Talk about timing.
In August, The Business Roundtable got a ton of press for their ballyhooed pledge to move America’s public companies towards a new “stakeholder” model of capitalism. It was time, the CEOs of the nation’s largest companies said, for companies to consider a broader range of interests beyond just shareholders. Employees, customers, communities—they all needed to be part of the mix when it comes to the “who” of a modern free-market economy.
In doing so, as our columnist Jeff Sonnenfeld wrote, the Roundtable was returning to its roots, and doing a favor in the PR campaign for capitalism (which, for the record, remains the most powerful force for improving the lives of people ever developed).
But more: They were also following the lead of most individual CEOs we know. The tens of thousands of chief executives at mid-market companies who—far from the spotlight and unheralded in the pages of Fortune—work hard for their owners, improve the lives of those who work for them, and play fair with others. That may not be the pervasive stereotype of CEOs. But it’s true.
So why are CEOs taking a beating these days? Why do the throngs cheer when Sen. Elizabeth Warren and other political leaders denounce CEOs broadly as unethical scoundrels? Why the call for their public persecution?
Meet Adam Neumann.
As the company formerly known as WeWork prepares to go public, SEC filings detail multiple instances of CEO Adam Neumann’s self dealings with the company (hilariously renamed “The We Company” given recent news). In addition to leasing back to the company various buildings that he has a personal investment in (which present clear potential conflicts of interest), recent filings revealed that he personally reserved the trademark for “We” through an entity he owns before initiating the company’s rebranding and then sold these rights to the company he leads for $5.9 million in stock.
In an amended S-1 filed this past Wednesday, the company announced that it is unwinding this agreement “at Adam’s direction”. But if he wasn’t forced to reveal this information and hadn’t faced the public outcry, would he have undone this transaction? That seems unlikely. The bigger question: why do it in the first place? I think we can guess.
That Neumann even tried to pull this off is an affront to his shareholders, employees and customers. Neumann’s investors entrusted him with billions of dollars, his employees entrusted him with their careers, and thousands of his tenants have entrusted his company to shelter their operations. Neumann stands to make billions of dollars in the IPO, on top of the hundreds of millions he has already taken out in private sales recently in advance of the IPO. To say that Neumann is ethically unfit to lead a public company is an understatement. Public company CEOs should act beyond reproach and avoid deals that even have the appearance of being self-serving. True leaders, of course, know that already.
Great companies have strong business models and great leaders. So while the We Company’s core business model (engaging in long-term lease commitments with landlords and then sub-letting this space on shorter term leases at hopefully higher prices) has yet to be challenged by its first recession, its CEO has already been tested. Investors now know: Caveat Emptor.
As for the rest of us, we’re stuck. Yes, the vast majority of CEOs work hard to win alongside their employees and shareholders and customers and care deeply about the system that underlies it all. But perception is just as important as reality.
Thanks to Adam Neumann, that perception took another big hit.