A week on from the launch of The We Company’s initial public offering documents, the group remains the talk of the town. In fact, there appears to be only one document that business and property executives would be keener to see, and that document doesn’t exist – co-founder Adam Neumann’s employment contract.
Revelations around governance issues including the WeWork chief executive’s lack of a contract have stunned the property industry and led some to suggest that they could be stumbling blocks for the co-working company’s listing.
A senior real estate figure in London who has worked with several co-working companies says the contract issue stopped him in his tracks when he read the prospectus.
“I wouldn’t touch [the IPO] with a bargepole because of the concerns about governance,” he says. “I’m amazed that it hasn’t fixed the employment contract, and gobsmacked that none of the banks advising it have encouraged it.”
That particular revelation came from the S-1 document’s 22,000-word-plus list of “risk factors” that potential investors in WeWork should be aware of, and which also included warnings that losses are likely to mount and that tenants may run for the door if a recession hits.
WeWork’s success depends “in large part” on Neumann (pictured), the company said, describing the chief executive as “key to setting our vision, strategic direction and execution priorities”.
However, it added: “We have no employment agreement in place with Adam, and there can be no assurance that Adam will continue to work for us or serve our interests in any capacity. If Adam does not continue to serve as our chief executive officer, it could have a material adverse effect on our business.”
Add to that fresh details about 40-year-old Neumann’s dealings in which he leased space in buildings he owned to WeWork, and the fact he will retain voting rights of more than 50% in a complex corporate structure even after the stock market launch, and alarm bells have rung for some onlookers.
To many it is uninvestable with this corporate set-up
A spokeswoman for New York-based WeWork declined to comment on criticisms of the company’s corporate governance or whether Neumann would consider signing an employment contract ahead of the listing.
“It really is a horror show for a prospective public company,” says property consultant Antony Slumbers of WeWork’s corporate governance set-up, shortly after penning a blog about the IPO on LinkedIn titled Equally Cursed and Blessed?
Slumbers is a fan of WeWork’s innovative and disruptive approach to doing business. Compare the company to traditional property companies such as British Land and Landsec, he says, and the latter companies appear to be “innovation deserts”. But the revelations in WeWork’s IPO document have left him wondering whether the deal will even happen.
“I get the feeling that this is its biggest problem – to many it is uninvestable with this corporate set-up,” Slumbers says.
At Kalkine, an equities research firm, head of research Hina Chowdhary says a “questionable governance structure” is “the biggest worry” in the planned IPO.
“[Neumann] has near-total control over the group,” Chowdhary says. “Technically he does not even have an employment agreement with the firm and has a complicated relationship as he leases out space in buildings that he owns. Though the CEO has promised to end this practice, questions are being raised about the accountability of the group.”
Property entrepreneur Elie Finegold wrote in a LinkedIn post that companies can find the “omnipresence and personal charisma of a single, dynamic CEO” an asset but also a risk if that individual proves “unfocused, unstable or consistently overpromising”.
Most growing companies would introduce governance systems to “mitigate the founder’s worst impulses” and add accountability throughout the board and management team, Finegold added.
“Startlingly, despite being one of the most capital-intensive private enterprises in recent history, it seems that none of these things have happened to date at WeWork,” Finegold writes. “It boggles the (or at least my) mind that investors, particularly SoftBank, have invested more than $10bn without demanding that the company develop some of these most basic checks and balances and systems of accountability.”
Finegold adds: “As WeWork prepares to go public, the company’s S-1 shows that it intends to continue and institutionalise these poor governance patterns with a hubris that is, quite frankly, breathtaking.”
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