Beyond the entire conversation about whether this is legal or illegal, and whether this is typical or atypical, there is a much more significant issue.
The entire image and “vibe” of this guy / his team is supposed to be an egalitarian re-invention of the status quo. The kibbutz story. The “community adjusted EBITDA.” The rebranding to “We.” But this sort of real estate self-dealing isn’t a We move, it’s a Me move. And thus, we find ourselves facing a bigger issue that is far more troubling if you’re a shareholder or employee (and somewhat enjoyable if you’re a competitor): the emperor has no clothes and the CEO is full of shit. He is self-serving and isn’t optimizing for the benefit of those around him.
As others in the tech industry are only beginning to figure out, once your curated narrative dies and the reality of who you really are comes to the surface, an unstoppable cycle of “bad press” and “negative sentiment” emerges. That’s a hard cycle to work out of, especially if the value of your company is predicated on your image / the image of the company. Hiring Obama’s speech writer and lobbying Congress doesn’t fix the underlying issue, and eventually you’re living in a Reverse Metcalf’s Law situation that’s scaling in the wrong direction.
As WeWork is built on an image of selling “a new, better way of working” to companies of all sizes, it becomes extremely problematic if people start to associate the brand with “the rich keep getting richer, and they’re screwing us over and working us to the bone along the way.” An image of a “collaborative enterprise” becomes a laughable fantasy novel next to the reality of, “we are funded by third world despots and our CEO is lining his pockets with as much of our money as possible, while scheming up ways to do petty things such as avoid paying the cleaning staff any sort of decent wages or benefits.”
This isn’t the We Company. It’s the Me Company. That’s not very innovative. That doesn’t foster greater productivity. And eventually, a lot of tenants aren’t going to pay for it, because it seems a lot of them really think they’re paying to be part of a progressive, futuristic environment. If their smartest and most progressive employees start telling them they don’t want to visit the office, they’re going to get rid of that office. Companies’ desire to please their knowledge workers — what originally drove WeWork’s success — thus ends up killing it.
I really don't know what you're talking about. I'm a WeWork customer - we rent an office at a WeWork for our small company.
We're not at WeWork because of hype, or the image of the CEO, or anything like that. We're at a WeWork because it's a cheap/easy way to get an office, that we can scale when the company grows with minimal issues since it's month to month. We shopped around a few competitors, WeWork happened to be the best combination of price vs. space vs. availability, so we went with that.
I haven't exactly done a poll, but I doubt that most WeWork customers know or care about WeWork's culture too much - they just need an office, and WeWork is providing a cost-effective solution. Maybe it's artificial because of VC money - if so, I certainly don't care - it'll be good while it lasts!
For contrast: at my previous company, we also wanted to move to an office (instead of working out of my apartment). We spent a huge amount of time looking at offices, and ended up staying put, because it was hard to find a decent office with a decent price, and signing up for a 2-year lease is a huge commitment which is not fun to make when you don't know the future size of the company - do you get lots more space than you need and pay extra? Do you get less space and are in a tough spot if you grow too fast?
> We're at a WeWork because it's a cheap/easy way to get an office, that we can scale when the company grows with minimal issues since it's month to month
Where is WeWork month to month? Yes the open plan area is month to month, but the instant you try to get a private room they want you to sign a 6 month commitment.
I have not gone to ones in the US, though. This is outside the US. Are they truly, genuinely cancel-any-time month to month? Or "yeah it's month to month but if you cancel before 6 months is up you have to pay 50% of the remaining months"?
I've managed WeWork leases in both SF and NYC and they were both month to month with a dedicated office. I think there is a 30 day out but it was pretty easy.
There is some variation between offices though, so entirely possible you had a different experience.
I think that's fair. I also think you represent the initial use case and one that's still very relevant today. WeWork has made it clear though that real growth for them now needs to come from mid and large companies willing to use their services at scale and have had some success doing that. I would pivot a little away from OP's "human sentimental" angle and more towards "this obvious ethical lapse, and a board that can't or won't control it" will make those larger organizations pause before becoming too dependent upon WeWork.
I never got that image from WeWork. Anyone around during late 2008-2009 knows what happened to leases and rents. It seemed apparent from the beginning that WeWork was just exchanging future risk for current cash, and thus everything else was marketing farcical bullshit.
The fact that no one can actually do real work at a WeWork was just icing on the shit pie.
I'm currently in a non-WeWork co-working space. It's not clear what you mean with "The fact that no one can actually do real work at a WeWork was just icing on the shit pie.".
WeWork isn't an open plan office. At least, not the one I work in in London. We just pay an extraordinary amount of money for a small glass-walled room. We internally have an open plan office, but that's just because we opted for a single WeWork room.
At least in my NYC WeWork the sound isolation is so bad that it might as well be an open office. I can clearly hear all the phone conversations my WeWork neighbors make. I assume they can hear mine as well.
in the book Disrupted (about the author's time working at Hubspot), he posits that the free beer offered at startups is to soften the blow of the long working hours and relatively low salaries.
In this case, the free beer might be an intentional way to take "loud room I can't work in", to "laid back atmosphere I feel home in". The latter is false, but it's not as bad as being stuck with "loud room I can't work in".
Different people have different fcactors effecting quality of life. Some people want something more laid back and are willing to give up salary. Others want to optimize salary and work at a big corporation. The market can take a number of strategies—it’s up to the employees to vote with their feet. Given the inherent instability of startups and if they in fact do it less, that vote should be easy to cast if someone is not satisfied.
Drinking or not drinking beer during the times you should be productive is a matter of self-discipline and I doubt it has any direct relation to productivity.
Disclaimer: I work in a private office in a London WeWork and the free beer is a nice to have, even if it wasn't a consideration while picking an office.
> The entire image and “vibe” of this guy / his team is supposed to be an egalitarian re-invention of the status quo. The kibbutz story. The “community adjusted EBITDA.” The rebranding to “We.”
This is all just marketing. It's like believing all the actors in a commercial really are elated and blissful just because they chose the right brand of soda.
But I think it's very important to remember that companies can have moral standards and follow them. Many companies don't sell-out in crucial ways, and throwing one's hands up and condemning them all is punishing the ones that stay true.
I think moral outrage is a very important and effective market force. It will do things our government never could, like take down facebook. I'm glad we have this tool.
> But I think it's very important to remember that companies can have moral standards and follow them. Many companies don't sell-out in crucial ways, and throwing one's hands up and condemning them all is punishing the ones that stay true.
I agree, which is why I criticize shallow analysis of a company's motivation based on its skin-deep marketing veneer.
In this case it's not even moral standards - the implication is that WeWork's CEO is neglecting his fiduciary duty to maximize shareholder value by lining his pocket instead.
That's in fact a corruption of capitalism, it's illegal, and he can be sued for that by shareholders.
> I think moral outrage is a very important and effective market force.
I completely agree, which is why it's important to look beyond the marketing.
If a company can breach standards of morality and decency, but get away thanks to some 30 seconds commercial featuring smiling kids, then we will not be effective as a public in enforcing those very real consequences that companies should face for their actions.
To add to what the other commenter noted about varying levels of truth...
There is marketing of product and then marketing of company and then marketing of person/people. Not only does each have varying levels of truth, but each also has varying types of intent. The later in SV seems designed to encourage beliefs about a person or company that are immune to facts that counter them.
Branding it as marketing starts, to me, to sound like a convenient cover for propaganda.
Marketing can be based on varying depths of truth. Generally speaking, the greater the depth the greater the long term value and efficacy of the marketing.
(Marketing is not always a veneer.)
petty things such as avoid paying the cleaning staff any sort of decent wages or benefits.”
It’s pathological. WeWork, Google, Facebook and all the rest don’t need to shaft their cleaners, catering staff, security guards etc. The cost is a rounding error and it’s directly antithetical to their stated brand values. But they just can’t help themselves.
I believe there was a NYT story posted last year about how all custodial services are contracted out these days, and ye olde American success story of 'going from the janitor supply closet to the boardroom' was gone forever. The used an example of a cleaner at HP in the early '80s who became a manager of some sort.
The comments on that article? Mostly something along the lines of "maximizing shareholder value" and "fiduciary duty to the corporation". Anything to avoid having to admit that this is wrong.
I remember a similar story but from Kodak. I think the shareholder narrative and the race to the bottom started in the 70/80s has lead to the current situation. Short term mentality and spreadsheet driven management has taken a toll on the American dream. It seems like the last blue collar stronghold- drivers- is the one under siege right now and bound to collapse in the coming decade(s?). It does worry me to think about easily we are able to brush that aspect of technology to the back of our minds and pretend it’s not going to affect almost everybody in one way or another
I think Kodak was the company in the article, actually.
> Short term mentality and spreadsheet driven management has taken a toll on the American dream.
Yes, but stock market growth since the '80s is a big reason why the "wealth" of the average American has increased, even though wages have stagnated and debt has increased. One hand has been feeding the other for a long time.
Sadly, this is the way that IT is going as well. It's getting harder to start at the help desk and work your way into a real position anywhere. When we interviewed for a Desktop Support person, 80% (my guesstimate) of our applicants only had (limited) access to the Office 365 portal, performed basic password resets, and did shit-work like wipe drives. They were totally silo'd out of being able to grow. They weren't even given local admin permissions on workstations to be able to do any real troubleshooting.
Of course, all this is in the name of "security" and the least-privilege thing. It's horse shit really. You need to be able to trust your employees and then audit. But it's easier to manage people when you can just lock them into a position and leave them there to rot.
Helpdesk?! Outsourced development for major institutions is done that the developer has a remote access to the virtual machine with the IDE, repository cloned, etc. Growth? Your are a JAVA+Angular whore. Complaints? This workplace is for team-players only. Fired? Revoke the access with one click.
WeWork’s customers are also maintaining their own curated narrative. Many of them don’t actually care about ideology, they just want a hip co-working space where they can drink beer and socialize with other startups and “crush it” everyday.
It’s only fitting that the owner would also be full of shit.
I won't vote you down, but I think this is a pretty gross generalisation, is it not?
For every person shouting about crushing it and hammering back booze there are another handful quietly getting on with their work, happy to have an office space with stable, fast internet, clean, stocked kitchens, 24 hour access and clean, comfortable spaces - where they don't have to worry about sorting bills and contracts, cleaners, etc etc etc.
I'm genuinely curious. WeWork seems seriously over priced. At one person it's maybe 25%-50% more then else where. At 4 people it's like 300% more and keeps getting worse.
A couple of examples. Friends in Pasadena have an office that could fit 6 comfortably, 8 less so. $1300 a month. Guy at WeWork 1 block way, $1100 a month for an office just big enough to fit one desk.
A "hot desk" in Tokyo is $490 a month where as at my co-working space my dedicated desk is $400 a month. That includes "fast internet", meeting rooms, printers, copiers, cheap snacks, receptionist, networking events, cleaners, open 24/7 etc... The rent 3 person private office for $1k where as WeWork a single person private office is $1100.
