So what are the five nuggets to learn from my annual ode to the ghosts of Christmas, past and present, and this year’s honorary “Scrooge” — Adam Neumann of WeWork.
Number one : it would appear that you don’t have to be a good CEO to reap the rewards of an unsuccessful business.
In case you haven’t heard the story, the New Age, surfer loving Neumann sold a stake in his WeWork venture valued at $47 billion (Sh4.7trn) in 2017 to Softbank of Japan.
In September this year, when WeWork submitted the documentation to float it on the NASDAQ stock exchange, some eagle-eyed analysts picked up the fatal flaw in the business model: it had an overwhelming amount of long-term obligations to landlords and much more fickle, short-term revenue from its main source of income — its tenants.
To cut a long story short, the value plummeted to a dramatic $8 billion, an 80 per cent loss in value in a few months, almost the size of companies such as Delta Air Lines!
Mr Neumann has recently been forced to resign as CEO. However, to soften the blow and dry his tears, he will walk away with a guaranteed $1.6 billion payout.
Of course the question is still why the original investors bought into it?
Lesson number two is, positioning still matters … and tech is still “in” and in vogue.
WeWork was essentially a “hip real estate sub-lessor” — as the Wall Street Journal calls it — fronting as a tech entrepreneurship. It leased large swathes of office space, becoming one of the largest lessors in cities such as New York, San Francisco, London and Shanghai in less than 10 years.
… So, to any Kenyan landlord who wanted to have a tech start-up, don’t worry, you already have!
Leading to the third golden rule for crooked leaders — the time-tested, fill- your-board-with-friendly parties who do not question your judgement, yet whose CVs bolster your cause.
Mr Neumann counted among his board former partners in Goldman Sachs, a professor at the Harvard Business School, who secured a lucrative consulting contract and was regularly flown to board meetings by private jet; a former CEO, and representatives of prominent private equity funds.
Board members did little to question provisions such as that of super-voting rights for Mr Neumann, allowing him to override the decisions of other shareholders. Not to mention the “royalty” succession clause that allowed King Adam to be succeeded, in the event of his death, by his wife, Queen Rebekah.
Then there is, of course, the mystery of what these money — people were thinking and why these otherwise savvy investors seem to go all soft-headed and mushy when confronted by Prince Charming — long dark locks and all, aka Mr Adam Neumann.
Even banks, perhaps in a bid to jump onto the gravy train of a potential IPO, did little to dissuade the gung-ho, delusional visions of WeWork’s leader, JP Morgan Chase, seeming to tip toe about growth as paramount. Mr Neumann referred to Jaimie Dimon, the influential CEO of JP Morgan Chase, as his “personal banker”.
Lastly, remember to appear successful; you must burn through onerous amounts of cash in the manner of rap videos.
This includes such tactics for the founder of WeWork as spending more money airlifting the furniture to your locations than on the actual fittings. Investing and buying into unrelated businesses, including a school called WeGrow, because your children cannot find educational options to your taste, or an event planning site, meetup.org, and so on.
So, is it impossible to rein in renegade CEOs and does good overcoming evil not apply in the business world?
Well, in the long-term there is hope.
After a protracted and long-drawn out period spanning just over a year, the board of Boeing has finally come to the conclusion — that the rest of us came to a long time ago — that the 737 MAX was beyond both defence and repair.
And in a similar development, the former CEO of Uber, the infamous Travis Kalanick, has finally sold all his shares and cut links with the company completely.
Perhaps the tortoise does win the race after all.
The author is the managing partner of C. Suite Africa and is an MBA (Oxon), MPA (Harvard). [email protected]
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