SoftBank CEO Masayoshi Son gave a regretful press conference on 6 November to explain huge write-downs at his firm in the wake of damaging investment misfires. [1] In particular, the event focused on his firm’s backing of office-sharing hub WeWork – a company that was poised for a landmark IPO back in September, only to dramatically shelve the initiative in light of weakening market interest. [2]

Central to that collapse of enthusiasm were concerns over the leadership style of WeWork’s flamboyant former CEO Adam Neumann, who was ousted from his controlling position on 24 September, but kept the title of co-chairman.

By that stage, however, his decision making had already caused the company significant harm, and in October it emerged that new co-CEOs Sebastian Gunningham and Artie Minson were looking to cut 2,000 of the firm’s 15,000 global staff in an attempt to staunch serious losses. [3] In an analysis of Neumann’s governance quirks, Business Insider explained that, amid a broad pattern of mismanagement, he had:

  • leveraged his dominance of WeWork voting rights to raise $700 million of funds by selling and borrowing against his own stock;
  • charged the umbrella company of which WeWork is part almost $6m for its own ‘We’ trademark, which he owned through another firm he managed;
  • retained stakes in real estate firms that rent out four properties to WeWork, making him both landlord and tenant – a potential conflict of interest, and
  • used WeWork funds to pay an immediate family member to host eight company-related events in the course of 2018. [4]

At the press briefing, Son valued SoftBank’s first quarterly operating loss for 14 years at $6.5 billion – $4.6bn of which stemmed from the organisation’s WeWork troubles. He conceded: “My judgement around WeWork was not right in many ways … I turned a blind eye to Adam Neumann's bad side on things like corporate governance. I have learned a harsh lesson from my experience.” In the days leading up to Son’s appearance, the Financial Times reported him as saying of Neumann: “We created a monster.” [5]

What must leaders take away from this cautionary tale?

The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “It is tempting – and, in many ways, even seems credible – to locate the problems that made a firm go as badly as this with one individual. However, at a broader level, it’s clear that critical systems of transparency and accountability have gone missing, or were never there. That gap has enabled the behaviour behind the poor governance practices that Son now recognises.”

She notes: “This is a wakeup call. We cannot predict how individuals are going to behave. We recruit – or in this case, financially back – people in good faith. We hope that they will conduct themselves ethically and responsibly. But if the systems and procedures around them are inadequate, then either through recklessness, irresponsibility or often because they just don’t know any better, people will essentially feel like they’ve been given permission to act in ways that undermine their organisations.”

Cooper points out: “Another theme that rings out from this story is the risk of putting too much faith or credence in a heroic leadership figure who has been counted on, singlehandedly, to either rescue something or deliver supernormal profits. We must pause and ask ourselves what we are expecting from these individuals. Why have we appointed this person? What are our expectations of how they are going to behave? What sort of checks and balances are we going to put in place to ensure that their behaviour will be positive and beneficial?”

She adds: “Personal connections are important, as well as liking someone and being able to have a good working relationship with them. But it’s no substitute for all the other, absolutely sound management and governance practices that organisations should have in place, and observe as a collective effort.”

For further insights on the themes raised in this blog, check out the Institute’s resources on learning from mistakes

Source refs: [1] [2] [3] [4] [5]

Image of WeWork signage courtesy of rblfmr, via Shutterstock