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WeWork Shakes Up Its Governance As It Works To Salvage IPO

Morning Markets: WeWork is making a number of reasonable changes to its governance. A good question is how its governance structure got so messed up in the first place.

The We Company, better known by the name of its coworking brand WeWork, is shaking up its governance structure ahead of its hoped-for initial public offering. The deeply unprofitable, cash-hungry company’s anti-democratic voting structure has drawn censure from the investing public in the form of valuation cuts.

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When added to the company’s widely-condemned self-dealing by its CEO Adam Neumann, WeWork had set a high watermark for self-inflicted wounds ahead of an IPO. (Don’t forget the CEO’s large pre-IPO cashouts as well.)

Now the company is working to unwind the mistakes, according to its latest SEC filing. If the changes will be enough to alter the narrative surrounding the We IPO isn’t clear. The following steps, however, are pointed in the right direction.

Here’s our digest of what The We Company is changing:

  • The appointment “of a lead independent director” in 2019;
  • Reducing the voting rights of select stock from 20 votes per share to 10;
  • Maintenance of a board that is made up of “majority […] independent directors,” and no members of the CEO’s family will serve on the board;
  • Greater board diversity;
  • The CEO will give the company “any profits he receives from the real estate transactions he has entered into with the company;”
  • Reductions in the CEO’s ability to sell shares after the IPO to “no more than 10% of his shareholdings” in the second and third years following the offering.

Previously the CEO promised to give back the payment he received for WeWork’s use of the “We” trademark that he inexplicably owned, and decided to charge his own company for access to; it’s been a wild run for WeWork, one of the worst-run companies I’ve ever read an S-1 from, judging the company from a corporate governance perspective.

I doubt that the above will salvage WeWork’s IPO valuation to a SoftBank-approved figure. But it’s worth recalling that all of the above was predictable and unnecessary. The company didn’t have to get into this mess. It was poorly managed into this situation.

For startups the lesson in the above is clear. If you aren’t growing at 100 percent per year while generating GAAP profits and positive cash flow, maybe drop the supervoting stock and build a company with regular checks and balances. Those things are best practices for a reason. Your unicorn is not unique.

Illustration: Dom Guzman.

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