A new leader is not the only change WeWork needs

The company also needs cash to avoid staff cuts and a slowdown in the company's expansion plans

Adam Neumann, CEO and co-founder of the office subleasing start-up WeWork, is stepping down from his position. Reuters

When a controversial chief executive steps down from his post, it’s usually just the beginning of an ugly cleanup. Never has that been more true than for WeWork.

Adam Neumann, the controversial co-founder and chief executive of the troubled office subleasing start-up, is stepping down. Two WeWork insiders, the chief financial officer and vice chairman of the board, will become co-chief executives.

The questions are, does that fix what’s wrong with WeWork, restore investor confidence and resolve the company’s ugly governance? Partially, maybe no and probably not.

It’s been clear for some time that Mr Neumann is both the biggest reason for WeWork’s growth and its largest liability. His charisma and outlandish dreams to make office leasing the beginning of a self-actualised empire drew in legions of deep-pocketed believers who poured more than $12 billion (Dh44.07bn) into his company.

He also used his position to enrich himself, to the tune of many hundreds of millions of dollars in WeWork stock sales, personal loans tied to his shares, agreements for WeWork to lease buildings Mr Neumann owned, and nice gigs for his family members with the company.

Along the way, Mr Neumann built a company that bled cash, spent recklessly, became wildly overvalued and maybe is not viable in its current form. WeWork’s investors — notably the Japanese telecom giant SoftBank — enabled Mr Neumann throughout. SoftBank apparently only turned against him in recent days when it was clear that WeWork would have trouble going public at anywhere close to the $47 billion paper valuation that SoftBank put on the company. Billionaires like SoftBank’s Masayoshi Son are apparently on your side until you threaten to cost them billions of dollars.

I’m not confident, however, that Mr Neumann stepping down fundamentally clears the path to an initial public offering. Mr Neumann has until now controlled WeWork through a special class of shares. His control will be diluted, but the new chief executives — or their successor, if they are caretakers in that job — will have to contend with an incredibly opinionated shareholder second-guessing their every move. Investors should also question whether WeWork has the right board of directors and whether WeWork insiders are the proper stewards, even temporarily. Everyone involved in this company deserves blame for WeWork’s situation.

There’s also that continuing problem of WeWork’s need for cash — a lot of it, and rather urgently. The company has been on pace to burn through roughly $3bn this year, and that’s why an IPO was needed to pull in billions of dollars in stock sales and loans tied in part to an IPO. The company’s bankers and some executives have talked recently about slashing up to one-third of WeWork’s staff, slowing the company’s office lease expansion and shutting ancillary businesses, according to technology news outlet the Information.

That is a silly idea, and it shows how dire the situation is. No matter what WeWork does, however, there is the not-inconsequential matter of nearly $50bn in lease commitments WeWork owes in coming years, regardless of whether WeWork stops its global office expansion immediately. And WeWork has not disclosed enough financial information for investors to know whether the buildings WeWork has occupied the longest generate more revenue from tenant payments than WeWork has spent on leasing, renovation and other costs.

It’s stunning that the company has come to this. Changing chief executives on what should be the doorstep of an IPO may not be unprecedented, but it is certainly wild. And no one comes off looking good — certainly not Mr Neumann, whose self-dealing, outlandish statements and reckless stewardship have made him the poster child for start-up cluelessness; not SoftBank; not WeWork’s greedy bankers; nor the rest of the long line of WeWork cheerleaders and enablers.

Changing the chief executive, in short, does not necessarily change WeWork’s condition. And it certainly would delay an IPO even longer and raise fresh questions about whether WeWork can tap alternate sources of funding or pare expenses to preserve cash. This company needs to be overhauled from top to bottom, period.

That doesn’t happen quickly, and it doesn’t happen without a top-notch management team and board. WeWork’s executives and directors have not proved up to the task.

Shira Ovide is a Bloomberg columnist covering technology