They claim "coffee". Hardly seems like coffee is work $1k a month. Besides, there's probably 11 craft coffee places withing a 3 minute walk of my office.
And it's not an exception, there's been an explosion of co-working / shared office spaces in Tokyo over the last 2-4 years.
Speaking of coffee, so many people think that you need to go to some hip overpriced place to get caffeine. It's not true, and they are all just complete idiots hypnotized by marketing. I can literally buy a 6 lb tub of restaurant-quality instant coffee for the cost of about 15-20 of the overpriced "pour overs" you can get from your local hipster who went to barista school.
The great thing about instant coffee is that you don't even need hot water to make it. I've found that it mixes up great with cold water in one of those protein drink shakers with the little springy balls.
This is awesome because there's no heat or hot water in the storage unit I'm renting. That's a subject for another post, but I just need a parka and a pair of fingerless gloves to get the exact same experience as those co-working hipsters. Plus, I'm not subjected to the torture of an open plan office. My unit is in the basement, and it's dead quiet.
I'm sitting here, only five subway stops away from the fancy WeWork downtown, laughing my ass off at the startup bros high-fiving and "crushing it". I've got a way better experience, and all in I'm saving like $100-200 per month over those hipster bros.
Sounds fine if you don't care too much how your coffee tastes. Granted, buying coffee from a cafe always comes with a markup, but nice fresh-ground coffee beans (which you can also do at home and do pour over if you want) definitely beat instant coffee.
Aeropress + an electric kettle == pretty good coffee with roughly the hassle factor of instant.
Honestly, I think it's even decent with coffee that's ground ahead of time if it's stored well. Alternatively you can use it to make coffee concentrate that will keep for a few days in a fridge.
No he’s not? I didn’t find that post particularly sarcastic, caffeine is just a chemical. If all you care about is getting a quick fix all the extra taste and ceremony has no added value.
"This is awesome because there's no heat or hot water in the storage unit I'm renting. That's a subject for another post, but I just need a parka and a pair of fingerless gloves to get the exact same experience as those co-working hipsters."
There's a big difference in taste between cold instant coffee and a pour over. If you don't care about the coffee itself, I suggest caffeine pills. A half pill is equal to a cup of coffee and you can get the equivalent of 200 cups for $10.
I hypothesize that every university main campus has, nearby, a small-business incubator building with individual offices for lease. And I suspect that a good percentage of commuter campuses have them, too. If those are unavailable, class B office space is readily available in single-story strip-mall form, and sometimes old industrial buildings get converted to class C.
Your startup business probably does not require couches, stocked kitchens, and wi-fi. It needs a mailing address, a phone number, a website, and a way for people to pay you. Those folding tables from Costco will still be useful after you can afford real desks.
You can get 90% of that for a half or quarter the cost at a B grade office building, and not deal with noisy neighbors or occupied conference rooms. It usually takes committing to a contract, but if you're not ready to do that you probably don't need office space.
Just to counter your point - I worked from home as a freelancer for about 4 years. I decided I wanted separation between church and state, as it were. Definitely wasn't ready for a contract, but have been in a WeWork for 3+ years now (and am still happy to not have to commit to location/broadband/cleaner/whatever). I'm sure I could have paid for cheaper work space (although, London) - but the money I've made from meeting people here and chatting over lunch / coffee that I didn't have when I worked from home and attended meetups has more than covered everything I've spent. Not to mention my productivity increased noticeably.
As part of an investment round for WeWork in 2014, he was
granted Class B shares that gave him 10 votes per share,
and now he has more than 65% of the overall share vote,
according to WeWork corporate filings.
These multi-class ownership structures need to be reformed. The SEC is already thinking about it [0].
Well, one could argue the more complex the ownership structure is capable of being, the more opportunity for abuse arises.
For example, by saying he has "special" shares that grant him 10x the votes of "normal" shares, he can sell way more than 50% of the company and retain 100% control.
This means shareholders are 100% along for the ride, and get no say in how he runs the business.
I could see a strong argument for the SEC coming down hard and saying "Okay, enough is enough. 1 share, 1 vote."
To be predatory it has to be deceptive or complex in a way that leads people to misunderstand. This is not the case here. It is crystal clear that a non voting share gives the buyer no control over the company, and if he buyer accepts that then he should get no such control.
I was made more likely to invest in Facebook and Google because of the multi-share structures. I believe that having control and financial ownership separate concepts can be a good thing, provided those with control have a stronger/better vision than the aggregate of the investors.
This is not some underhanded, secret dealing. It's very much publicized. That makes it "not a scam" IMO.
I never said that multi-class shares are a scam. This is a straw man argument.
EDIT: To clarify, almost every scam involves the victim doing something of their own free will. Either they do not have all the information they need, or they do something based on trust which is then betrayed.
So saying scams are okay because people can just not fall for them is completely asinine.
In this case, you could argue that WeWork's shareholders have been "scammed" because they trusted that the CEO would act in WeWork's best interest, not his own. However, one could argue that he violated his fiduciary duty in renting office space for WeWork from himself at questionable rent prices.
The reason he was interest and able to do that, profitably, was that he actually owns a relatively low % of WeWork's stock. So he can use his 65% voting power to decide to do this, WeWork loses on the rent each month, and he basically profits by over 80% of WeWork's loss.
He's in a position where if he steals $100 from WeWork, then his shares drop by less than $20. Because he has majority control, the board can't do anything about it unless they or the SEC decides he's gone too far and is into fraud territory.
What enables his insane margins there is the 10x vote weighting he gave his own shares. If it were 1 vote = 1 share then he'd steal $100 and profit $35. Still incentive, but not TRIPLE the incentive.
EDIT: To further clarify what I mean by "stealing" is this... let's say the rent would usually be $1000 a month for the space. If he's charging WeWork $1100 a month, he's stealing $100 a month from his own company.
I'm not opposed to the use of multi-class shares in private companies, but for public companies I think that they should be phased out in line with the proposal from the SEC commissioner's speech. The self-dealing in the OP is another matter entirely -- and potentially worthy of a shareholder lawsuit for breach of fiduciary duty.
There are two sides to the coin, a good founder/CEO that has a controlling interest in the company can make long term strategic plans without fear of repercussions from short sighted investors.
But you can be a good founder/CEO and have a controlling interest in the company without using multi-class shares if you simply retain the majority of shares.
Problems such as the one mentioned in this article start occurring when multi-class share schemes start allowing the founder to effectively sell off most of the company while still retaining total control.
Read the SEC commissioner's speech that I linked, seriously. He doesn't propose banning them entirely, just phasing them out over a period of time. Clearly there is a flipside to carte blanche founder control when the CEO/Founder is underperforming yet can't be removed (e.g. Evan Spiegel).
Do you think Mark Zuckerberg's children should retain majority control of Facebook after he dies?
There is a competitive element when lots of VC money is chasing hot investments — the company has leverage to get investors to accept unfavorable terms. It is an aspect of our bubbly financial climate, like the boom in "covenant-lite" loans.
Also, there is a Ponzi-like aspect to VC funding in general, where incentives favor ever-rising valuations rather than the cultivation of sustainable, profitable businesses.
Unnecessary, no one is being duped into investing in a business in which they have no say. If they deem it's worth the additional agency risk, then they should be able to afford it, if not, they and others will learn going forward.
But it still perpetuates a class system whereby having money and influence yields (potentially) more money and influence. Main Street investors who will have no say at scale should not be excluded from participating in the wealth creation.
Certainly this is not a natural or easy problem, it requires a values analysis of our goals and principles. But if we truly want the market to evaluate a company, we must ultimately allow that market to change the fate of a company. The dual class shares prevent that, which I agree should be listed differently or restricted.
For example, if dual class shares were always subject to a confidence vote by the other shares once per 5 years, this is fine. Or you say that after 20 years the dual class must be dissolved. Allow the use for initial listing, but not forever. I think the author of the linked speech painted a very good picture of this.
There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.
Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway! Why wouldn't levandowski just employ his own company to supply components he was procuring for Google? Why wouldn't Shkreli pay his hedge fund investors back with cash from one of his other companies?
It's amazing how often 'innovation' and business success turns into corrupt self-enrichment. Unfortunately justice tends to only come once someone suitably senior gets screwed. With Levandowski that was Google, with Shkreli that was the government. I suspect with WeWork the law suits will come the second the investment value drops - investors won't do a thing until they start losing money, rather than just making less money than they otherwise would have.
(fundamentally in a capitalist society that recognises no moral restraint on money and it's not illegal ... why not? Surely you take as much money from the investors as you can and pocket exactly as much as you can get away with without being prosecuted? Anything less would be economically inefficient! /s)
It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones.
There's nothing inherently capitalist about corruption. It's a property of power, not capitalism.
And in reality, when/where can we find an actual state of equilibrium where no one has an unfair market advantage?
Here's an anecdote: I've received hundreds of thousands of euros from my parents (in my early 30's), they fully paid my education in a well-known private lycée, a nice "classe prépa", an expensive French business school. They paid everything until I get a highly paid job in a European startup, incl. some student exchange programmes abroad. I'm getting dozens of €K a year as gifts (with absolutely zero taxes). I own a big flat in one of the most expensive city in the world (where prices keep rising), and tones of shares on the stock market (4x in a few years, thank you Wall Street). My gains on the sale of these stocks are taxed far below my salary, so I'm not working too much (I'm already saving 2/3 your yearly revenues, and own ~6x the median wealth in my country). etc. You probably get the point. I'd be glad if anyone can explain how I'm not taking advantage of an extremely unfair advantage, and what Smith (or any other liberal economist) suggests to reach a state of equilibrium where I have to compete fairly with my fellow citizens.
There may have been more actual equilibrium in Smith's time. Mayer-Schonberger (Oxford) pointed out that, "...price is compromised by the very fact that it abridges the information available to the market." The conclusion, of his interesting but incomplete argument, is that price (traditionally understood) becomes increasingly untethered to reality as the digital economy overtakes the physical.
One could argue that looking far enough back, certain types of unfair advantage might only get reset by mobs with torches and pitchforks (or, more recently, yellow jackets).
I agree with you. Another way of saying this is that corruption is a property of human nature.
It seems that the most persistent problems we face often are. We can change our system of economic organization and politics but in the end the system is made up of individuals. Individuals who have all the same sort of flaws and who struggle with their human nature. It takes a lot of will and effort for a person to behave honestly and ethically. The interaction of peoples behaviors and the system they are in is a two way street.
I guess what I am saying is that we need to do the hard work of behaving better ourselves if we want to make our industry, community etc a better place.
> I agree with you. Another way of saying this is that corruption is a property of human nature.
