REUTERS/Eduardo Munoz
- Harry Kraemer is a professor at Kellogg School of Management at Northwestern University and the former CEO of Baxter.
- In this
opinion piece, he writes that WeWork founder Adam Neumann's loss of control of the company shows what happens when a leader lacks self-awareness - and few around him are willing to speak the truth. - For a leader who isn't self-aware, the perceived privilege of living the high life can bring a warped sense of security that their actions aren't visible, and therefore they're not accountable.
- Neumann's fall can serve as a warning to founders of other startups: No matter how brilliant the idea or successful the company, you can't lose sight of reality.
WeWork founder Adam Neumann's loss of control of the company shows what happens when a leader lacks self-awareness and few around him are willing to speak the truth. Instead of leading his company into one of the most anticipated initial public offerings (IPO) of the year, Neumann has been demoted to non-executive chairman and lost control.
Neumann may have thought his success in launching WeWork, as evidenced by an astronomical pre-IPO valuation of $47 billion in January, exempted him from the rules that apply to everyone else. The 40-year-old executive may have believed it was really all about him - ironic, for a company called "We."
In the end, that was his undoing. Neumann stepped down as CEO and lost his controlling interest of We, parent of the shared office space startup he founded nine years ago that scaled to more than 100 cities in 29 countries.
Read more: WeWork's board just ousted Adam Neumann as CEO - here's who the key players are
SoftBank Group of Japan, the biggest investor in WeWork's parent, reportedly led the drive to replace Neumann as the company's estimated valuation shrank to as low as $10 billion and questions were raised over its governance. His wife, Rebekah, is also reportedly stepping down from her various roles, including CEO of WeGrow, the company's educational arm. Now, Neumann joins the ranks of disgraced founders, among them Uber's Travis Kalanick. This becomes a warning to founders of other startups: no matter how brilliant the idea or successful the company, you can't lose sight of reality.
Courtesy of Kellogg, Northwestern.
Any one of Neumann's reported actions would have led to serious questions about the leader's fiduciary responsibility and fitness to lead a publicly traded company. But Neumann was apparently still under the impression that, as head of a private company, he could get away with bad behavior.
While it's true that there may not be as much visibility within a private company, Neumann was entering the public realm with the planned IPO. That means multiple stakeholders - and no secrets. With the public realm comes the oversight of the Securities and Exchange Commission (SEC) and regulatory disclosure such as Sarbanes-Oxley, as well as an audit committee and a compensation committee composed of solely independent directors. These checks and balances are required of a publicly traded company in which the CEO and the board have a fiduciary responsibility to shareholders, and compensation and perks for the CEO and other senior executives must be disclosed in detail in the proxy statement.
For a leader who isn't self-aware, the perceived privilege of living the high life can bring a warped sense of security that their actions aren't visible and therefore they're not accountable. It's like standing on Wrigley Field under the cover of darkness, thinking that you're invisible. Then suddenly someone flips the switch and you're under the glare of the floodlights - every move you make is scrutinized. That's what it's like to be the CEO of a public company who is answerable to numerous stakeholders.
This visibility makes it imperative for leaders to be values-based with a commitment to do the right thing, even when that requires a counterintuitive approach. One of the best examples is Rick Waddell, who was just three months into his job as CEO of Northern Trust Corporation when the financial crisis hit. The bank took actions to protect clients from the brunt of the crisis, including to purchase some illiquid securities from clients so these individuals would not suffer a cash crunch. Taking the high road did have its costs, but over the long run, the decision to protect clients paid off favorably with investors, who saw the bank as a safe haven.
Is Neumann surprised that it came to this?
After Neumann's departure from running the company, reports of paring staff, selling a private jet, and shedding other assets raises questions about why the WeWork valuation was so high in the first place. Earlier this month, We said it was postponing its IPO until later in the year.
In a statement, Neumann said that "while our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided that it is in the best interest of the company to step down as chief executive." Whether the decision was really his or, as reports indicate, he succumbed to pressure, one has to wonder: Is Neumann surprised that it came to this?
A healthy dose of self-awareness and having personal advisors may have made him more aware of the impact of his behavior. The foundation of values-based leadership is self-reflection - to constantly examine one's decisions, actions, and behaviors and weigh them against one's values. Without self-reflection, it's far too easy to get led astray with rationalization or a chorus of "yes people" who aren't willing to speak up about their concerns.
That's a lesson that Neumann is learning now, the hard way.
Harry Kraemer is a professor at Kellogg School of Management at Northwestern University and former CEO of Baxter. He's the best-selling author of "Becoming the Best" and "From Values to Action."
This is an opinion column. The thoughts expressed are those of the author(s).