person will take proper care of the children.
In business, trust is also a product of circumstance. A vendor sends goods to a client and trusts to be paid, even though some debts will be bad. One company enters a contract with another and so backs trust with the ability to seek redress in court. Or investors put money into a fledgling company, trusting that entrepreneurs will do their best to run things intelligently and try to be successful even though most won't. (Three-quarters of VC-backed startups fail according to some research, although the VC industry says it's more like 25 to 30 percent.) The trust doesn't lie in success, but in attempting if Whichever, it's clear that not all entrepreneurs will succeed. But that's not where the trust lies. Again, it's in trying to succeed.
Neumann did what investors never wish to see. He may have wasted money, done questionable deals, and perhaps most importantly, he indulged in high-profile antics that directed attention in ways that didn't benefit the company.
Again, nothing new there. Kalanick did similarly, as has Elon Musk. But when Musk did, Tesla was public and he was a major investor. Kalanick and Neumann did so before the IPO, decreasing the chance of a warm reception and, thus, of the big investors getting to sell off parts of their holdings to recoup investments and finally make a profit. According to an estimate from CB Insights, which followed startups and venture backing, WeWork lost more than $30 billion of paper value in pre-IPO publicity. Much of that was about the business model, but Neumann became a central issue.
But why would a Kalanick or Neumann give up effectively control and allow themselves to be pushed out? Money. In each case, the company in question was deeply in the red and needed ongoing access to cash for ongoing operations.
The wealth of a Neumann or Kalanick--or most other startup founders--is in the value of their ownership stake. If the company goes, so does their wealth. And no matter how much voting control someone has in a company, they can't vote for others to further invest.