Who Tells the CEO They Are Wrong?

Hindsight has made WeWork easy to ridicule, which can prevent us from learning very much from it. Flexible workspace was a legitimate market opportunity and remains one. Companies wanted shorter commitments, shared infrastructure and the ability to expand or reduce office space more easily than conventional commercial leases allowed.

WeWork recognised that demand early and built a global business around it. The difficulty sat in the economics of the model: the company accepted substantial long-term lease obligations on buildings while offering customers much shorter commitments, so customers could leave considerably faster than WeWork could escape many of its property costs.

Growth increased that exposure. During the attempted 2019 IPO, correspondence between WeWork and the US Securities and Exchange Commission brought the issue into unusually sharp focus when the SEC asked the company to place its committed revenue backlog alongside approximately US$33.9 billion in non-cancellable operating lease commitments.

A rapidly expanding customer base looks impressive. Billions of dollars of contracted future property obligations change the conversation.

The question a board or adviser needed to ask was straightforward: what happens when demand weakens? COVID-19 would later provide an extreme answer, but the structural question existed well before the pandemic.

Adam Neumann’s influence extended well beyond the ordinary authority of a chief executive. WeWork’s IPO documentation showed that he would retain substantial voting control after the company became public, giving him considerable influence over corporate decisions and the appointment of directors.

Founder control was hardly unusual in the technology sector at the time. The more interesting issue appears when formal control interacts with personality, reputation, access to capital and the behaviour of the people surrounding the founder.

Imagine a founder running a company of ten people. Someone in the room thinks an idea is poor and says so. Perhaps there is an argument, perhaps the founder changes their mind, and nobody regards the disagreement as particularly remarkable.

Give the same founder thousands of employees, international press coverage, billions in investment and a reputation for seeing opportunities before everybody else, and the conversation changes. A senior manager may think about their position before challenging a decision. A director considers how much influence will remain after a confrontation. An adviser knows that maintaining the relationship depends, at least partly, on the CEO continuing to value the advice.

Even when the CEO sincerely asks people to speak openly, the cost of doing so may already have increased. The executive can gain access to more information, specialists and analysis while the quality of disagreement reaching the top quietly deteriorates.

WeWork also disclosed related-party transactions involving properties leased from entities in which Neumann held ownership interests, and the company acknowledged that such arrangements could create conflicts between the interests of the founder and those of the company.

This matters because governance failures are often imagined as failures of discovery: someone concealed something, somebody failed to notice, and the organisation was surprised. Reality can be less convenient. A board can know that a potential conflict exists and still allow it to continue. Advisers can understand that a decision deserves scrutiny and assume another person is better placed to raise it. Executives can disagree privately while continuing to support the direction publicly.

Disclosure provides information. Someone still has to exercise judgement about whether an arrangement is sensible and appropriate for the company. That responsibility cannot be outsourced to the disclosure document.

The attempted IPO in 2019 exposed WeWork to a form of scrutiny that private-market enthusiasm had largely spared it. Investors began examining losses, governance, lease obligations, related-party transactions and Neumann’s control of the company.

The SEC correspondence is particularly useful because many of the questions resemble the questions a strong board or independent adviser might have raised earlier. The regulator challenged the presentation of a US$3 trillion total market opportunity and asked the company to provide greater context around the assumptions supporting it. It also pressed WeWork to present its US$33.9 billion lease commitments beside its committed revenue backlog.

Behind the regulatory language sit ordinary business questions: how much of this theoretical market can the company realistically reach, what assumptions are carrying the valuation, what happens to the economics as the company expands internationally, and how much financial exposure is accumulating underneath the growth?

These questions matter because answering them properly can be uncomfortable. Public-market scrutiny simply made avoiding them much harder.

The proposed valuation fell dramatically, the IPO was postponed, and on 24 September 2019 Neumann resigned as CEO. WeWork eventually abandoned the offering and required a rescue package from SoftBank.

The US$47 billion valuation deserves attention because valuations influence more than what investors pay. They affect how people interpret management decisions.

If sophisticated global investors are prepared to commit enormous amounts of money at that valuation, scepticism becomes psychologically harder. The funding itself can start to look like evidence that the strategy has been validated.

Smaller versions of this appear in ordinary companies. A large contract convinces management that the commercial model works although most customers may never buy on those terms. An investment round becomes evidence that the product has a market. Fast revenue growth persuades a board that operations are healthy even as margins and working capital deteriorate.

Valuation represents the price accepted within a particular transaction, under particular assumptions, at a particular moment. It contains expectations about growth, economics, risk and future behaviour, and those expectations can change remarkably quickly.

