Background

Archie McCardell is the worst CEO in history. However, we realized Archie’s management talents aren’t unique. Granted, nobody is likely to replicate his success decimating two businesses in entirely separate industries. Archie’s ability to destroy was positively Romanesque in scope, unlikely to be repeated anytime soon.

However, their failure to fail, and to flame-out spectacularly, won’t be for lack of ambition. In this spirit, we’ve decided to create an award, the Archie McCardell Award, for absolutely horrendous management.

Archie McCardell Award Winner:
Adam Neumann of WeWork

Image result for wework summer camp
WeWork Summer Camp

WeWork

In the summer of 2019, commercial rental space company WeWork was valued at $47 billion. That’s $47,000,000,000 US dollars, not Nambian. By September, founder Adam Neumann was out as CEO and the business was hoping for a $10 billion valuation. As of October, the scuttlebutt is they may be bankrupt. From a $47 billion to an impending bankruptcy within a half year. Adam, we salute you. You’ve earned the first Archie McCardell Award.

Personally buying buildings and leasing them back the company, secretly owning the company’s trademark, filling your buildings by offering free wine and beer, and smoking pot in the $60 million company jet are the types of things needed to win a coveted Archie. Selling $700 million of your own stock while urging the public to buy the same would make Archie proud. Throwing a wild party featuring a famous DJ after a significant round of layoffs. Jumping on desks and tables barefoot to yell at people (Archie sent armed thugs but, hey, it was a different time).

Adam aspired to be the world’s first trillionaire, and Archie was the world’s first executive to blow a trillion-dollar opportunity; you’re like brothers from different mothers.

Neumann renamed WeWork to just “We” before the planned IPO, filed Aug. 14, 2019, in anticipation of expanding the brand into every corner of life. His circle-of-life idea wasn’t just something the company talked about; they lived it, doing things like insisting on listing the IPO underwriters in a circle:

Screen-shot from the We IPO prospectus. Source: EDGAR

You can almost see investment bankers sitting around a circle, with barefoot Neumann and his ever-present wife, Rebekah Paltrow Neumann, in the center. Rebekah is Gwyneth’s cousin, a fact repeatedly mentioned and somehow relevant to a business renting office space.

It’s not hard to imagine the bankers from Citi, HSBC, Goldman Sachs, and UBS wearing suits while sitting uncomfortably in the lotus position thinking “how the fuck did we get ourselves into this?” as the Neumann’s do shots of expensive tequila and harangue.

However, the bankers knew better than to say or even think that aloud, lest Rebekah fire them for “bad energy,” something she reportedly repeatedly did at We nee WeWork. Rebekah needed good vibes because there are apparently kids around in a daycare she started, WeGrow. Her price per child is $22,000 for age 2, $36,000 per year for ages 3-4 and $42,000 for age 5. Her school stops age 5 but offers “mentorships” for the six-year-old and over crowd.

The WeWhatever prospectus explains the businesses secret-sauce is technology, with “1,000 engineers, product designers and machine learning scientists that are dedicated to building, integrating and automating the complex systems we use to operate our business.” I have a friend who operates a similar operation renting office space in South Florida. The only engineer he employes is a guy who unclogs the toilet after somebody enjoys an unfortunate visit to a questionable food truck for lunch. A machine-learning algorithm might figure out who did the deed, assuming anybody really wants to know.

The prospectus has profound business insights, like this: “… each additional location not only adds members to our platform and revenue to our income statement, but also becomes profitable once it reaches a break-even point.” Who would’ve thought a business becomes profitable after reaching breakeven? This goes along with the company’s “space as a service” model which means … I have no clue. I don’t know how somebody wrote this prospectus sober, assuming that they were.

There are ten risk-factors listed and, buried smack in the middle of the pack at the #5 position, is this stinky: “risks related to the long-term and fixed-cost nature of our leases.” We commit to extremely long-term commercial leases. Their “members” (that’d be “tenants” in normal-speak) are typically month-to-month. The company has high occupancy rates during a booming economy. But economic cycles come-and-go and this one is long overdue for a correction. When that happens the free-beer tenants simply leave, no notice required. Meanwhile, We is committed to top-of-the-market rents. We also notes a future cooling of the commercial real estate market might allow competitors to offer similar space at lower prices, poaching tenants (er, members). To minimize their own rent, We committed to long-term leases with no option to quit early.

In these healthy economic times, We reported six-month financials ending June 30, 2019. The company brought in $1.5 billion of revenue with $2.9 billion of total expenses. With some financial shenanigans, they reduce the net loss to a mere $690 million. That is, after the (admittedly usual) cooking of the books We still lost $115 million each and every month for the first half of 2019 despite their high occupancy rates. The company notes debt of $1.34 billion then, on page 41, quietly mentions future undiscounted lease obligations of a mere $47.2 billion.

Finally, We notes all the revenue and liabilities — really, the entire business — is owned by the “We Company Partnership” which the “We Company,” the one offering shares, owns no part of. That is, they were planning to sell what were essentially tracking shares of a crappy company, not shares of the crappy company itself.

On Monday, Sept. 30, 2019, We withdrew the IPO. Along with their public offering went a $6 billion in promised loans that were dependent upon the IPO. One of their risk factors came true: “Our future success depends in large part on the continued service of Adam Neumann, our Co-Founder and Chief Executive Officer, which cannot be ensured or guaranteed.” Adam is out as CEO though continues as Chairman. Some analysts convincingly assert the next federal filing We makes may be a bankruptcy petition.

Congratulations (former) WeWork CEO Adam Neumann, you’ve earned the first-ever Archie Award.

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