WeWork CEO steps down amid drug use allegations, failure to launch IPO

Layoffs of 5,000 employees could follow, as well as the closing of ancillary businesses such as its private grade school and computer programming school.
Image: FILE PHOTO: Neumann, CEO of WeWork, speaks to guests during the TechCrunch Disrupt event in Manhattan, in New York City
Adam Neumann, CEO of WeWork, speaks to guests during the TechCrunch Disrupt event in Manhattan, in New York City on May 15, 2017.Eduardo Munoz / Reuters

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/ Source: CNBC.com
By Lauren Feiner, CNBC

WeWork CEO Adam Neumann is stepping down amid controversy over his role, a source with direct knowledge of the matter confirmed to NBC News. The news was first reported by The Wall Street Journal.

Sebastian Gunningham, a former Amazon executive, and Chief Financial Officer Artie Minson, formerly of AOL and Time Warner Cable, will become interim co-CEOs, while Neumann will be non-executive chairman.

“While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive,” Neumann said in a statement.

The news comes following a tumultuous few weeks in which WeWork postponed its IPO roadshow, and an exposé on Neumann in The Wall Street Journal revealed he had once been forced to reschedule a private plane trip after the crew found a cereal box stuffed with marijuana. The CEO also expressed interest in becoming Israel’s prime minister and the president of the world, living forever, and becoming the world’s first trillionaire.

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The company delayed its IPO after releasing its S-1 to skepticism about its corporate governance and valuation. WeWork said in a statement last week that it still plans to go public this year.

SoftBank chairman Masayoshi Son, who has invested billions of dollars in WeWork, led the charge to remove Neumann, according to people familiar with Son’s thinking, CNBC has reported.

The falling out between the two didn’t happen overnight. SoftBank has been consistently frustrated with Neumann’s tendency to brush off advice, from pushing forward with an IPO to using phrases in WeWork’s S-1 such as “elevate the world’s consciousness” — a phrase SoftBank urged Neumann to eliminate but to no avail, sources previously told CNBC.

Analysts have been critical of WeWork’s $47 billion private valuation and the company considered cutting it in half, the Journal reported earlier this month.

According to a report in The Information on Tuesday morning, WeWork executives met with bankers to discuss cost reduction measures, potentially including layoffs of up to one-third of the company’s workers, or about 5,000 employees, as well as closing ancillary businesses such as its private grade school and computer programming school.

Neumann is the company’s largest individual stakeholder with about 115 million shares, and the ownership structure gives him a tremendous amount of control. The vast majority of his shares are Class B and Class C, which each have 10 votes per share, while Class A is one vote per share.

In the company’s IPO prospectus, WeWork called Neumann “critical to our operations.”

“Adam has been key to setting our vision, strategic direction and execution priorities,” the S-1 said. “If Adam does not continue to serve as our Chief Executive Officer, it could have a material adverse effect on our business.”