WeWork’s Long List of Potential Conflicts Adds to Questions Ahead of IPO

Losses at WeWork’s parent aren’t the only concern mounting about the shared-office company as it prepares to go public. Some of its practices push the boundaries of traditional corporate governance, analysts and investors say.

The New York-based startup, which was recently renamed We Co. and filed for an initial public offering in August, is weighing slashing its IPO valuation and could delay the listing, The Wall Street Journal reported Thursday. In addition to questions about the company’s steep losses and its business model, current and potential investors have also raised governance concerns—including adequate oversight of top executives—to We and its underwriters, people familiar with the discussions said.

When it filed to go public, We disclosed far more potential conflicts of interest than did other high-profile startups in recent large IPOs. The terms “related parties” or “related party” appear more than 100 times in We’s filing, compared with 28 such instances in


’s prospectus and seven in Uber Technology Inc.’s. We said in its filing that it aims to provide more transparency on related-party deals in the future.

In addition, people familiar with the company point to other potential conflicts that weren’t in the IPO filing and wouldn’t necessarily require disclosure.


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“There’s a bunch of unusual governance features, and they’re kind of unusual transactions,” said

David Larcker,

director of the Corporate Governance Research Initiative at Stanford University. “They’re the type of thing where investors are going to be concerned.”

We’s filing noted several instances in which co-founder and Chief Executive

Adam Neumann

made millions of dollars from the company since it was formed in 2010. They include We’s nearly $6 million purchase of the trademark to the word “We” from a company controlled by Mr. Neumann, as well as his ownership of four properties where We leases space. Facing criticism from analysts and others, the company said Wednesday that it would undo the trademark transaction. We has said it is phasing out Mr. Neumann’s ownership of property.

In July, the Journal reported that Mr. Neumann had withdrawn at least $700 million through a combination of loans and stock sales. The August filing shows that he has borrowed more than $740 million tied to his shares in the company. His stock sales amount to several hundred million dollars in addition to the loans, according to people familiar with the transactions.

Among the loans Mr. Neumann took out was a $362 million low-interest loan from the company to exercise stock options early, according to the filing. This type of borrowing is permitted in private companies but generally barred among public ones. Separately, Mr. Neumann has taken out $380 million in loans from several banks over the years against his company shares, including from IPO underwriters. The $362 million was repaid in August, the filing shows.

Startup founders often seek some cash from their holdings before their companies go public, though known instances anywhere near this size are highly unusual in the U.S.

We’s public offering is expected to come as early as September, but the company is weighing whether to delay the listing as investors voice concerns. Photo: David ‘Dee’ Delgado/Bloomberg

We has said Mr. Neumann is the largest shareholder and that most of his wealth is tied to the company; specific holdings haven’t been disclosed.

Public companies are legally required to have corporate governance standards, such as independent directors, and to work in the interests of all shareholders. Startups, which tend to focus on growth in their early stages, typically institute governance measures as they mature.

“The tech industry generally speaking is hardly a model for good corporate governance, but WeWork takes the absurdity [to] an entirely different level,” technology strategist

Ben Thompson

wrote in his newsletter, Stratechery, last month, referring to several matters including the trademark transaction.

Mr. Neumann also has full voting control. The IPO filing disclosed that he had 20 votes per share, twice the number he was listed as having in a 2018 bond disclosure. Such control, not uncommon among startups, could make it harder for other shareholders to have a say in company matters once it goes public.

Several former executives and other employees said they were surprised during their time at the company to find that numerous roles were filled by friends or family of Mr. Neumann and his wife, Rebekah Neumann—also a We co-founder—or other top executives. The practice continued as the company, recently valued at $47 billion, progressed past the startup stage, where informal deals between friends can be more common. Ms. Neumann’s brother-in-law is the chief product officer, while Mr. Neumann’s brother-in-law runs We’s fitness offering.

“All this together creates the impression of no culture of accountability,” said

Amy Westbrook,

a law professor at Washburn University who has studied large startups. “If you’re buying WeWork shares…you’d better trust Adam Neumann.”

We has used vendors or contractors owned by family members of executives, including a construction company that built much of its New York offices, people familiar with the deals said. Those deals were disclosed internally to some executives before they ended.

In another instance, We paid the parents of Vice Chairman

Michael Gross

to serve as real-estate brokers on at least one building lease in Miami, people familiar with the matter said. The couple were licensed, small independent brokers. Also in Miami, We signed a lease at a building partly owned by the brother of

Arash Gohari,

We’s co-head of real estate. The publication The Real Deal previously reported that transaction.

Mr. Gross and Mr. Gohari declined to comment through a We spokesman.

Such transactions involving lower-level employees are “even more what institutional investors get worried about,” as it can reflect the extent of such questions, said

Chris Cernich,

a managing director at Strategic Governance Advisors, which advises companies on corporate governance issues.

We’s relationship with New York construction company UA Builders has also raised concerns within the company, according to former employees. We had initially tapped UA Builders, then an independent business, as a young startup. Mr. Neumann internally praised the general contractor, which oversaw We’s renovation of new office spaces, as cheap, quick and responsive, former employees said.

UA was soon being used for most of We’s New York offices, and the company renovated two of Mr. Neumann’s homes, building permits show.

In 2015, We recruited one of UA’s partners,

Granit Gjonbalaj,

to join the company full-time to oversee construction. We continued to rely heavily on UA, then owned by Mr. Gjonbalaj’s two brothers, Albert and Jimmy, former employees said. Granit Gjonbalaj told former employees he divested his stake in UA when he joined We, people familiar with those conversations said.

Mr. Gjonbalaj also told others at We that he recused himself from interactions involving his brothers’ firm, but people who reported to him were responsible for these negotiations. Multiple former employees in the construction division said they found the task uncomfortable.

UA managed hundreds of millions of dollars of work for We as the company blanketed the city with its offices, former executives said. Last year, We hired Albert and

Jimmy Gjonbalaj

and other UA employees to set up a general contractor within We, bringing the operation in-house.

After they were hired, contracts between We and other companies owned by the two brothers continued, including multiple deals with subcontractors such as plumbers also owned by them, former employees said. Work with the companies owned by the Gjonbalaj brothers was phased out over the course of 2018, the former employees said.

Elements of the construction company’s relationship with We were previously reported by The Real Deal.

Albert and Jimmy Gjonbalaj left We earlier this year. They didn’t respond to requests for comment. Granit Gjonbalaj declined to comment through a We spokesman.

Write to Eliot Brown at [email protected]

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