The WeWork story isn’t about Adam Neumann. It’s about the system that allowed him to thrive.

By Patrick Lewis

WeWork office in Manhattan
Ajay Suresh from New York, NY, USA [CC BY]
A lot of the recent coverage of WeWork has centered on its founder’s $1.7 billion payout. In his role as CEO, Adam Neumann made a string of inexplicable decisions and effectively ran the company into the ground. One former exec told CNN Business that Neumann was “probably one of history’s best grifters.” And that fails to mention the tequila shots, the cereal box filled with weed, and Neumann’s ambition to “live forever” and become “president of the world.”

The number of people who have lost their jobs as a result of WeWork’s collapse now stands at more than 6,000. No one needs to be told that Adam Neumann’s actions during his tenure as CEO were deeply unethical. But there is a bigger issue here—one that goes beyond unscrupulous and eccentric individuals to the system that allows them to thrive. If we fail to appreciate what’s wrong with the set of circumstances that Neumann exploited, then we can be confident that sooner or later, there will be another Neumann, another “disruptive” tech company, and, ultimately, more misery for all.

What Neumann realized is that the money is not in commercial real estate but in tech, and that investors were so eager to be part of the next big thing that they weren’t providing the proper scrutiny. With this insight in mind, he pulled off an incredible sleight of hand: He managed to persuade the world that WeWork deserved to be mentioned alongside Airbnb, Uber and Silicon Valley’s other game-changing tech companies. Everyone who bought into this idea, beginning with the investment community, accidentally perpetuated it and made it more real. And in the end, the average person ended up with the vague impression that WeWork must be doing something tech-related, even if they didn’t know what. Otherwise, why would people keep calling it a “tech company”?

Now with serious financial muscle, WeWork went on to fill its spaces with other tech businesses, reinforcing the illusion, and move quickly and aggressively to dominate the market. Many of the tech startups that used WeWork spaces as their bases of operations paid their rent with money that had been given to them by their investors. It was like a giant Ponzi scheme with Neumann sitting smugly at the top of the pyramid. As long as investors kept pouring money into tech startups and those tech startups kept pouring money into WeWork, the show went on and he made money.

By investing so heavily in WeWork, its backers made it more valuable—at least on its face. At one point, it was valued at $47 billion, which made it the most valuable “tech” startup in the United States. If successive investment organizations had made any real effort to understand the source of WeWork’s value, they would have found themselves looking in the mirror. So the real mystery in the WeWork story is how this could possibly happen? How, in other words, could so many experienced global investment organizations, from Goldman Sachs to SoftBank, not think to look behind the curtain?

I write this as someone who has been through the investment process. It’s intense. You’re subjected to the most rigorous kind of scrutiny. But that’s hardly surprising: If someone is going to put their money behind an idea, it’s only natural that they would want to be as confident as they can be that it will be a success.

What is surprising is that in the case of WeWork, the due diligence just doesn’t seem to have been done. No one realized what was going on until Neumann and others filed for an IPO. The only reason WeWork was caught out, in other words, was because Neumann practically invited the Securities and Exchange Commission to take a closer look at what was going on. And only they found what some of the most reputable investors in the world had failed to find.

The WeWork debacle is not a cautionary tale about charismatic but unprincipled CEOs or corporate mismanagement. It’s about a system and an approach to investment that allows those CEOs to flourish. WeWork might be the poster-child for millennial work culture. But it might also become the best example of the worst aspects of the tech boom.

Patrick Lewis is the CEO of Maddox Events

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