WeWork: A Quandary in Corporate Governance Custom Case Solution & Analysis

Evidence Brief: Business Case Data Research

Financial Metrics

Revenue: 1.8 billion dollars in 2018, up from 886 million dollars in 2017.
Net Loss: 1.6 billion dollars in 2018, representing nearly 90 percent of revenue.
Lease Obligations: 47.2 billion dollars in long term lease commitments as of mid 2019.
Cash Position: Approximately 2.5 billion dollars in cash and equivalents before the failed IPO attempt.
Valuation History: Peak private valuation of 47 billion dollars via SoftBank investment, dropping toward 10 to 12 billion dollars during IPO roadshow.
Contribution Margin: Reported as positive by management, though this metric excluded significant costs like marketing and administrative expenses.

Operational Facts

Scale: 528 locations across 111 cities in 29 countries.
Membership: 527,000 members, with 40 percent representing enterprise customers (companies with more than 1,000 employees).
Occupancy: Average occupancy rate of 80 percent across the portfolio.
Growth: Doubling of workstation capacity annually since 2014.
Governance Structure: Multi class share structure giving the founder 20 votes per share, later reduced to 10 and then 3 during pressure.

Stakeholder Positions

Adam Neumann: Founder and CEO. Controlled the board through high voting shares. Involved in personal real estate deals where he leased buildings back to the company.
Masayoshi Son: CEO of SoftBank. Primary financier who encouraged aggressive growth over profitability.
Benchmark Capital: Early venture investor pushing for governance reforms and professional management.
Rebekah Neumann: Chief Brand Officer. Held a significant role in succession planning and company culture.
JPMorgan and Goldman Sachs: Lead underwriters for the IPO, initially projecting high valuations before market sentiment shifted.

Information Gaps

Specific termination costs for long term leases in a downturn scenario.
Detailed breakdown of enterprise contract durations versus individual member churn.
Independent audit of the 5.9 million dollar trademark payment for the word We.

Strategic Analysis: Market Strategy Consultant

Core Strategic Question

Can WeWork transition from a founder led growth machine into a viable public company while carrying 47 billion dollars in lease liabilities?
How can the organization decouple its valuation from the persona of Adam Neumann to regain investor trust?

Structural Analysis

The core problem is a mismatch between asset duration and liability duration. WeWork signs 10 to 15 year leases with landlords while its customers sign month to month or annual agreements. This creates extreme sensitivity to occupancy fluctuations.

Supplier power is high because landlords control the physical inventory in prime locations. Rivalry is increasing as traditional firms like IWG (Regus) and boutique players enter the flexible workspace market. The threat of substitutes is high, as companies can return to traditional leasing or remote work models.

Strategic Options

Option	Rationale	Trade offs
Governance Purge and IPO Delay	Remove Neumann and eliminate the multi class share structure to satisfy public market standards.	Loss of founder vision and immediate need for emergency bridge financing.
Enterprise Pivot	Focus exclusively on Fortune 500 clients to secure longer term contracts and reduce churn.	Higher customer acquisition costs and slower growth compared to individual memberships.
Asset Light Transition	Shift from leasing to management agreements where landlords share the risk and profit.	Lower revenue per square foot and requires significant negotiation with existing landlords.

Preliminary Recommendation

WeWork must execute a governance purge immediately. The market will not price the company as a technology platform while the founder maintains total control and engages in self dealing. The company should delay the IPO, secure a rescue package from SoftBank, and appoint a professional CEO with real estate turnaround experience. The focus must shift from desk counts to cash flow per square foot.

Operations and Implementation Roadmap

Critical Path

Phase 1 (Days 1 to 30): Board reconstitution. Remove Adam Neumann as CEO. Rescind the 5.9 million dollar trademark payment. Eliminate the 20 to 1 voting rights.
Phase 2 (Days 31 to 60): Liquidity management. Halt all new lease signings. Cancel non core projects like WeLive and WeGrow. Secure 5 billion dollars in debt or equity from SoftBank.
Phase 3 (Days 61 to 90): Portfolio optimization. Identify the bottom 20 percent of underperforming locations for exit or renegotiation. Transition sales teams to target 2 year minimum enterprise contracts.

Key Constraints

Capital Burn: The company loses 219,000 dollars every hour. Any delay in funding leads to insolvency.
Legal Liabilities: Breaking 47 billion dollars in leases will trigger massive litigation and penalty payments.
Talent Retention: The culture is tied to the founder. A leadership change may cause an exodus of middle management.

Risk Adjusted Implementation Strategy

The strategy assumes SoftBank has no choice but to provide a bailout to protect its previous 10 billion dollar investment. If SoftBank refuses, the only path is a structured bankruptcy (Chapter 11) to reject expensive leases. The plan includes a 15 percent contingency fund for severance and lease exit penalties.

Executive Review and BLUF

BLUF

WeWork is a real estate company with a technology valuation and a venture capital burn rate. To survive, the board must immediately terminate Adam Neumann, eliminate dual class shares, and pivot to an enterprise focused asset light model. The 47 billion dollar lease liability is a systemic threat that requires a professional turnaround team, not a visionary founder. The IPO is currently non viable and must be withdrawn until the governance structure meets institutional standards.

Dangerous Assumption

The analysis assumes SoftBank will continue to act as a lender of last resort. If Masayoshi Son faces pressure from Vision Fund limited partners to stop funding losses, WeWork will collapse within two quarters due to its inability to access public markets.

Unaddressed Risks

Macroeconomic Sensitivity: A recession would cause enterprise clients to cut flexible space first, leading to a death spiral of declining occupancy and fixed lease costs.
Brand Contagion: The toxicity of the Neumann exit may damage the We brand permanently, making it difficult to attract the premium tenants required for the business model to work.

Unconsidered Alternative

The team should consider a total liquidation of international assets to focus exclusively on the New York and London markets. Concentration in high demand hubs might provide the margin safety that global expansion has diluted.