Although this may be correct, it could also be the case that some systems nurture such "corruption" more than others. Changed societies produce changed people. For example, the widespread desire for fame only arose around the start of the 15th century but it really does seem quite natural to us now. A famous economist once wrote,
>Economists have a singular method of procedure. There are only two kinds of institutions for them, artificial and natural. The institutions of feudalism are artificial institutions, those of the bourgeoisie are natural institutions. In this, they resemble the theologians, who likewise establish two kinds of religion. Every religion which is not theirs is an invention of men, while their own is an emanation from God. When the economists say that present-day relations – the relations of bourgeois production – are natural, they imply that these are the relations in which wealth is created and productive forces developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time. They are eternal laws which must always govern society. Thus, there has been history, but there is no longer any. There has been history, since there were the institutions of feudalism, and in these institutions of feudalism we find quite different relations of production from those of bourgeois society, which the economists try to pass off as natural and as such, eternal.
It is not a property of human nature. It is endemic in human societies. That hair splits easily, if your knife is sharp enough.
We tolerate the corruption that comes with certain societal structures, because we gain more by having them than we lose from the corruption. You can't scale anything to national or international size without introducing a principal-agent problem.
It is not a property of human nature. It is endemic in human societies.
Pardon me, but I'm not immediately seeing the distinction, maybe I've read the statement wrong and found the wrong conclusion. Can you clarify/unpack that statement a bit? If it's not a property of human nature, how is it then endemic in human societies?
Does not the second sentence you're offering here completely betray the first?
The moral constraints on a human person are not the same as those on a human society. To say corruption is a property of human nature is to suggest that everyone is willing to be a source of corruption, rather than to suggest that everyone can be made to support the corruption of others under certain conditions.
Assume, only for the purposes of argument, that 10% of all humans would betray trust for personal gain.
In a close-knit, tribal society, limited by the human brain capacity for maintaining personal relationships, where everyone knows everybody else, it is not very profitable to betray a trust. After the first time someone does it, many of their peers revoke their trust, and that person then has to re-earn enough of it to reneg again. Each time, it becomes harder to get ahead.
In order to grow societies of larger sizes, we instituted trust-by-default relationships, just to make goods move from the loading docks. If human nature is 90% trustworthy, this is 90% safe. The remaining 10% can be dealt with via retaliatory mechanisms: bond revocation, lawsuits, arrests, etc. As long as the individual responsible can be identified, and punished, there is significant disincentive to reneg.
To grow larger still, we instituted pseudo-anonymous legal fictions. We started doing business with companies, instead of people. This provided an opening for the renegade 10%. They could let the company establish trust, take control of it or a portion of it, betray the trust for personal gain, and let the corporate shell take the brunt of retaliation--if anyone ever even found out about the betrayal. The type of person who would become corrupt is drawn to positions that are corruptible: the bosses of businesses and bureaucracies, and the cronies and collaborators of those corrupt bosses. The ultimate goal of a corrupt person is to be the fox in charge of a henhouse--nay, in charge of a whole poultry farm.
Whenever we rely on structure rather than people to manage societal complexity, the structures may be attacked whenever no one else is looking. The corporation cannot refuse to do as the CEO demands, as it has no will of its own. You can't watch everyone all the time; we just can't afford the costs of that kind of labor, that only humans can do. And whatever human oversight mechanism you may institute can then be infiltrated by the corrupt 10%, who can collude to profit from failure in oversight.
Qui custodiet custodes? It's corrupt cop-watching cops, all the way down.
It's like an auto-immune disorder. How can your body possibly defend itself from its own immune system, at the same time as all the foreign pathogens? So the corruption becomes endemic, because there are not enough people watching to keep everybody honest all the time.
If you put out a tray of goods with a price label and honor box, 90% of people will pay the correct amount if they take something. It only takes one renegade to empty the tray, break open the honor box, and ruin the whole thing for everyone. Or even just to take goods from the tray without paying, one at a time, until the profits are all gone. It's not worth paying someone to watch one tray. So set up a camera to watch it. That just adds a separate camera-disabling step for the renegade. Put up a camera-watching camera. The renegade tapes a photo of the tray-watching camera over the lens, disables it, then loots the tray. It's an arms race. The only way to win is to put another human in the loop, and the instant you do that, you have to pay them, and then your profit margin is shot. Besides that, there's always the 10% possibility that the person you pay to watch your tray is a corruptible individual, and they'll just go halfsies with the tray-looter.
Capitalism, as a class, is only meaningful in the sense that it provides some sort of constraint on free enterprise, otherwise capitalism doesn't mean anything at all. If it fails to apply a constraint on free enterprise that fails to address some fundamental corruption, then yes, that is a failure of the constraint.
I was responding that power produces corruption. There's no incorruptible alternative to capitalism because any alternative still gives people power to abuse.
I think there is still room to explore "less corruptible" alternatives. It is easy to fall into the "law of excluded middle" trap. If we are only willing to accept an incorruptible alternative to a current system then we are not likely to make progress.
I mean, this is how we ended up where we are today: we've been iterating on the set of laws and regulations surrounding the economy finding the best tradeoffs and we're yet to find something perfect. The problem is that that discussion tends to get into rather technocratic, wonky territory pretty quickly and bores people a hell of a lot more than making crazy eyes at the audience and ranting about political revolutions.
If it's a matter of degree, it generally seems like alternatives to capitalism perform worse (world wars, Stalin murdering 16 million, Mao's five year plan). Capital is a rather decentralized form of power, and typically to make any of it, you must put your own assets, resources, or time at risk. Except in edge cases which might not really be capitalism (slavery, central banking e.g.) you also can't accrue more capital without at least exchanging for something someone else wants, making it non-zero-sum and distributive, which is not the case for say political power.
absolutely. "War is a Racket" is on my desk right now. But literally everything was terrible in the 20th century. Still yet, as a proportion of world population things in the 20th century were arguably better than before, and the sins of state-sponsored capitalism were vastly vastly smaller in magnitude than state-sponsored "alternatives-to-capitalism", without even taking credit for the huge swaths of population whose quality of life has risen from subsistence due to it. Would you rather have one Stalin or five x (US invasions of Haiti, Nicaragua, and Iraq)? I know which I pick, every time.
Moreover, in its idealized form, capitalism has less of the state, whereas in its ideal form, marxism/communism has strong involvement of the state, versus classical socialism/anarchism in the Proudhon/Benjamin Tucker sense. There's even an essay by Tucker from the 19th century where he predicts the rise of leninism, gulags, venezuela-like conditions etc, as a natural consequence of Marxism, long before they even happen.
It's interesting you mention World Wars in reference to alternative systems. "Merchants of Death", in the case of the US and capitalism, instantly comes to mind.
Otherwise, there are many contemporary examples of concentration of capital. Whether it is distributive isn't the question, but more the trends of distribution.
It's also quite interesting you mention central banks here, considering the substantial evidence of bulge bracket banks acting as an antithesis to your statement about risk (i.e "too big to fail").
The OP didn't say that it has to work perfectly to work. Capitalism just has to be better than the alternatives and society needs to do its best to fight back against the corruption and cronyism which corrupts it.
Too often people want to abandon markets and replace it with something that solves some of the problems but introduce tons of their own, instead of fixing obvious problems within the current system that was otherwise working well.
The better solution is a bunch of smaller experiments being run simultaneously in large economies (Ala at the state level) to see what works best. Instead of pretending we can have a one-size-fits-all best solution for the entire world.
>There's nothing inherently capitalist about corruption. It's a property of power, not capitalism.
That's the same argument that says "USSR/DDR/Cambodia/NK/etc was no real communism".
We might excuse a few diversions from a political/economic system, but after some point, like with anything else, capitalism is what capitalism does time and again.
Not sure this makes sense to me? There's corruption in every system, regardless of the ideology behind it. Are you saying there's no corruption in communism? Because I have news for you, if you do.
It seems like corruption is simply endemic to the human condition. It has nothing to do with capitalism/communism/etc. Whatever the system happens to be, we will find a way to corrupt it.
It doesn't appear to be what this person is saying. Rather, that we can't deflect from flaws in ideology having to do with the system in place, and the issues that stem from that.
Having said that, I find it to be rather unproductive and pessimistic to assert corruption is endemic to humanity and has nothing to do with ideology. Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.
> Having said that, I find it to be rather unproductive and pessimistic to assert corruption is endemic to humanity and has nothing to do with ideology. Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.
This kind of blank-slate, "New Soviet Man" idea has been tested and found lacking.
> Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.
How so? Is corruption different somehow depending on the ideological foundations of the system? Corruption is corruption. Every system has rules. When you subvert those rules for personal gain, that's corruption.
>How so? Is corruption different somehow depending on the ideological foundations of the system?
Of course.
Different systems enable, empower, and encourage, different types of corruption.
(Corruption being an abstract word, in programming terms there's no corruption "class", just corruption instances. So the nature of those corruption instances depend on the classes defined in the program -e.g. capitalism.c- you're running...).
(And of course share some basic corruption types, present in all societies/systems, e.g. theft -- the POSIX of corruption).
We've started the thread with concrete examples...
Check the @pjc50, @Traster etc comments at the top.
And @humanrebar already put this in abstract form: "It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones"
> Check the @pjc50, @Traster etc comments at the top.
Those are specific examples of corruption here in the US. Are you asserting that you wouldn't be able to find the same corruption, for example, in China?
Please provide a single example of corruption that can occur under capitalism, but wouldn't occur under another economic system. Because I'm asserting they do not exist.
> And @humanrebar already put this in abstract form: "It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones"
Yes, he was perfectly right to. There are always private parties. Even under communism.
>Not sure this makes sense to me? There's corruption in every system, regardless of the ideology behind it
I'm saying that some types of corruption are endemic to certain systems. And if we see these types of corruption time and again on a system, then the system enables that type of corruption.
>It seems like corruption is simply endemic to the human condition. It has nothing to do with capitalism/communism/etc. Whatever the system happens to be, we will find a way to corrupt it.
My argument wasn't about corruption in general (which we will always have under every system), but about a certain type of enterprise-related corruption, that can't be brushed away by "no true Scotsman/capitalism", as if 'truly adhering' to the ways of capitalism would eliminate it.
> a certain type of enterprise-related corruption, that can't be brushed away
If a system of government promotes X then there will appear X-related corruption. Capitalist governments promote enterprises, thus appears enterprise-related correction. Governments which promote the church will foster church-related corruption, etc. etc..
I don't see how this observation about capitalism is a particularly interesting one. Perhaps you could make some ground with "and capitalism uniquely allows this corruption to flourish on a scale never seen before" but that's not what I've seen in these kind of kneejerk criticisms.
Capitalist governments promote enterprises, thus appears enterprise-related correction. Governments which promote the church will foster church-related corruption, etc. etc..
Governments which are the party will promote party corruption. [looks at China] Yup. Checks out.
I wasn't making a no true capitalism argument. I was responding to the implicit straw man that ties capitalism to apathy or complicity about corruption. Capitalists care about private corruption. They always have. That's why there are laws and norms around fraud, nepotism, embezzling, and white collar crime in general.
Just because people are creative and invent new ways to be corrupt doesn't mean captilist societies are indifferent.
I would expect people skeptical towards corporations to see some common ground here.
