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WeWork CEO Steps Down As Company Reportedly Considers Layoffs

IPO letters in a fiery crash

WeWork executives and bankers have considered laying off up to 5,000 employees to cut costs, according to a new report from The Information, and CEO Adam Neumann will step down.

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The layoff consideration comes as WeWork’s initial public offering remains in limbo. CEO Neumann has been under pressure from investors to step down from his position. The Wall Street Journal reported Tuesday that Neumann was expected to step down as CEO, but remain chairman. CNBC reported that Neumann will be replaced by Sebastian Gunningham and Artie Minson as temporary co-CEOs.

“As co-founder of WeWork, I am so proud of this team and the incredible company that we have built over the last decade … While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive,” Neumann said in a statement.

The company’s S-1 revealed that its losses are mounting. WeWork reported that it had $1.37 billion in operating losses for H1 2019, compared to $677.9 million during H1 2018.

In the past few weeks, WeWork’s valuation has been slashed, its corporate culture has drawn scrutiny and the company postponed its IPO until at least October. The company was last privately valued at $47 billion, but has discussed a valuation of $10 billion when it goes public, according to The Information.

If it lays off 5,000 employees, it would cut its headcount by a third. WeWork isn’t the first unicorn to consider layoffs after burning through cash as it goes public.

Uber, another highly valued private company with huge losses, has gone through two rounds of layoffs since going public in May. It slashed its marketing team and most recently announced layoffs on its engineering team.

WeWork raised $12.8 billion in primary, secondary and debt financing as a private company, according to Crunchbase.

We’ve written about WeWork’s troubles in the past few weeks, and you can read about it here. Investors have asked the company to shelve its IPO plans, its corporate governance and structure has been questioned, and its corporate communications team has also seen departures. There’s been a lot going on, and the CEO stepping down and discussion of mass layoffs only add to the complication.

Founder Power

Neumann’s exit should be considered in more than its own, narrow context. The ousting of a CEO who, seemingly days ago, was considered of paramount importance to the company by their investors is a market anomaly; it’s hard to recall this happening aside from the well-known case of Uber, and erstwhile CEO Travis Kalanick.

In the Uber case, it was said in technology circles that the investors that helped to oust Kalanick would see their ability to invest suffer; that founders would not trust investors who had a history of firing members of their class. It isn’t clear if that happened.

However, with Neumann’s forced exit, few similar noises are being made. Indeed, with the former WeWork CEO’s history of self-aggrandizement and personal-enrichment, it seems that few are irked by his exit.

Changing his shares from 20 votes per share (Neumann holds Class B and Class C stock in WeWork, each which control ten times the votes of Class A stock, the equity that the firm intended to sell in its IPO) to 10 wasn’t enough. It wasn’t enough when Neumann returned some money, agreed to change how his own businesses interests intersected with the company or indicated that his spouse would not help select his successor in the event of his death.

But the imprint of reckless hubris remained stamped on the company all the same. Out went the CEO. Perhaps we’ve witnessed the high watermark, and breaking point, of the founder-friendly unicorn era.

Illustration Credit: Li-Anne Dias

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