Management in Action: Adam Neumann's Rise and Fall at WeWork

Apply the knowledge of management presented in this chapter to the following case. The goal of this activity is to enable you to understand the challenges facing WeWork and how those challenges are related to power, influence, and leadership.

Read the case and answer the questions that follow.

In 2001, 22-year-old Adam Neumann moved to the United States from Israel. He attended Baruch College in New York City but dropped out when he was four credits shy of a diploma, trying his hand instead at being an entrepreneur. After two failed ventures, Neumann and friend Miguel McKelvey started a business called Green Desk, renting out desks in co-working spaces for people and companies that weren't ready to invest in their own offices. By 2010, their company WeWork was born.¹

How, exactly, did WeWork work? Essentially, the company leased office spaces in metropolitan areas like New York City and San Franciscowhere flexible working space was in high demandthen split them into tiny 64 square foot sections. WeWork then sublet the sections to professionals, providing amenities such as restaurants, office equipment like copy machines, and camaraderie. Neumann sold investors on his business model by positioning WeWork as a tech and lifestyle company, but critics say it was never anything more than a glorified subleasing firm.² How is it possible, then, that by 2019, WeWork had more than 520 locations across the globe and a valuation of almost $50 billion (compared to its biggest competitor's $3.7 billion valuation)?

INSPIRING LEADERSHIP

Neumann "led with unusual exuberance and excess," said one reporter, adding that it was the CEO's "combination of entrepreneurial vision, personal charisma and brash risk-taking" that made WeWork the most valuable start-up in the country at one point.³ The CEO often had outlandish goals, including an idea to create shared office spaces on Mars and to give the world's 150 million orphans a family in WeWork.⁴

Neumann seemed to believe that he had extraordinary abilities to accomplish the impossible. For example, he invested in Life Biosciences, a life-extension start-up company, because he wanted to live forever.⁵ As another example, according to one insider, Neumann once said, "when countries are shooting at each other, I want them to come to me."⁶ A source close to the company described Neumann as "an intense person who thinks he is a Jesus figure," but added that "he's also very good at what he does. . . . He was almost like a televangelist."⁷ Neumann's ability to motivate was acknowledged even by former company executives who strongly disliked him.

TROUBLE IN THE WORKS

Still, those who spent enough time with Neumann eventually saw holes in his visionary and charismatic faade. Said one real-estate executive who dealt with WeWork, "He clearly is very smart and ambitious . . . but he starts talking about some of the more germane aspects of the city's land-use process . . . and he has no idea what he's talking about. Your bulls-t meter just goes off with him." The executive added that Neumann was "the quintessential person who doesn't know what they don't know."⁸

Others have expressed disappointment with the lack of alignment between the vision that Neumann pitched and the reality inside the company. "From the outside," said one former employee, "a lot of the pitch to the public and employees is all about this 'we' thing, but the closer you get to the core of the company, the less it exists. It's all about 'me' and 'I.'"⁹

Ultimately, it was WeWork's S-1 filingthe registration form that companies use when they are planning an initial public offering (IPO)that alerted investors to the company's and CEO's troubles. For example, as a managing member of the separate private company "We Holdings, LLC" Neumann trademarked the right to the word "We." He then reorganized WeWork under the umbrella "The We Company" and charged ithis own company$5.9 million dollars for the rights to use the word.¹⁰ Neumann was also taking near zero-interest loans from WeWork, using the money to buy office buildings, then renting the spaces back to WeWork.¹¹

Former Twitter CEO Richard Costolo said of Neumann, "this is not the way everybody behaves." Costolo characterized "the degree of self-dealing" inside WeWork as "egregious."¹² But former employees said that it was nearly impossible to talk Neumann down from anything, no matter how absurd it seemed. One insider told a reporter, "one time, we asked one of the top execs . . . 'can you bring him back to reality?' And she said, 'when Adam comes in and wants to do this or that, even if it's a really bad idea, we will figure out how to do it.'"¹³

NEUMANN'S OUSTER

Experts have speculated that the qualities in Neumann that fueled the company's meteoric rise proved to also be huge liabilities for WeWork.¹⁴ Investors rejected WeWork's IPO and cut the company's valuation by 75%.¹⁵ The company ousted Neumann from his role and by the end of 2019 had cut its workforce by 20% while continuing to open new co-working spaces.¹⁶ In April 2020, Japanese multinational conglomerate SoftBank pulled out of its offer to buy a controlling share in the struggling company.¹⁷ As a minority shareholder, Neumann stood to gain approximately $975 million from the deal. In May 2020, Neumann announced that he was suing SoftBank, saying that the conglomerate was "secretly taking actions to undermine" WeWork.¹⁸