As Adam Neumann reportedly faces pressure to step down, it’s looking like a fight for life between WeWork and SoftBank

Published September 22, 2019

According to a new WSJ report, certain members of WeWork’s seven-person board, which includes cofounder and CEO Adam Neumann, are planning to pressure Neumann to step down and instead become We’s non-executive chairman. The move, says the outlet, “would allow him to stay stay at the company he built into one of the country’s most valuable startups, but inject fresh leadership to pursue an IPO that would bring We the cash it needs to keep up its torrid growth.”

The WSJ and Bloomberg are reporting that it is SoftBank specifically that wants Neumann to step down. Neither WeWork nor SoftBank is commenting publicly.

It’s a fascinating development, the kind we saw when Uber’s board successfully forced cofounder and longtime CEO Travis Kalanick to abandon his role as CEO. Still, we’d caution against drawing too close a comparison. While the venture firm Benchmark, which spearheaded Kalanick’s ouster, stood to lose billions of dollars if Kalanick dragged down Uber and continued to push off an IPO, Benchmark was not in a do-or-die situation because of its Uber investment.

SoftBank appears to be in more dire straights, making this standoff a particularly meaningful one.

Let’s back up a minute first, though, and consider who is involved and which way this could potentially go. A few days ago, Business Insider put together a useful cheat sheet about WeWork’s board members that may hint at their allegiance.

1.) Ronald Fisher — who is vice chairman at SoftBank Group after founding SoftBank Capital, a U.S. venture arm of SoftBank — joined SoftBank’s board last year. He oversees 114 class A shares, each of which carries one vote. Obviously, he’s going to side with SoftBank.

2.) Lewis Frankfort — the chairman of a fitness studio chain called Flywheel Sports — has been a board member of WeWork for roughly five years, and BI says WeWork once loaned him $6.3 million, which he repaid with interest earlier this year. We have to think he’d stick with Neumann out of loyalty. At the same time, he doesn’t wield much power unless he has the right to block significant actions at the company (some shareholders get these blocking rights; some don’t.) What he know: he controls 2 million shares, and 750,000 of them are Class B shares that carry 10 votes each.

3.) Benchmark, which first backed WeWork in 2012, is represented on the board by Bruce Dunlevie, the founding partner of the venture firm. Benchmark owns 32.6 million Class A shares, and could go either way, seemingly. On the one hand, Benchmark doesn’t want to establish a reputation for pushing out founders after the Kalanick debacle, and if it supports SoftBank over Neumann, it risks this exact thing happening. On the other hand, Benchmark might not want to battle with SoftBank if it thinks it has staying power or it’s concerned (suddenly) that it allowed Neumann to amass too much control.

4.) Harvard Business School professor Frances Frei was brought in roughly a minute ago to add a much-need sprinkling of gender diversity to WeWork’s all-male board. Frei’s name first came to be more broadly recognized when she was hired to help address Uber’s battered culture, so presumably she has ties to Benchmark. We’d guess she’ll side with Dunlevie, meaning that we have no idea whose side she will take.

5.) Steven Langman, the cofounder of private equity firm Rhône Group, has ties that go back a ways with Neumann, and he has benefited richly from the association. According to an April story in the WSJ, Langman met Neumann through a shared rabbi in its earlier days and joined the board in 2012. He also invested in the company (he owns 2.28 million shares, according to a bond filing). Langman is on both the company’s compensation committee and its succession committee. He also runs a real-estate investment vehicle in partnership with We that buys and develops buildings to then lease back to the co-working company, despite that it raises conflict-of-interest questions. We’d guess he’s on Team Neumann.

6.) John Zhao is the chairman and CEO of Hony Capital, which partnered with SoftBank and WeWork to create a standalone entity called WeWork China back in 2017, and Hony has subsequently poured more capital into that subsidiary. We’re not sure how close Zhao is to SoftBank, but if SoftBank brought Hony into WeWork, we’re guessing he will back the Japanese conglomerate on this one. Hony doesn’t own 5 percent or more of WeWork’s parent company so its share holdings aren’t listed publicly.

Neumann, it’s very worth noting, is himself is far more powerful than any of these six individuals. Even after the company recently revised Neumann’s supervoting rights, which gave him 20 times the voting power of ordinary shareholders and now give him 10, he could fire the entire board if he so chooses, notes the WSJ.

Naturally, that wouldn’t be a good look for Neumann, who is already battling growing public perception that, among other negatives for a public company CEO, he smokes a whole lot of pot and that he may be delusional. (A WSJ piece last week reported that Neumann likes to smoke marijuana with friends and while airborne. It also said that Neumann has confided to different people his interest in becoming Israel’s prime minister and president of the world.)

All that said, SoftBank is also fast-losing credibility. While its CEO, Masayoshi Son, has been long revered as a visionary, a growing number of sources we’ve spoken to question the viability of his entire Vision Fund operation. They see WeWork’s ever-soaring valuation on the private market, from $20 billion to, more recently, $47 billion — which was almost single-handedly SoftBank’s doing — as just one in a costly string of poor calls.

Indeed, despite the roughly $10 billion that SoftBank has sunk into WeWork, the financial loss it would take if WeWork falls apart would pale in comparison to the reputational hit Son would suffer, and you can bet there will be ripple effects.

Our suspicion: given the Vision Fund’s impact on the startup industry over the last few years, there’s a lot more riding on what happens with WeWork than meets the eye. Stay tuned.