Business

Adam Neumann's fall shows how the public can crush a startup manager




  • Harry Kraemer is a professor at the Kellogg School of Management at Northwestern University and the former CEO of Baxter.
  • In this opinion piece, he writes that WeWork founder Adam Neumann's loss of control over the company shows what happens when a leader lacks self-understanding – and few around him are willing to speak the truth.
  • For a leader who is not self-conscious, the perceived privilege of living the high life can give a skewed sense of security that their actions are not visible and therefore not responsible.
  • Neumann's fall can act as a warning to the founders of other startups: No matter how brilliant the idea or successful company, you can't lose sight of the reality.

WeWork founder Adam Neumann's loss of control over the company shows what happens when a leader lacks self-awareness and getting around him is willing to speak the truth. Instead of leading the company into one of the most anticipated initial public offerings (IPOs) of the year, Neumann has been defeated as non-executive chairman and lost control.

Neumann may have thought that his success in launching WeWork, as evidenced by an astronomical valuation before the $ 47 billion stock exchange listing in January, exempted him from the rules that apply to everyone else. The 40-year-old director may have thought it was really about him ̵[ads1]1; ironically, for a company called "We."

Finally, it was his regret. Neumann resigned as CEO and lost his controlling interest in Vi, the parents of the shared startup of shared office space he founded nine years ago, which is scaled to more than 100 cities in 29 countries.

Read more : The Board of WeWork just removed Adam Neumann as CEO – here are the key players

SoftBank Group of Japan, the largest investor in WeWork parents , the station will reportedly be headed to replace Neumann as the company's estimated valuation has shrunk to as low as $ 10 billion and questions have been raised about its governance. His wife, Rebekah, also retires from her various roles, including CEO of WeGrow, the company's educational arm. Now, Neumann joins the ranks of scandalous entrepreneurs, including Uber's Travis Kalanick. This is a warning to founders of other startups: no matter how brilliant the idea or successful company, you can't lose sight of reality.

  Harry Kraemer

Harry Kraemer is a professor of management at the Kellogg School of Management at Northwestern University.
Courtesy of Kellogg, Northwest.

Any of Neumann's reported actions would have led to serious questions about the manager's trust responsibilities and fitness to lead a listed company. But apparently Neumann was still under the impression that he, as head of a private company, could get away with bad behavior.

While it is true that there may not be as much visibility in a private company, Neumann entered the public realm with the planned IPO. That means more stakeholders – and no secrets. With the public realm comes the oversight of the Securities and Exchange Commission (SEC) and regulatory disclosure such as Sarbanes-Oxley, as well as an audit committee and a compensation committee made up of exclusively independent directors. These controls and balances are required by a listed company where the CEO and the Board have shareholder responsibility, and the compensation and benefits for the CEO and other senior executives must be disclosed in detail in the proxy statement.

Read more : Technical IPO injury report: Some of the biggest names in tech have taken a beating after going public this year

For a leader who is not self-aware , perceived privilege of living the high life can give a skewed sense of security that their actions are not visible and therefore not responsible. It's like standing on Wrigley Field under the cover of darkness, thinking you're invisible. Then suddenly some switch turns and you are under the beam from the floodlights – every move you make is scrutinized. This is how to be the CEO of a public company that is responsible for many stakeholders.

This visibility makes it imperative for leaders to be value-based with a commitment to do the right thing, even when it requires contradiction. One of the best examples is Rick Waddell, who was only three months on the job as CEO of Northern Trust Corporation when the financial crisis hit. The bank took measures to protect clients from the crisis, including to buy some illiquid securities from clients so that these people would not have a cash crisis. Taking the highway had its costs, but in the long run the decision to protect clients was favorable to investors, who saw the bank as a safe haven.

Is Neumann surprised that it came to this?

Following Neumann's departure from operating the company, reports of mating personnel, the sale of a private jet and the felling of other assets, questions arise as to why the WeWork valuation was so high initially. Earlier this month we said it postponed the IPO until later in the year.

In a statement, Neumann said that "while our business has never been stronger, control directed at me has become a significant distraction over the past few weeks in recent weeks. And I have decided that it is in the company's best interest to retire as CEO director. "Whether the decision was really his or, as reports suggest, succumbed to pressure, one must wonder: Is Neumann surprised that it came to this?

A healthy dose of self-insight and having personal counselors may have made him more aware of the effect of his behavior. The foundation of value-based leadership is self-reflection – to constantly examine one's decisions, actions and behaviors and weigh them up against one's values. Without self-reflection, it is far too easy to get away with rationalization or a chorus of "yes people" who are unwilling to talk about their concerns.

It's a lesson that Neumann is learning now, the hard way.

Harry Kraemer is a professor at Kellogg School of Management at Northwestern University and former CEO of Baxter. He is the bestselling author of "Get the Best" and "From Values ​​to Action."



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