The WeWork Collapse: Governance Failures, Founder Control & Lessons Learned

WeWork's explosive trajectory and collapse is one of the most captivating tales in the start-up world—a casebook history of a company whose meteoric success had been driven by founder charisma, investment, and ambition but whose crash was precipitated by governance breakdowns, untrammeled founder control, and growth-at-all-cost. After its celebration as the peak of modern, flexible office spaces, WeWork's fall from a valuation of $47 billion to a 2023 Chapter 11 bankruptcy filing is a cautionary tale that still gets analyzed by corporate governance experts, investors, and entrepreneurs in general.

There, we will examine the central flaws leading to the WeWork debacle, including the unchecked power of its co-founder Adam Neumann, the failure of the board to exercise power in restraint, and the structurally unsustainable business model of the company. We will also address the general lessons on hand from the WeWork implosion, notably in corporate governance, founder control, and accountability.

The Meteoric Rise of WeWork

It was founded in 2010 by Miguel McKelvey and Adam Neumann. The business model was straightforward but disruptive: to build co-working spaces that offered businesses of any sort an inexpensive and flexible substitute for standard office rentals. WeWork gained momentum rapidly, particularly among startups, freelancers, and small companies, who enjoyed its lively and social offices.

By 2019, WeWork had expanded globally and was valued at a phenomenal $47 billion, one of the highest-valued startups globally. Its expansion and growth were powered by massive infusions of money from venture capital companies led by SoftBank's Vision Fund, which made multiple billions of dollars' investments in WeWork. WeWork operated over 600 spaces across the globe at its peak, hosting over 600,000 members.

But beneath its golden growth and broad-based media exposure, fissures had been developing. WeWork's business model, based on leasing long-term office buildings and opulent operating expenses, was already questionable in investors' minds as to its viability. More nefarious were concerns about the company's governance, including unbridled control by its founder and CEO, Adam Neumann.

One of the biggest reasons WeWork ultimately collapsed was having Adam Neumann as its owner. Founders will control a lot of stock in early-stage businesses, but Neumann's ownership entered a whole lot more territory than was usual and created a whole lot of problems that ultimately damaged the business.

1. Supervoting Shares and Founder Control

Aging the failure of WeWork leadership was Neumann's decision to award supervoting shares to himself 10 votes per share but other stakeholders and investors one vote per share. This created an agreement that made sure that Neumann was still in charge of the company even when it grew to a giant multi-billion-dollar company.

With as much leverage as he had, Neumann was able to make strategic decisions at the highest level with hardly any board involvement. He personally decided on nearly everything that counted that the company did, down to business transactions and introducing new products. Although that had apparently worked during the company's initial, growing days, it more and more became a source of trouble as WeWork charged toward its IPO in 2019.

2. Lack of Board Governance

WeWork's board was not successful in fighting against Neumann's business plan and management style. As fear grew about Neumann's management style and his excessive lifestyle—he was used to billing WeWork's treasury for private jets, expensive mansions, and other personal extravagances—the board was not sufficiently responsive enough to stop him. The board's failure to exert the appropriate amount of control gave Neumann carte blanche to make bad choices that led WeWork to its financial disasters.

One of the best examples of board oversight lessons was that they never thought about the company's unsustainable business model. The leadership under Neumann were fixated on expanding at a breakneck pace by leasing office spaces in lengthy leases without support from the company's cash flows. This growth binge coupled with enormous operational costs, resulted in a financial burden which WeWork could not sustain.

3. Conflicts of Interest

Neumann's behavior also gave rise to outlandish conflict-of-interest accusations. In addition to his bacchanalia, Neumann was allegedly enriching himself at WeWork's expense. For example, Neumann purchased several properties and leased them back to WeWork at inflated rents, enriching himself directly and paying the company more as well. Such self-enrichment coupled with his own personal financial meltdown called into question the company's financial ethics. The WeWork IPO collapse analysis: A Wake-Up Call for Governance

WeWork attempted to go public in 2019 in the form of an initial public offering (IPO), but it was a catastrophe. WeWork's IPO prospectus, which it submitted to the Securities and Exchange Commission (SEC), revealed a long list of issues that had previously gone unbilled to investors. Some of these issues involved WeWork's increasing losses, fluctuating revenues, and its utilization of unsustainable business models.

Among the biggest shocks of the prospectus was that Neumann had sold his stake in a sequence of WeWork-branded trademarks to the company for $5.9 million. It was this and other deals that compelled investors to question Neumann's motive and the company's control in general.

As the WeWork IPO collapse analysis process agonizingly dragged on, WeWork's valuation dropped to under $10 billion from $47 billion. The board of the company had no option but to step in and oust Neumann as CEO. But the damage was done. Neumann's ouster could not prevent the loss of investors' faith, and WeWork's IPO was ultimately pulled.

The Fallout: A Governance Fiasco

Following the IPO failure, WeWork was forced to merge and scale down its operations. Neumann was removed as CEO, and the company had to reduce by thousands of employees and significantly reduce its worldwide presence. WeWork's valuation, from a massive $47 billion, fell under $10 billion. Investors in the company, such as SoftBank, incurred massive losses.

