Parsing the WeWork Debacle

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Good morning.

If you missed it, the Wall Street Journal had a grand weekend take-out on the WeWork debacle. This story has the earmarks of a year-end effort to shore up a journalism awards entry. But that’s okay; it also has a lot of great detail. And the WeWork saga will likely be the high water mark of the “blitzscale” era—an era when companies could raise untold amounts of cash to pursue growth at the expense of pretty much anything else, including profits, sound governance, and just plain common sense.

You can read the full story here. But to save you time, here are ten choice excerpts.

—Investors poured capital into Mr. Neumann’s business bonfire and ceded control, rarely pushing back with any force despite mounting problems and year after year of missed projections.

—Masayoshi Son, the CEO of SoftBank Group Corp., who helped inflate WeWork’s valuation to $47 billion, pushed an already wild-spending Mr. Neumann to act bigger and crazier.

—JPMorgan Chase & Co. CEO James Dimon and other bankers, instead of injecting a dose of reality, spent years championing Mr. Neumann and the company as they battled for the coveted IPO assignment.

—The outside board directors, all of whom had decades of experience in business and finance, voted for years to approve decisions by Mr. Neumann that paved the way for WeWork’s near collapse. Some of them had potential conflicts of interests themselves.

—Mr. Neumann repeatedly skipped board meetings, including as the company was planning the IPO.

—In late 2015, WeWork was completing an investment round led by Beijing based Hony Capital Ltd. that pushed its valuation to $16 billion…Mr. Neumann invited its CEO, John Zhao, to a party at 110 Wall Street… There, guests passed around tequila shots. Mr. Neumann picked up a fire extinguisher and set it off, spraying Mr. Zhao and others with white foam.

—To maintain control…Mr. Neumann restructured WeWork’s stock so that each of his shares had 10 times the vote of a normal one… Bruce Dunlevie, Benchmark’s representative on the board, resisted the voting control change, telling Mr. Neumann and other members of the board that absolute power corrupts absolutely. Mr. Neumann prevailed.

—He had always been open about hiring friends and family… At an executive retreat in Montauk on Long Island, Mr. Neumann once raised a glass in a toast “to nepotism,” attendees said.

—At one meeting Mr. Son told Mr. Neumann he shouldn’t be proud of WeWork’s lean sales staff, and that it should aim to have 10,000 salespeople, a giant number for a company that had fewer than 10,000 total employees at the time.

—Mr. Neumann made surf trips to the Dominican Republic and the Maldives. During a week in early June, WeWork’s company plane made two trips between Costa Rica and New York. Meanwhile, Mr. Neumann kept up surfing from the Hamptons and Montauk over the summer. Executives from WeWork and bankers and advisers…worked with Mr. Neumann and his wife on IPO-related documents and presentations at their homes there.

Let’s hope the era is over. More news below.

Alan Murray


Goldman Fossil

The global climate talks in Madrid may have been a bust, but a sign of progress has come from Goldman Sachs, which has adopted the strongest fossil-fuel finance policy of any big U.S. bank. Goldman will no longer directly finance any new or expanding coal-fired power projects, thermal coal mines, or Arctic oil exploration and production schemes. It will also phase out financing for coal mining firms without a diversification strategy. Guardian

737 Max

Multiple reports suggest Boeing is looking at curbing production of the 737 Max, or perhaps even suspending it for a while. Boeing CEO Dennis Muilenburg said back in July this might be an option if the plane's re-approval slipped beyond Q4, and that's what's happening. The planemaker has thus far been continuing production at a 42-craft-per-month rate, but hasn't been able to deliver its wares. CNN

Google Turkey

Google will no longer be able to work with Turkish carriers on new Android phone releases in the country, because the Turkish competition regulator says the company has not made compulsory changes to its business contracts. The issues at hand here are not dissimilar to other Android antitrust cases, such as those in the EU—Turkey's authorities told Google to stop making its own search engine the default in Android phones, but it hasn't done so. Reuters

Ag Goods

Analysts are taking the farm-purchase element of the phase-one U.S.-China trade deal with a bucket of salt. President Trump is insisting that China will soon buy $50 billion worth of agricultural goods from the U.S., but Asian Trade Centre executive director Deborah Elms calls that a "crazy amount," and says "the ability of the Chinese to actually match those purchases is going to be limited." CNBC


Competition Curbs

The EU's competition chief is considering a pushback against unfair competition from foreign state-owned enterprises—China being the obvious target here. Margrethe Vestager: "We found that there was a gap if, for instance, a state-owned company buys a European company and can pay anything if they want to because other potential buyers are bidding against state coffers…We are in the process of trying to figure out what to do about that." Financial Times

Hallmark Ad

The Hallmark Channel has apologized for pulling—under pressure from conservatives—an ad for wedding-planning service Zola that featured a same-sex couple. "We are truly sorry for the hurt and disappointment this has caused," said Hallmark Cards CEO Mike Perry (the card company owns Crown Media Holdings, which owns the TV channel). Wall Street Journal

Crypto Corpse

When the founder of the bankrupt cryptocurrency exchange QuadrigaCX died in India last year, apparently due to complications related to Crohn's disease, some hypothesized that he had faked his death and run off with the exchange's money. Now, lawyers representing QuadrigaCX's users are demanding that Gerald Cotton's body be exhumed "to confirm both its identity and the cause of death." BBC

Google Conflict

Google's internal conflict has ratcheted up again following a decision by management to end the company's transparency-tastic policy of letting workers access almost any internal document. The open systems have been valuable for activists within the firm, and have been pivotal to their increasing organization against certain Google contracts and policies. Fortune

This edition of CEO Daily was edited by David Meyer.

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