It is. That's the whole point of having systems to regulate it. When those systems are overridden by, in effect, collective freeloaders, any system breaks down.
> We might excuse a few diversions from a political/economic system, but after some point, like with anything else, capitalism is what capitalism does time and again.
And by that standard, I'll take capitalism every day of the week:
It's worth noting that almost no traditional anti-capitalist or Communist argument relies on doubting the extensive evidence that widespread lifting from poverty is the result of capitalism and even fewer would disagree with the fact that such development has occured under capitalism. Marx famously declared that workers must be "doubly free": firstly free to sell their labour how they like, and secondly freed from the means of production and the products they make.
A good deal of research justifiably focuses on what life is actually like and the nature of exploitation in capitalist societies, and especially under neoliberalism. I'd point you to the work of D.K. Foley, Dumenil and Levy, Roberto Veneziani, Naoki Yoshihara, G.A. Cohen and John Roemer on those points.
Yes, perhaps Marxism was done a disservice by trying to impose it on agrarian, aristocratic civilizations like Russia and China instead of industrialized, capitalist civilizations like Germany and the United States. The history of Soviet industrialization under Stalin almost reads more like a Marxist caricature of industrial capitalism. And it was probably also done a disservice by the fact that when it was imposed on industrialized countries, it was done so at force and after significant devastation and confiscation of any remaining valuable industrial equipment (e.g. East Germany). However, it's also clear that 19th century industrial capitalism never really led to Marxist revolution.
The USSR never had communism. The official party line always was that it is a socialist state, on the way to communism. And once they reach full communism things will be really good.
Coldtea was referencing the very protestation you cited uncritically, so your comment added little to the conversation and appeared to be missing the point.
It was offical party line and tought in schools though. It was in school curriculum that USSR was a socialist system which should eventually lead to a communist society but it was not yet communism but more of a staging area which should lead there in the end.
Right, but the argument from the other side is that "real communism" can't be reached. It's a myth. What you get with the Soviets is the real communism.
That sort of ignores the actual theory of communism, but so far it's a pretty accurate assessment.
The point is that exploitation (of the people, the system, etc) for personal gain has nothing to do with capitalism, or socialism, or any other system.
Some people will do that in any system, it's human nature.
Now, in a system that has the rule of law you cannot be prevented to do something that isn't illegal. This is actually the best (or least bad) system we've come up with.
> Now, in a system that has the rule of law you cannot be prevented to do something that isn't illegal.
In a systme that has the rule of law, the lawmakers can choose to make certain behaviours legal if or when they harm the society. For example, private and corporate tax loopholes can be closed, and corrupt behavior can be outlawed or a liability instituted that the harmed party can claim.
It's childish not to blame capitalist governments for allowing certain kinds of corruption that are left to fester.
Capitalism cannot function without people exploiting the system for personal gain. If some CEO decided to stop trying to make as much money as possible but rather commit their resources to providing some sort of public good, they would be succinctly ousted by the board. Or their firm would tank, because companies that don't put profit first can't survive on the market.
Jeff Bezos can amass $100 billion in wealth and donate it to philanthropic causes, but if he decided to open source AWS or pay his workers a living wage, or pay publishers a reasonable price for books, etc, he wouldn't have $100 billion in the first place.
> Or their firm would tank, because companies that don't put profit first can't survive on the market.
I would argue that this is not strictly speaking true. There are successful companies which don't (seemingly) put profit first. Examples include Morning Star (tomatoes, not the newspaper)[1], Mondragon[2] and perhaps most co-operatives in general.
One aspect that is often overlooked is that it is necessary to balance the books. This is an universal requirement when resources aren't unlimited and it applies to physics, biology, and economics.
Capitalism very clearly and unapologetically forces this, while some people imagine that, somehow, that constraint does not apply in other systems.
> “Capitalism cannot function without people exploiting the system for personal gain.”
no, that’s too strong a claim. capitalism’s innovation is that it redirects greed into productive uses and allows personal gain in the process. so it explicitly accounts for our greed but doesn’t depend on it. it allows more pro-social forms of trade and competition as well.
the reason it seems so heartless/exploitative is that highly competitive markets push the competitors to extremes and money is used to keep score. and people cheat easily; some not to lose, some to win at all costs. (even in non-highly competitive markets this happens if status is highly sought by owners/execs)
I often wonder about this, and here’s my (u/dys)topian vision:
The top 5% of children in some measure of ideal traits for just ruling are whisked away to a bubble where they are educated for the purpose of governing, with no opportunity to ever rejoin the general populace. They have absolute power but no opportunity to benefit themselves or their families.
I'm saying a small number of people amassing a large amount of wealth through exploitation of the labor of others for personal gain is not what drives a socialist economy. Corruption and exploitation exists in all societies, but in capitalism it is a necessary element for the function to survive. There is no non-exploitative, fair capitalism.
Capitalism is the only system that limits the corruption. Unless the people are being forced to work/buy/sell with amazon, they are by definition not being exploited. Bezos is the richest person in the world because he provided a better service with a focus on long term profit. The world is different now because of it and people think its better because they are choosing to do it.
Bezos didn't build Amazon or AWS, his workers did. He contributed as CEO, but the work was done by thousands of smart, hard-working and talented people around the world, but they don't own the company. Bezos's salary is just $80,000 a year -- his wealth doesn't come from the work he does for Amazon but the fact that he is the one who owns the capital and reaps the profit.
That's correct, but why does he have the resources to do it? Because he came from a rich family with capital to invest. Why isn't capital distributed evenly across all workers, not just of Amazon, but in an entire society, so that everyone shares in the profits instead of one man? What is exceptional about the fact that he had the capital to make an initial investment, why does that mean he should be a billionaire? We invested collectively in the technology that created the internet in the first place through publicly funded research, and yet we do not see the material benefits, only a small few do.
What would it mean for capital to be distributed evenly? Under such a system, what would be the advantage for someone to save and invest rather than consume? (After all, on "turn 2", the capital is going to all be redistributed so it's even again. Then again on turn 3...)
Could you sketch out your idea a bit more? At the moment, I'm not getting it.
>Unless the people are being forced to work/buy/sell with amazon, they are by definition not being exploited.
"forced" can happen in more ways than one. Workers in third world sweatshops aren't forced by law to work there, but they are forced by capitalism to work there to feed their families.
Employees who freely take the best option available to them are not made better off if that option is removed.
I don't believe that Bezos or other employers are acting selfishly when them employ people, even when they make a margin on that labor. (In fact, if they don't make a margin on that labor, they would be better off to stop employing that person, meaning the situation where the employee and employer both make money on the deal is the most stable state.)
They are made better off if their wages are improved, ie if they organize and struggle for a minimum wage or a union. Employers will work their employees as much as possible for as little pay as possible, only the law and organized struggle prevents them from paying less. Capitalism encourages businesses to reduce their costs as much as possible, including labor costs, so obviously they will do anything they can to pay people less unless they fight back
fundamentally I'd like to believe these are exceptions to the rule. There are capitalists like this but they're a sort and don't represent the lot of us.
A key differentiator between the two is perhaps those that complain about capital gains tax effectively "taxing them twice".
oho, you are also the company?
Thats actually not the point they are making. They are saying that their income was taxed once when they made it, then after taking the risk of investing it in the market it is being taxed again if they earn a profit. It is still technically false but now that so many people see things like index funds as a sort of bank account it makes sense why they would feel they shouldnt be taxed again on it upon withdrawal.
Bank account interest is subject to income tax; brokerage accounts are only taxed on additional growth or dividends, and often at lower than income rates for stocks. So I'm confused why people would think that index fund income isn't taxed due to any similarity to bank accounts.
That's part of the deal of being a corporation. If you want pass-through taxation, that's what partnerships and LLCs are for. Of course, if you also want outside investors...
This is one of those instances where yes, of course it would be nice for you if you didn't have to give as much money to the government in taxes. But that's just not how it works.
fundamentally in a capitalist society that recognises no moral restraint on money and it's not illegal ... why not?
Capitalists are also concerned about conflicts of interest.
Anything less would be economically inefficient! /s)
Smart, far-seeing capitalists are able to see beyond mere legalities. Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies.
I understand with what you’re saying and agree that this can be useful, but it also amounts to a lawless “do whatever we want” attitude amongst highly privileged people that may run counter to democratic concerns. Wealthy people could say taxes are immoral and not pay them, which could lead to underfunding of schools and hospitals, for example.
> Smart, far-seeing capitalists are able to see beyond mere legalities. Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies
A smart, far-seeing capitalist realizes this is a collective action problem, and knows that there is no incentive not to practice cronyism as an individual.
They aren't choosing between having cronyism and not having cronyism... they are choosing between having cronyism and not participating or having cronyism and participating.
> Smart, far-seeing capitalists are able to see beyond mere legalities.
This is exactly the argument that Marxist made. They weren't going to let traditional middle class morality hold them back, they had history on their side and new what was ultimately best for society. They had real examples where trashing norms and moral codes ultimately worked for the best, such as overcoming a restriction on vivisection to cure a horrible disease. Or ignoring FDA regulations to get a helpful blood test to market. The argument can always be made. It just tends to end badly.
Arthur Koestler wrote about this a lot in Darkness in Noon.
No it's not. Smart, far-seeing people observe what's broken in the system, and many of them can fix it while making money. Then, there are people who don't care about externalities, and exploit the flaws while causing others harm. Sometimes outdated laws can be modified, or phased out.
The proposal of Marxists is that they take things away by force.
I take "seeing beyond legalities" to mean ignoring the law, not changing it of phasing it out. Ignoring the law is bad, even if you think you are doing it for a good reason.
Modifying the law or phasing out a law is fine and smart people companies should do that. I felt like the OP was saying that when you think a law is wrong you should ignore it.
> The proposal of Marxists is that they take things away by force.
Breaking a law in most cases is taking something away from someone or some entity, whether it is rights or property. It is bad to take something away by force. But it is bad to take it away by stealing or cheating too.
> The proposal of Marxists is that they take things away by force.
Capitalism is not possible without state application of force and coersion.
Consider land ownership, for instance. It is completely predicated on the use of force. The only reason you 'own' your land, is because someone a long time back used force to take it away from someone else (Or, if they were the original settler, used force to take it away from the commons).
"Ah, but now that we've divided all the land into various lots that people own, we can divorce ourselves from the original use of force! Going forward, we won't use violence to secure new ownership of land!"
Well, under Marxism, after a one-time use of force, whereupon productive property is transferred to the ownership of the state, it can also divorce itself from the original use of force. After all, going forward, it won't need to use force to seize productive property, either - because it will already have an owner - the state.
All ownership requires force. Ownership of personal property typically requires a continuous personal application of force. Ownership of private property (Land, productive enterprises, etc) requires a continuous application of state force.
The efficiency of the capitalistic system is not something a capitalist strives to optimise. It is the personal utility that is the main benchmark of success.