In the wake of WeWork's implosion, the company was drastically reorganized in a top-to-bottom redesign of its governance. New leadership was brought in, and a new CEO, John Santora, was named, and the board was rebuilt. The majority of the company's spaces remain open but sustained massive disruption reputations.

Lessons Learned: What Went Wrong

WeWork's collapse is filled with corporate governance lessons. No single one may be more important than the dangers of founder control without restraint. Founders do have vision and discretion to build a startup, yet granting them complete autonomy will assuredly bring disastrous consequences. In the case of WeWork, Neumann's unbridled reign allowed him to promote his own agenda at stakeholders' and firm cost.

Second, the WeWork debacle emphasizes the importance of sound board governance. Boards must be a counterbalance on businesses run in the interests of all stakeholders, not the CEO or founder. The WeWork board failed to exert sufficient pressure on Neumann to rein in his reckless spending and questionable business model. Unchecked, the company derailed.

Lastly, the collapse of WeWork is a wake-up call that there needs to be transparency in the governance frameworks so that there are no conflicts of interest. Wherein the company resources are used for enriching executives as individuals, it loses trust among the employees, investors, and customers. WeWork not being able to handle conflicts of interest created a culture where Neumann's interests were prioritized over that of the long-term welfare of the company.

The Consequences of WeWork's Downfall to the Co-Working Sector

WeWork's sudden downfall was not simply a setback for the company itself but had far-reaching systemic ripple effects across the co-working sector as a whole.

As WeWork burst onto the front pages, it was the culmination of the shared office space phenomenon that changed how companies, freelancers, and start-ups planned their office space. The mode, with its short-term leasing and people-focused work culture, appealed to an array of professionals seeking a less expensive and more flexible form of work. The downfall of WeWork did have a ripple effect throughout the co-working sector, though. Investors began questioning other co-working space providers more vigorously, and as a result, they began caring more about profitability rather than growth. The disastrous IPO also made the message clear to investors that the growth narrative of the co-working business has to be one of a financially conservative model, rather than one of hyper-growth.

To the other players in the market who are smaller, WeWork's collapse was a lesson in the over-reach perils. The majority of the startups and the smaller co-working offices directed efforts towards developing a solid financial foundation, client retention, and profitability in the long term at the expense of quick growth. The market is now in an improved position to be able to withstand stability and good business practice, a lesson from the mistakes of WeWork in creating market dominance.

The Leadership Role to Prevent Governance Failure

One of WeWork's most significant takeaways from its downfall is the leadership's contribution to corporate governance. Leadership determines the organization's overall culture, including everything from budgeting and decision-making to values and ethics. In the case of WeWork, Adam Neumann's leadership was duplicitous. While Neumann's charisma and vision were initially effective in persuading investors and customers, his inability to prioritize good governance eventually killed the company.

The leadership of any company should be focused on creating good governance frameworks and an accountability culture. Their leaders must listen to opposition, have open and clear decision-making, and refrain from their tendency to shun critical scrutiny in exchange for expansion. WeWork's collapse, for instance, was as a result of Neumann's departure from rules and self-interest plans—like giving company shares that were his to the company—and resulted in a culture of toxicity that destroyed it.

With the collapse of WeWork, most companies now understand how critical it is to invest in good governance processes from the very beginning.

The managers must understand that success is not merely quick growth but also developing a sustainable business model on equity, transparency, and long-term success. Collapse of strong leadership grip, as in the case of WeWork, leads to devastating losses, and the leadership must be made responsible for keeping good governance always at the forefront of business operations.

The Future: The Role of Governance in Startups

Even as WeWork corporate governance failure was a wake-up call to the startup economy, it is one that should be an example to fellow entrepreneurs, investors, and directors. As the startup economy goes on, sound boardroom management and good governance cannot be overstressed. High-growth and high-value startups must have properly defined structures of fairness, accountability, and transparency in their governance.

For CEOs, it is appreciating the benefit of having outside directors who will second-guess and offer unemotional counsel. For shareholders, it is bringing the firms they invest in to the level of good governance. And for boards, it is being an engaged participant in overseeing company activities and holding executives accountable for working in the best interests of all.

Conclusion: WeWork's Legacy and the Future of Corporate Governance

The WeWork corporate governance failure is a morality play on the merit of good corporate governance. It serves as a reminder that unchecked power, lack of scrutiny, and conflict of interest can tear down even the most hyped of companies in a span of hours. As it turns out, WeWork survives, but its rocket-like ride and implosion will go down in history as one of the largest startup stories in all history.

For companies, WeWork corporate governance failure must serve as a wake-up call. Good governance matters, and companies that fail to implement good governance systems and policies will be trapped by WeWork. Whatever can be gleaned from WeWork's meteoric rise and spectacular fall will shape future corporate governance.

Our Directors’ Institute - World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.