After WeWork’s Chapter 11 restructuring, the reorganised company’s estimated equity value was approximately US$750 million. Around US$4 billion of debt was eliminated, while substantial future lease commitments were removed or renegotiated.

For a board, the distinction is important. A valuation can tell you what somebody is prepared to pay; it cannot establish that management’s judgement is correct.

A CEO running an organisation of WeWork’s scale is surrounded by advice. Investment bankers understand transactions. Lawyers assess legal exposure. Communications specialists consider reputation. Investors examine returns. Senior executives operate the company. Directors exercise governance responsibilities. Consultants analyse markets, structures and performance.

Each sees something useful, yet mandates shape the questions people ask. A banker involved in an IPO naturally spends much of their attention on completing the transaction successfully. A lawyer may focus on whether an arrangement is legally defensible. An investor has its own economic interests. An executive is also an employee of the CEO.

Somebody still needs enough independence to ask: should we be doing this?

That question can sound almost embarrassingly simple in a room full of specialists. It is often the one that matters.

Traditional consulting can often separate the executive from the organisational problem. Revenue has declined, the market has changed, costs are rising or operations need restructuring. Executive advisory sometimes reaches a more difficult point because the executive’s own judgement has become part of the business problem.

Long periods of success can make a leader more confident in the patterns that previously worked. Public recognition reinforces that confidence. People around the executive learn which arguments are welcomed, which subjects create irritation and which decisions are effectively closed. Eventually, the information environment adapts to the leader.

This does not require a malicious CEO or a frightened management team. It can happen gradually among intelligent people who believe they are behaving rationally.

The adviser therefore needs to understand the business well enough to challenge the decision and the person well enough to understand why that decision feels convincing to them.

There is a considerable difference between telling a CEO, “You need to listen more”, and saying, “Your expansion case assumes occupancy at a level we have not consistently achieved. Under the downside scenario, liquidity becomes difficult within eighteen months, and I think the strength of your belief in the brand is affecting how you are weighting that risk.”

The second conversation is much closer to the CEO’s actual responsibility. It is also considerably harder to have.

The WeWork case suggests a simple test that boards could use more often. Ask senior executives privately:

What is something you believe the CEO does not want to hear?

Then ask the CEO:

What does your management team believe you do not want to hear?

I would pay close attention to the distance between the answers. A CEO who can identify the uncomfortable issues may still disagree with the people raising them, but at least the information is travelling. A management team that can quickly identify several subjects while the CEO believes none exist suggests that the organisation may have developed an information filter around its most powerful decision-maker.

That is a governance problem, and it is unlikely to appear in an ordinary performance dashboard.

There is an uncomfortable commercial aspect to executive advisory that deserves more discussion. An adviser may genuinely value independence and still depend heavily on one client.

Imagine that a CEO makes a decision the adviser considers seriously damaging. The adviser explains the concern, the CEO rejects the argument and makes it clear that the subject is closed. The adviser now faces a business decision of their own: how far are they prepared to continue challenging the client, when does preserving the relationship begin to influence the advice, and could the firm afford to lose the account?

Independence therefore depends partly on the economics of the advisory firm itself. An executive adviser whose business cannot survive the departure of an important client has a structural reason to become cautious around that client.

If a company sells independent judgement, its own economics should make independent judgement possible.

WeWork filed for Chapter 11 bankruptcy protection in November 2023. The pandemic caused enormous disruption to office demand, but the restructuring also exposed the burden created by years of aggressive expansion and long-term property commitments.

Reuters reported that WeWork entered bankruptcy with more than US$13 billion in long-term lease obligations. During the restructuring, the company renegotiated or exited a large number of leases. By the time the plan was approved in May 2024, future rent obligations had reportedly been reduced by more than US$12 billion and approximately US$4 billion of debt had been eliminated.

The lesson sits in the timing. Problems that eventually required bankruptcy proceedings to resolve had roots in decisions made during years when capital was abundant and the company was celebrated. The questions existed much earlier; they were easier to postpone.

A successful CEO rarely needs another clever person around the table simply to provide information. They already have access to experts. What becomes scarce is a relationship in which somebody can understand the reasoning, appreciate why the decision appears attractive, examine the evidence and still say, “I understand why you believe this. I think you are wrong.”

The adviser then has to explain exactly why. There is little value in disagreement performed for effect; independence matters when it improves judgement.

This becomes particularly important during periods of success because success changes what reaches the top of an organisation. Previous victories gain influence over new decisions, people become more careful, and abundant capital can allow poor choices to continue longer than they otherwise would.

Boards should notice that combination. Executive advisers should be professionally prepared for it. CEOs should understand that the freedom to challenge them is an organisational asset that can weaken without anybody deliberately removing it.