Actually, success in a capitalistic system is being able to withdraw yourself from the capitalistic system.
Why do you go to work? To make money. So that you, or your children, don't have to go to work, and can pursue personal interests that don't have one whit to do with capitalism.
This sounds like a comic book's description of economic structures where everything is black and white and there are no ifs or buts.
> Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies.
Can you give an example of 'central planning' in the modern world that wouldn't also apply to large businesses that operate at scale, like agribusinesses or mining?
This sounds like a comic book's description of economic structures where everything is black and white and there are no ifs or buts.
Maybe I should write economic tracts for socialists and ancap Libertarians.
Can you give an example of 'central planning' in the modern world
I've seen what happens when huge companies start to mandate that, "All new coding will be in Java. All databases will be on Oracle..." That never works. Everyone figures out a way to drag their feet and bring that to a halt. What does work? Doing something like mandating that all systems will be accessible over Webservices. That opens up resources within the company interacting in new ways as they see fit.
My grandfather was doing microlending in the early part of the 20th century, even when Korea was still occupied by Japan. Even people who are dirt poor can get their hands on enough capital to get the ball rolling. In many cases, Chinese immigrants start off poorer than the poor segments of the societies they move to, and yet have climbed into the middle and upper classes in a few generations. Often, this is done by pooling resources.
Look at history. The key ingredient isn't capital. Those who believe it is are precisely the ones who fail at capitalism. (Often they are the ones who take capital away from others by force, then see those industries fail and fade away.)
The vast majority of small businesses fail; wealthier people are more likely to start companies and more likely to succeed. (For some intuition, they can afford the float, on their living expenses, if nothing else, for longer, until they find market traction.)
Capital is indeed quintessential to capitalizing on market opportunities through business. It is in the name for a reason.
You make a sweeping and inaccurate statement that people who understand the dictionary definition of capitalism are all socialists who want to start a red revolution, which is just ludicrous and broadly offensive.
(The fact that I've revealed a truly remarkable bit of my family's history to you, for you to simply dismiss it, speaks volumes. You demonstrate no curiosity about it. It's simply something for you to "debunk." Just wow. Do you have any idea what my Korean grandfather had to accomplish within the Japanese occupied system to get into the position to microlend? Do you know what that meant for the farmers he was able to lend to? Do you have any clue what the North Korean communists who came into power would have made of all that? No curiosity about actual history, just partisan axe grinding. George Orwell was right about upper/middle class lefties. They don't care about helping the poor so much as about hurting the rich.)
The repeated climb of Chinese immigrants, going back over a thousand years, across different eras of history, in widely differing parts of the world, is not mere anecdote. If you include immigrants of other ethnicities, then the pattern becomes stronger, and the evidence mounts.
The vast majority of small businesses fail;
True. So one tries again.
wealthier people are more likely to start companies and more likely to succeed.
That's Pareto, not Capitalism.
Capital is indeed quintessential to capitalizing on market opportunities through business. It is in the name for a reason.
Yet time and time again, poor immigrants get themselves into the game and succeed, with little or modest access to capital. Contrast this with the numerous situations where industries are socialized, but into the hands of a different class/identity group, then proceed to decay. Capital is helpful, but isn't the key. Culture and knowledge are.
In this, there is hope, because culture and knowledge are transmissible.
I'm glad you're proud of your grandfather, but your emotional attachment to him does not strengthen an argument that capital is not required to start a business. I don't mean to be dismissive of his struggle in any way and I am aware that the Japanese occupation of Korea was atrocious.
> Contrast this with the numerous situations where industries are socialized, but into the hands of a different class/identity group, then proceed to decay.
Dude, I am not advocating socialism. You are repeatedly attempting to frame this as capitalism vs socialism and that is just not even related. I am pro-capitalism as much as I am pro-gravity but also pro-facts, truth, and realistic personal financial advice.
This happens even on the small scale. My SO was an exceptionally good paralegal at a law firm that was imploding due to issues like this, so after encouraging her, she convinced her boss to leave the firm and they started their own. It started doing well very quickly, and suddenly the lawyer she was working for became the very thing he hated in the first place. Doing stuff like spending 10-15k a month on the firms American express on hunting trips, spending so much time hunting he's in the office half the year, pulling multiple 5k "disbursements" a month for himself (on top of salary), to the tune of nearly 40k a month in personal expenses, and then for a few months had to take out a loan to meet payroll!
Thankfully she sees the writing on the wall and is about to get her CPA and bounce, and I'm going to laugh when it all collapses around him because she's basically running the firm, but lawyers have a racket so you can't do profit sharing with the non lawyer plebs (by law) like paralegals so she gets a fraction of the pay to do most of the work while he lives the high life, which is exactly what imploded the old firm!
>> "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law."
> Does anyone know the motivations and publicly stated reasons for this absurd restriction?
Total speculation, but maybe it's to keep the profession controlled by its practitioners and not financiers? The exclusion of paralegals, etc. could just be a side effect of keeping investors out.
I do see some benefits for that kind of restriction. If your profession is bound by a code of ethics, it would help with compliance if all the top leadership were bound by it too. If they're just owners from outside the profession, there will always be pressure to compromise ethics to benefit the owner.
“It ensures that your legal work is done by professionals who have spent years to study the subject. The costs to making mistakes in this industry are high and we choose to maintain a high standard of quality by ensuring legal subjects are only handled by professionals with requisite experience”
Essentially, think of anyone who argues for certification.
That's fair. So this is just partnerships, then? Is a lawyer still allowed to take part in leadership of a company that has non-lawyer leadership provided it's not a partnership, specifically?
Law firms are typically structured as partnerships. I'm not sure if that's because there's another restriction against operating a law firm as a non-partnership or what.
If a lawyer was part of a company that wasn't a law firm, that would be fine. Actually, this happens pretty frequently--many sports agents happen to be lawyers, because sports agents are responsible for contract negotiations and legal skills are valuable in that situation--though they do not necessarily represent their clients as lawyers and hence the sports agencies they own and operate aren't treated as law firms.
For example, Drew Rosenhaus is a lawyer and a prominent sports agent, and his firm is neither a partnership nor a law firm. Rosenhaus is famous for a number of things, such as being the real-life inspiration for the title character in the film Jerry Maguire and holding a press conference with his famously difficult client Terrell Owens during one of the many controversial incidents he got himself into and responding to every question from the reporters with the phrase, "next question". He was also the agent of Chad Johnson, who famously legally changed his name to Chad Ochocinco for four years to get around league rules preventing him from putting that inaccurate Spanish translation of his jersey number on his jersey in place of his surname.
I see an exemption for "compensation", which I assume means "You can't pay out profits to non-managing non-lawyer silent partners, but you can do it for any non-laywer worker as part of their compensation arrangement."
>(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement; and
Do you know how that came about? It seems like a weird restriction. I can understand wanting to prevent shady firms from misrepresenting non-lawyers as lawyers to clients, but I don't understand why any of the rest of it follows.
This bit seems like a loophole:
> (3) a lawyer or law firm may include nonlawyer employees in a compensation … plan, even though the plan is based in whole … on a profit-sharing arrangement
I think it's per-state, but in Texas at least, it's illegal to do profit sharing with non lawyers. It is also illegal for a non lawyer to have majority or controlling ownership of a firm. I know because both my SO and my mother are best in class legal secretaries and we were investigating opening our own firm without the asshole lawyers taking all the money for 1/4th the work.
It's meant to prevent investors from pressuring attorneys to prioritize profit over legal ethics. The thinking is that an attorney has their bar license on the line when making ethical decisions. If everyone's license is on the line they're likely to act in accordance with their ethical obligations. If a non-attorney invests in a law firm they could pressure the attorney to risk their license to generate more profit.
Accounting firms used to have the same rule (though they've relaxed it a bit to allow non-CPAs to own less than 40% or 50% as the accounting firms got more and more into "consulting"). The rationale is explained well here[1]. Large law firms are making a similar, though slower, transition to expanding their consulting services. Particularly with respect to data privacy and cybersecurity. I would expect the rules to relax over time.
The U.K. recently permitted non-lawyers to invest in law firms but it doesn't seem many investors have jumped in head-first. Law firms and accounting firms don't have much by way of "assets" so they can be quite risky. I briefly worked at Deloitte with a former Arthur Anderson partner. He was quick to warn all of the young staff about what a terrible investment his equity had been. One rogue partner can sink the entire ship and leave the rest without much ability to recoup the money they put in.
Which really cracked me up, having consulted with firms on the IT side and knowing so many lawyers, I can say that one's that put ethics above profits are the exception, and so lawyers already violate the basic reasoning for that law in the first place!
Just seems like an excuse to maintain a racket to me.
I think part of the "high-roller life" includes hiding the source (or obstructing) of your wealth. So I doubt that OP's SO will fall for it as she sees the source herself.
It would be like someone trying to impress someone with a fake Rolex that the other person knew was fake.
Among the ambitious and entrepreneurial, this sort of behavior is nothing new.
In his autobiography, Benjamin Franklin relates how he found himself as a government official for the colony of Pennsylvania and then proceeded to hire his own printing shop whenever his office needed to publish a widely circulated document or pamphlet.
I think the perception has changed a great deal since then. Note that the USA government hired on a spoils-based system until 1883: https://en.wikipedia.org/wiki/Spoils_system
It would be brilliant to see an analysis of how commonplace this and other types of corruption were historically and geographically.
It’s funny when companies do things that harm the public directly or indirectly, we get high minded passionate economists or whomever telling us how companies have a sacred duty to maximize shareholder value, blah blah blah.
When you see countless companies get looted and crushed by private equity takeovers, to the point that middle schoolers can predict with accuracy when a company will vaporize, you get analysts with nonsensical stories about turnarounds, etc.
But when self-dealing management use the company to enrich themselves in a way that is at best ethically questionable, you don’t hear too much.
Incubating a culture of corruption has some obvious negative impacts.
There's also a variety of complications, from pension funds that do invest in VC funds, to national security implications of foreign principals funneling investments to individuals. You also have disruptive market behavior if we allow the boys with access to VC capital the ability to do whatever, while publicly traded real estate trusts need to meet regulatory requirements that prohibit that type of activity.
"Once mutual funds and pension funds start investing in WeWork, then I’ll care."
there is a good chance that pension funds have already invested in WeWork, directly or indirectly. Where do you think the money is coming from? The VCs aren't putting in their own money.
> Once mutual funds and pension funds start investing in WeWork, then I’ll care.
“all is mine which is not nailed down and nothing is nailed down that can be pried loose.”
Cultures, laws and traditions aren't set in stone and can be changed. If society and culture simply look the other way and the media simply rehash press releases, then the day will come when acting like this becomes the norm.
It lets WeWork's CEO shape our world. Those with money can build buildings and fund businesses and ventures that affect the reality of thousands or millions, ie the public. We would like that power to be granted appropriately.
When those vc's sell the company to your mutual there is a phrase they use as they light a Monte Cristo with a 1000 dollar bill in an infinity pool: "That guy from the mutual? We ripped his face off."
Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway!
A CEO being the landlord strikes me as a big potential conflict of interest. For example, if the company needs to move to a larger space to grow, the CEO might want to delay to avoid losing income. Perhaps the company might have a prospective buyer who'd want to relocate everyone to their campus. In that case, there would be an external incentive for the CEO not to make the deal.
Why wouldn't levandowski just employ his own company to supply components he was procuring for Google?
The way this used to work, is that the employee would become aware of a market need because the current company had that need and would be a great customer, so the employee spins out her own business, then leaves to run it.
Some people say that McDonald's Corp is not a restaurant, but a real estate company. They get other people to own and run the restaurants, but they buy and lease the land to them at a profit.
So how is this different than WeWork's CEO owning the building and leasing it to WeWork?
In that case, McDonald's still owns the real estate, not Ray Kroc. Here the interests of the corporation and Ray Kroc (as shareholder of McDonald's) are aligned - McDonald's has no incentive to overpay for the real estate, because that would reduce its profits.
Did Ray Kroc personally buy real estate and then lease it to McDonalds to sublease it to franchisees? Was he on both sides of the transactions, leasor as owner of the property and leasee as CEO of the company signing the first lease?
That is not what happened. The Chairman was buying Sears out of bankruptcy using his fund. He didn't approve it, an independent law firm did (they rejected his first bid), and it still has to be approved by a bankruptcy judge, which isn't a foregone conclusions, since Sear's unsecured creditors are going to fight it.
I think their point isn't about the recent bankruptcy, but that he bought out controlling shares of Sears, sold himself the retail property of Sears and KMart, and then started charging rent to the public company.
There's no clear motive. I guess he's keeping the company alive long enough to sell off more of it's assets, but it seems like a relatively low yield operation to me.
Perhaps he's operating on a level we can't comprehend
Strip the assets beyond the bankruptcy code's 2 year fraudulent conveyance lookback period. Fix the problem by extending it to 10 years for corporate fiduciaries or something.
There is a pretty clear motive to me, tons and tons of prime real estate in the heart of pretty much every community that has more than ten thousand residents.
Yeah, this is not just in SV. Conflict of interest seems to be one of those things, in the last 20 years or more, that people do not give a shit about. I've seen it in a lot of places, and when I have conversations about it with smart friends, I don't get a rise out of anyone. I can only imagine what the average, working-class Joe/Jill think. If I had a conversation with them, they'd probably think I was some kind of nut.
To me, this smells like American culture just being corrupt.
It's been sold in the media for years, if you're successful then everything is permissible because "job creators". If you constantly glorify crime, that's how you get more criminals.
The fish rots from the head, and there's a pretty big precedent at the head of the US government in terms of conflict of interest.
It's also worth noting that the US maybe 20 years ago was somewhat exceptional when it comes to conflicts of interest. In other cultures, personal relationships and personal vested interests that we would consider "corrupt" are a load-bearing part of the social structure. So perhaps we're reverting more to the global mean on this point.
This type of behavior is nothing new. Years ago, I worked as a developer at a very large silicon valley based company. Everyone here would recognize their name.
It was common knowledge that the "corporate art" on the walls of the buildings was owned by various members of the "C-Suite" and leased back to the company.
Don't even get me started on the private loans given to members of the C-Suite and Board then subsequently "forgiven".
I used to rage about it every time they published their financials.
Reminds me of Galt's Gulch, where all the good guys name companies after themselves, and all the bad guys name themselves something generic like "Associated Steel".
(b) you'll get to keep having FU money (perhaps drastically less, but still FU money) whatever you try
Then you don't have "skin in the game" anymore like a normal person does.
If Bezos fortune goes from 100 billion to 5 billion due to bad bets, he still hasn't suffered anything more significant than some damage to his ego (meanwhile Amazon employees could see their lives and finances ruined).
$1000 in the bank is enough to feel like you can cover rent, bills, and meals. $50 is not. Do you think he would feel like he wouldn't know whether he'd have a roof over his head next month, or whether he should start skipping meals entirely?
Yeah but he would have no skin in the game. Or much less than ordinary person. You need to be in a position where if your bet goes awry you’ll end up in some sort of worse state (not having few less zeros in the bank account but your actual lifestyle and quality of life affected in a meaningful way).
My comment was not about WeWork's CEO, but rather in reference to the Galt's Gulch (Atlas Shrugged by Ayn Rand)comment. They made a comment that the heroes in Atlas Shrugged used their own names as the monikers of their companies. I was simply stating that the comparison didn't carry over to Tesla = Musk. That was all. It seems to have triggered some to respond to their own interpretation. Skin in the game was putting your name on your company, not a more ambiguous one to hide behind. I would argue that unless you can change your name, you are putting skin into the game by naming your company after yourself.
I also refrain from the concept of FU money, all that it connotates, and that someone else can determine how much I can have.
Why are they putting their skin in the game? What sort of decisions could WeWork, Tesla, or Amazon make that would ruin the personal finances of Neumann, Musk, or Bezos? There is still a corporate abstraction, so while profits turn into bonuses, losses don't turn into personal misfortune for the founders. (Although they may turn into personal misfortune for laid-off employees.)
(And yes, the real world is not a fictional caricature.)
Not sure about that. He maintains very luxurious lifestyle. His continuous investment in Tesla could be seen more as an effort to maintain full / majority shareholder control of the company. I don’t think he would sell his house and invest the money in Tesla. He would still be rich even if Tesla goes bankrupt. Plus he has billionaire family members as a fallback.
What if you need $10B to reach your goal? You'll need to raise money somehow, and reputation is the deciding factor for many investors.
Also, once you become fabulously wealthy, you want something more than financial security, you want to be remembered. Look at the flip Bill Gates did with becoming a leading philanthropist. He doesn't want to be remembered as the evil, anti-competitive CEO of Microsoft during the 90s, he wants to be remembered for his work in the Bill and Melinda Gates foundation. Trump didn't want to be remembered as the shrewd personality on The Apprentice, he wanted to become President of the United States. Some just want to be extraordinarily rich to make "richest people in the world" lists (that's where I place Larry Ellison).
$2B is far from enough for most people to "be remembered".
"I had a great conversation with Albert Brooks once. When I met him for the first time, I was kind of stammering. I said, you make movies, they live on forever. I just do these late-night shows, they get lost, they’re never seen again and who cares? And he looked at me and he said, [Albert Brooks voice] “What are you talking about? None of it matters.” None of it matters? “No, that’s the secret. In 1940, people said Clark Gable is the face of the 20th Century. Who [expletive] thinks about Clark Gable? It doesn’t matter. You’ll be forgotten. I’ll be forgotten. We’ll all be forgotten.” It’s so funny because you’d think that would depress me. I was walking on air after that."
With some people, it really does take a long, long time for them to be forgotten. How many people don't know the name of Nero, after all? It's been roughly 2,000 years and people still know about him.
> Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway!
The shareholders do mind, because these actions may violate the CEO's fiduciary duty to act in their best interest. They can sue him for violating said duty.
Less relevant in WeWork's case, but very relevant in Tesla's case, since it's a public company, and in fact Tesla and Musk have been sued for neglecting their duties before:
>The shareholders do mind, because these actions may violate the CEO's fiduciary duty to act in their best interest. They can sue him for violating said duty.
Yeah, and how well is that going to work out for them? They should have known better than to invest in this company in the first place; companies like that are cults of personality. It's like investing in Sears under Eddie Lampert; you have to be a moron to put your money into Sears stock when it's obvious the guy is solely working to drain as much money out of Sears and into his own bank account as possible. And a lawsuit, even if you win, isn't going to net you much money.
> Yeah, and how well is that going to work out for them? They should have known better than to invest in this company in the first place; companies like that are cults of personality.
So you are saying the investors (who are the current shareholders) stupidly bought into Neumann personality cult.
So now they are paying for their idiocy.
This isn't some failure of capitalism: it's the failure of large, wealthy, sophisticated investors to properly assess their own investment.
Exactly, yes. It's the investors' job to research their investments, and company stock investments have no guarantees (unlike a CD or savings bond, for instance). Personality cult companies can actually be good investments; it just depends on the personality. Investing in Apple while Jobs was running it before he died was generally a very good and profitable investment, for instance. This company doesn't appear to be that way, and I'm saying that as someone who hasn't researched it, I'm just going on what a few negative news articles I've seen about them and their leader. The signs appear to all be there that this company is not a good long-term investment like Apple or Oracle (another company basically run by one guy), it's more like investing in Theranos.
Some investors have decided that the best returns come from companies that have CEO's/leaders that run them like sole proprietorships. This works best when the CEO is actually the founder of the company. Investors with this philosophy would like to have that person have majority ownership of the company, but this rarely (never?) financially possible. Some companies have stock step ups that let the founder(s) keep voting control even though they don't have the majority of the stock. Google, Facebook, and Snap are some companies like this.
Other very successful companies that have/had a single person that basically runs the whole place as their own company are Berkshire Hathaway, Apple, Oracle, Microsoft, Amazon. The top five American companies by market cap are of this type. I would not say the this is such a bad thing as these people are looking out for the companies long term future. Compare HP before and after the founders left. Hewitt and Packard would not have focused the company around the evil idea building disposable printers that lock people into overpriced ink purchases. If society needs these huge corporations (maybe we would better of with out them?), I would much rather they be run by a single human than be a soulless bureaucracy with a figurehead at the top.
If Neumann fully owned WeWork, it would not be corrupt self enrichment to own the properties, just vertical integration. If the investors want them to work this way, is it really corrupt? I wouldn't think so.
>Hewitt and Packard would not have focused the company around the evil idea building disposable printers that lock people into overpriced ink purchases.
I'm not a big fan of HP, and I especially abhor the inkjet printer business, but I'd like to point out there's more to HP (and even their printers) than this. Their business printers are still pretty good AFAICT.
My simple rule when contemplating a printer purchase: "do not ever, ever, ever buy an inkjet printer".
Sorry for the naivete, but isn't that a solved problem in corporate governance, with standard procedures for making sure that company A isn't just a sockpuppet for shoveling money into company B?
You shouldn't apologize, because it was a mostly solved problem and times changed. Search "corporate opportunity doctrine". It became unsolved in the last 30-40 years.
Corporate Governance doesn’t help when either the board is just a rubber stamp for the CEO or the CEO still holds a controlling stake in the company.
And in the case of successful founders, even without a controlling stake, just their reputation makes it harder to go against the CEO. Could anyone on the board have challenged Gates or Steve Jobs 2.0? In the modern era, who would challenge a decision by Bezos or Hastings?
Is that necessarily a bad thing? If Gates or Jobs acted unwantonly despotic, then the checks and balances are in place for their removal. Sometimes, reputations speak for themselves and must be respected as a function of following a leader.
No it's not. I don't think anyone but Jobs could have made the deal with Microsoft that help save Apple[1]. Just like only Nixon could go to China.
Could any other CEO besides Hastings transitioned Netflix from a DVD business to a streaming media business, and on top of that spend millions of dollars developing a set top box and then decide at the last minute it wasn't in their strategic interest to sell it and spin it off (Roku). The same could be said about Bezos and Amazon.
[1] No the money MS "gave" Apple didn't save them. Continued software support with Office and IE helped a lot.
Yes, he sold property that Sears owns to companies he controls to fund stock buybacks from himself (and his companies), becoming Sears' landlord in the process.
>Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway! Why wouldn't levandowski just employ his own company to supply components he was procuring for Google? Why wouldn't Shkreli pay his hedge fund investors back with cash from one of his other companies?
Don't forget Michael B. Rothenberg:
>The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas.
I think its a clear conflict and shareholders should protest, but this happens at every level of the economy. I used to work buying small businesses. Its common for business owners to also own the building in a separate LLC. And its great to hear them complain about how they always get paid last, when they have been paid every month through rent.
In the Phoenix metro area we have BASIS schools that use a similar tactic… with public education funds. The school and foundation are non-profit, but they use a for-profit management company that's owned by the founders of the schools. No transparency is required for the private business which provides teachers(!) and other back-office services.
Of course, the founder is living meagerly like most educators (including the ones he employs or the one's he's taking funding away from)… wait, no, he's raking in the cash.
That said, BASIS provides an excellent environment for students that are compatible with its education model (read: students who would have been successful anywhere).
This isn't just a silicon valley archetype. It's a cultural archetype. Ownership is the religion we're indoctrinated with.
To paraphrase James Madison, the Senate ought to protect the minority of wealthy owners from the majority. Deference to wealth and ownership is in the DNA of the country.
America is a tacit caste system, heavily indoctrinated to believe it's a freer place than it is. While there's a stronger guarantee of freedom of speech/expression than other countries, who owns our time/effort is rarely ever discussed and the realities of it questioned. The owners do, of course, and direct it to their desires.
I couldn't read the full article since I am not a WSJ subscriber, so forgive the naivete, but what inherently is wrong in Neumann leasing a building that he owns ? I mean, he could have rented that building to someone else, instead he is leasing it out to WeWork.
How did get get the money to buy that building - if he is siphoning money from WeWork revenues and using that, that's illegal I suppose. If he used Wework stock options as collateral to finance the building, that could be some grey area I guess.
Is WeWork paying market rent to Neumann, or is it paying more? Did Neumann negotiate vigorously with Neumann for the best possible rate? With real estate, how could you tell?
CEOs have a fiduciary responsibility to the other stakeholders of their companies. That's the problem here.
But is Neumann is the sole shareholder? Musk certainly is not Tesla's sole shareholder. If Musk pays himself through some juicy Tesla contract, he is fleecing other shareholders.
>There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.
I'd rather this was the case completely -- privately owned, extensions-of-oneself companies and we had no BS like boards and stockholders...
>There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.
100% with you here.
When companies grows so much ego becomes part of the game.
Well I mean that's the consequence of capital ownership isn't it? It's not like these people are operating under some kind of constitutional obligation to their staff or anything.
It is a product of personality. It takes a certain amount of risk aversion to risk everything to start a company, but that isn't what this is about. This is about investment and it takes selling yourself to convince people to give you money. A good sociopath lives for convincing people to give them what they want without reasonable limits.
Fortunately, most people are not sociopaths, but unfortunately most of these people will not achieve the successes you described.
Maybe they would, if the sociopaths wouldn't assimilate many of those "successes". I consider a certain number of successful businesses to be a relatively stable statistical certainty in a society which provides the necessary environment for them (stable legislation, infrastructure, workers, a market to sell stuff etc.).
The sociopaths now don't increase the total number of these successes, but they tilt the distribution of successes towards themselves as a group, thereby making non-sociopaths less likely to achieve a success.
Let's not look at Shkreli like that. He's a guy who opposed FDA approval of a drug. Not based on its effectiveness, or medical benefit, but because it would interfere with his profits from a competing, inferior drug.
This is not someone who has a strong history of "the right thing to do".
This reminds me of the boardgame 1830 Railways & Robber Barons. You're an investor buying shares in railroad companies, and personally running any railroad of which you are the largest shareholder. A popular opening strategy is to first buy an expensive private company, then start a public company and have the public company buy your private company at inflated price.
It's a great way to shunt some money from the company treasury to your private wallet, which is otherwise impossible to do (except for dividend payments, but those are limited and go to all shareholders and not just to you).
In one of the Railroad Tycoon games, I forget which, some scenarios come with a goal for your personal wealth. The narrow path there be via investing your salary in your own company and then raising dividends. But that would of course benefit all the shareholders.
Instead you would get there by first crushing a competing business, as you would in most scenarios anyway. Then you would buy all the worthless stock you could with your meager salary. Finally you could make an outrageously overpriced buyout offer for the worthless business.
1830 is such an amazing game. Also, a personal shout-out for 1856, its sibling game set in Upper Canada. That game is all about making money before everything gets bought up.
There are actually dozens of games in that genre. 1835 in Germany is very constructive and buildery, and aggressive 1830-style play is not going to do you any good. 1841 in Italy is epic in its complexity; borders popup and disappear, forcing splits and mergers. Companies can buy each other and start new subsidiary companies. There are several games in England, France, Europe as a whole, India, China, Russia, the Isle of Wight, several games for individual states in the US, and most recently, Lilliput. Many of them self-published. Worth checking out if this is your thing.
18EU is probably my favourite. Feels epic, but plays remarkably quickly.
True. I keep trying to plan a game with my dad and my brother, but somehow we never get around to it. I can't bring my kids, because that's not going to work. Though pretty soon my oldest son may be old enough to join.
This series of board games taught me a lot about vulture capitalism, and in particular the fine difference in incentives between a mere shareholder and someone with control over an entity. Depending on how the markets and ownership rules are set up, the most effective way to build wealth may be to just play clever games with share flipping and asset transfers between companies that you have controlling stakes in. Building value is for chumps.
For the people in this thread wondering whether this is ok: double dipping is never ok.
Once you get to a level where you have financial decision making power, don't pick a provider (even a great one, even at a competitive price) if you have a meaningful financial interest in them. The incentives are all wrong and it leads to badly run companies. In this particular case, it's so far over the line, it's pretty bad.
The board might not be able or want to force him out right now, but long term the tone has been set.
...for companies that are structured as public companies.
If your companies are all private, with no investors, go ahead and do whatever you like. It's all just your money, (or your family's money), anyway.
But to do that with money from public investors is, and this is only my opinion, but I think it's extremely unethical. Obviously the issue is that there is nothing explicitly illegal about what people like the WeWork CEO are doing. I'm not sure why?
I'm not a lawyer, but I suspect this may cause you to lose the liability protection of the corporation. From [1]:
"The veil of liability protection provided by an entity may be pierced based on the following theories:
Alter Ego Theory. If you run your company as little more than your “alter ego,” as a mere extension of yourself (this will generally be the case where there is a lack of separateness between you individually and the company itself, due to commingling of funds, lack of proper governance, and other factors)."
Re-read what the WeWork CEO did. It was not commingling of funds, it was what would loosely be termed as double dipping. One of his corporations, doing business with another. ie - each of his corporations making independent decisions, via the mechanisms not wholly dependent on himself, about what to do with money in their own accounts. Not money in his accounts. It happens a lot nowadays precisely because it is legal. Usually in parts of the business that deal with real estate, like we see here, or another one is benefits. For instance, you get a basket of funds to choose from for your 401k, but some of them are funds run by "Bigshot Investor X", who also happens to be an investor in the company at which you're working. If you tried to go after corporations or individuals for these kinds of things on the basis of alter ego you would be laughed out of court.
That's why this stuff is legal, because it by definition, is NOT an alter ego situation. My point is that while it is not illegal, it is definitely unethical, and probably should be illegal. Not because of the doctrine of Alter Ego, which is obviously not violated in these sorts of instances. But rather because all of these corporations, while acting independently, are clearly acting in concert to benefit a third party that is NOT the general shareholder class. There is no explicit, sort of generic, law against that right now.
As I said, if your companies are private, do whatever you like in this regard. All of your companies can, and probably should, concert to benefit you and your family. I'm just saying for companies with public investors, that's just not cool.
> there is nothing explicitly illegal about what people like the WeWork CEO are doing
Not sure why you say that. This seems to be textbook self-dealing, which is illegal under Delaware law (where WeWork is incorporated) unless the self-dealing party can demonstrate fairness:
http://www.sgalaw.com/news-and-views/2014/11/24/self-dealing...
I think you honed in on a key issue: "pick a provider".
There's nothing wrong with the current "arrangement", but there might be a lot wrong with the way the arrangement came to be.
Or said another way, there aren't any ethical issues with WeWork renting a building from one of the owners in an above-board lease arrangement. The way WeWork chose that building and reevaluates its lease may have some issues.
Is that true? For example, PayPal's CEO is Dan Schulman, Schulman is the head of the board of Symantec, and PayPal has to use all Symantec products in every category where they sell a product.
The ex-CEO at my wife's previous company did this. Signed a multi-year lease for the company on a building she owned a few months before leaving the company.
A real dick move for sure. They were growing at the time and being constrained to such a tiny space for so long was quite rough for them.
My wife's church sold a multi-million dollar parcel to the museum across the street because one of the church members is a real estate agent and made a commission.
This not only denied the church any revenue from making the parking lot a parking garage as the museum did but prevented them from doing anything else with the land in case of expansion or simply a future sale if they move. Talk about stepping over dollars to pick up pennies.
If the company can't get out of the deal then that rent is a sunk cost. It might still be better for them to sublet at market rent and find a larger property for themselves.
This is basically the textbook definition of conflict of interests.
Given that WeWork is also a very unprofitable business it raises serious fiduciary duty questions regarding his role at WeWork (it would be a big issue even if they were profitable but seems crazy bad when they are not).
"The building’s value, meanwhile, has gone up, and the owners have been able to borrow more money by refinancing the property’s debt. Late last year, Messrs. Neumann and Tahari took out a $77.5 million loan, according to loan adviser Meridian Capital Group, $7.5 million more than the prior loan to buy the building."
I'm amazed. When does this information about self-leasing show up in due diligence by investors? The prospect of return to the investors must overshadow such data? Is the real-estate market just so inflated at the moment that if you can play it why not do so?
The self-leasing strategy + WeWork makes the property value higher (presumably because the rent-ability of the property is proven when a WeWork tenant moves in). Then the property owners can leverage the property. Others have raised the point of conflict of interest and fiduciary responsibility and the not-so-sound financials of the business (e.g. Softbank backs down from $16B to $2B in new investment (still a big number)). I'm curious what is going on here or is it obvious?
This needs to called what it is, corruption. "Self-dealing is the conduct of a trustee, attorney, corporate officer, or other fiduciary that consists of taking advantage of his position in a transaction and acting in his own interests rather than in the interests of the beneficiaries of the trust, corporate shareholders, or his clients." This is supposedly why boards exist in the first place.
Rent should be similar to market price for the region.
Regarding location, the family wants the store to the be sucessfull for 2 reasons: (1) the rent period is going to be longer and (2) they own the retailer and want to invest in viable stores!
As somebody mentioned, if you own a building as a shareholder in new company, and you have more shareholders (not one shareholder), you can buy rent from it as long as price is in market.
Company rents office from other company, you can have as many companies as you want.
You are thinking about tax issues not issues of fiduciary duty. The market value issue is to make sure you’re not illegally funneling money between entities without proper taxation.
You generally couldn’t, for example, transfer significant wealth to a friend without high taxes by selling them something for a dollar When it’s market value is $10 million. This issue here is completely different.
80% of McDonalds are franchise, so it’s often a similar situation. 2/3rds of locations are owned by McDonald’s and leased by the franchisee, who also pays royalties and purchases from corporate affiliated suppliers.
Ripe for abuse if McDonald’s were too short term focused.
That's a way for McDonalds to make more money for McDonalds shareholders (at the expense of a private franchisee who's well aware who he's leasing from and probably feels more secure leasing the location from someone that isn't going to turf him out for a higher rent offer from KFC). From a MCD investor point of view, them owning the real estate and earning money on that too is a good thing. It's a bit different from a hypothetical scenario in which McDonalds picks locations personally owned by McDonalds' CEO Steve Easterbrook, in a manner which probably tends to benefit him personally far more than McDonalds' shareholders.
I would suggest that MCD corp regularly turfs out established O/O's, just for the opportunity to re-sign lease agreements for better rent %s. ie renegotiating from 90's rates around 5% to 2010's rates at 10% of gross.
IMO, MCD has been administratively leveraging there negotiation position with regards to rental %s as the near sole driver of profit increases for about 18-22 years. They are very very near max sustainable extraction, which is evident by their huge offloads of corporate owned stores in the last 3 years.
Addition: They could also be positioning for a REIT transition.
That's not similar at all. McDonald's (the company) owns properties and leases them to franchisees, which is quite different from a WeWork officer owning properties and leasing them to WeWork (the company).
Not spelled out there is that the real estate portion of the business was advantageous to Kroc. When it became the vast majority of the business he could use his resources to leverage out the McDonalds.
I don't see the relevance for the WeWork discussion.
WeWork shareholders are potentially harmed when the CEO gives money from the company to himself.
If I understand the deal, the McDonald's brothers sold back the royalties they got from McDonald's (the company) for $2.7mn. If McDonald's (the company) got access to the money that the McDonald's brothers demanded by being smart with real estate operations, good for them. Everyone got what they wanted.
"The brothers did get a percentage of the profits. The original deal was 1.9 percent of a franchisee's profits. It went to the McDonald's Corporation and 0.5 percent of that went to Dick and Mac McDonald. The falsehood in the movie is that Ray screwed the brothers out of that half a percent. Basically what happened was Ray and the brothers were at odds. He went to them and said, look, what is it going to take to make you go away? They said $2.7 million — we want a million dollars each and $700,000 to pay our taxes. That's how practical they were. And they were happy with that. It was 1961 and the problem was that Ray didn't have anywhere close to $2.7 million. It's important to remember that McDonald's was precipitously close to folding at every step of the game once Ray got involved, because he didn't have the right scheme to make McDonald's grow until he met Harry Sonneborn who came along and told him it's not about hamburgers, it's about real estate. So basically Ray couldn't find $2.7 million to pay the brothers off. Harry found the $2.7 million. And if he hadn't, the situation, the agreement would have continued on the way it was in place with the 0.5 percent going and lining the brothers' pockets in a really lovely, passive income. But Harry saved the day. He was able to convince these men, who they later called in McDonald's lore "The 12 apostles," and those guys came up with the cash that allowed him to buy out the McDonald's brothers and make them go away. The movie says that they got screwed, but they didn't."
"The Company owns and leases real estate primarily in connection with its restaurant business. The Company identifies and develops sites that offer convenience to customers and long-term sales and profit potential to the Company. To assess potential, the Company analyzes traffic and walking patterns, census data and other relevant data. The Company’s experience and access to advanced technology aid in evaluating this information. The Company generally owns the land and building or secures long-term leases for conventional franchised and Company-operated restaurant sites, which ensures long-term occupancy rights and helps control related costs."
"The Company owned 45% to 50% of the land and 70% to 75% of the buildings for restaurants in its consolidated markets at year-end 2017 and 2016."
This is like paying for your startup with a credit card and being called out on it by reporters when the bill gets paid by the company rather than the individual, but on a much larger scale. There are perfectly valid, ethical reasons why you're using alternative sources of credit to fund a startup!
Here's why this article is an opinion piece searching for scandal that fails to reveal one:
Consider the legal definition of "self-dealing":
"One important duty of a fiduciary is to act in the best interests of the
benefited party. When a fiduciary engages in self-dealing, she breaches
this duty by acting in her own interests instead of the interests of the
represented party. For example, self-dealing occurs when a trustee uses
money from the trust account to make a loan to a business in which he has
a substantial personal interest. A fiduciary may make such a transaction
with the prior permission of the trust beneficiary, but if the trustee
does not obtain permission, the beneficiary can void the transaction and
sue the fiduciary for any monetary losses that result."[1]
Every decision WeWork made to lease new commercial space was made with board support. The CEO and family members conducted deals with WeWork that he or family personally benefited by, but it was done in a transparent manner and with board support.
WeWork is navigating uncharted territory. This makes those working in finance apprehensive. Underwriters have certain requirements that a borrower must meet before a loan is approved. A rapidly expanding, growth-oriented business like WeWork may not qualify to lease new space as quickly as it requires. However, perhaps individuals who pledge their own collateral might. Commercial space was leased by individuals (or other entities) and then re-leased to WeWork.
I could be wrong about this case, but if I am then this will likely grow into a scandal and self-dealing will be revealed.
> This is like paying for your startup with a credit card and being called out on it by reporters when the bill gets paid by the company rather than the individual, but on a much larger scale.
I've seen this happen in multiple cases, and I find it highly unethical. At the very least it means the CEO is raking in thousands of dollars a month in credit card points for purchases across the entire company.
I'm on the fence about it. It seems unethical initially but the CEO is taking a personal financial risk using their own funds. I would say it's definitely a gray area but wouldn't call it flat out unethical. As with most things, it is very dependent on the situation.
I remember in my first job our CEO was quite proud that he bought the whole office building himself and then rented out to his company. He said whole mortgage will be repaid in 8 years... :) I guess the only difference was that it is a small company and not a 'unicorn'.
This is just the start/continuation of the WeWork world unraveling. I am familiar with the internals and there is a lot more being hidden that has yet to come out.
When the 2010's documentary gets made and they get to the section about the start-up world unraveling and being exposed, it's gonna be Theranos, Fyre and WeWork highlighted throughout. 2019 is perfect timing.
This kind of conflict indeed looks sketchy, and I don't think Neumann should do it, but the risk and opportunity still run both ways.
Neumann is assuming the capital risk. Does WeWork and its investors (including Neumann!) want these assets and associated liabilities on its books? Probably not. Is Neumann making money from this transaction long term? No way to tell; he himself probably doesn't even know if these deals are profitable for him now.
What he is definitely doing is increasing his levered bet on WeWork, which could be good or bad for WeWork, and good or bad for him, depending on how everything turns out.
Neumann is the one making the deals for rentals- including the price. As the representative of the company he is incentivized to reduce the rental price as much as possible. But as the owner on the other side of the same deal, he's incentivized to increase the price as much as possible.
The problem with this is that as CEO, he's talking about someone else's money (investors) while the other side he's talking about money in his pocket.
This sort of self benefiting deals should not be acceptable in any organization from their executives, just as they are not acceptable from democratic government officials.
There is a difference if it is the sole/main owner of the company that also owns the real estate holding company, or if it is the CEO who's doing it to funnel some cash to himself.
I think the legit thing to do would be to have three companies. SuperCo Holdings, SuperCo RealEstate and SuperCo Operations. SuperCo Holdings owns both the others 100% and investors buy the Holdings company.
You are assuming he bought the building with company resources. If he spent his own money/took on the liability personally, that is his business.
Yeah, you gotta be extra careful that it's not divergent from company interests (right place, right price). But this isn't shady unless there is some reason it harms the company.
> You are assuming he bought the building with company resources. If he spent his own money/took on the liability personally, that is his business.
It would be his business if he rented out his property to an organization that he can't sign contracts for. But as it stands, he is transferring money from an account he only partially owns (but fully controls, with legal obligations to his co-owners which he seems to be breaking) to an account that he owns fully. It's a sneaky way to give himself a raise that is easier to get past the board. The article even cites WeWork with "approved by the board or an independent committee", which implies that not all of those arrangements happened worth explicit board approval. How he got into the possession of the means by which the transfer from controlled-but-only-partially-owned to owned was facilitated is an unrelated topic.
You are correct. The is very common with small businesses. It separates liability and allows you to shift income to long-term capital gains.
I didn't read the full article (paywall), but it sounds like the CEO owns the building with other people. Are those owners also large shareholders of WeWork?
I thought it was a very common practice. I know daycare owners who complained about high lease prices for the house/building. What they usually do is take a mortgage, buy a building and don't pay the lease just the mortgage. It's cheaper this way and you end up owning the building after finishing paying the mortgage.
That’s taking advantage of price differences between residential and commercial property. Many locales do not allow leasing out a house as a business location but they do allow running a business out of your home.
Thinking out loud here, it seems like this behaves very similarly to leverage in that it kind of magnifies his gains or losses from wework. If Wework succeeds he can squeeze the company for more rent. If Wework fails, suddenly he also has a bunch of broken leases. (Although he has a floor to his losses from the real estate since he can eventually rerent it, maybe at a lower price)
Another interesting aspect of this is that he can basically insider trade with impunity since real estate isn't a security. Who knows when/where WeWork will open an office next? Well, he does, and can buy a place cheaply (I don't imagine WeWork presence affects the real estate price much, but in principle it could).
He wins either way. He sold some of his WeWork stock, bought buildings with the proceeds, and then had WeWork sign leases with them. If WeWork folds, he still owns the buildings and can sign new tenants. Before it does, the faster it expands, the more often he can do this, and the more money he can make.
That's the conflict of interest. WeWork shareholders want WeWork to build a great business and eventually IPO, but it maybe better for him personally if WeWork simply grows as fast as possible at any cost by doing things like signing expensive leases it can't make the unit economics work for.
I'm not a subscriber of WSJ, so I can only read the first paragraph. Based on the headline and the first paragraph, I don't see the problem. Wouldn't WeWork have to lease the space from someone? Why is it a problem if that someone is the CEO of WeWork? If WeWork is paying above market rent, then sure, that is corrupt.
A lot of people hop on the band-wagon of bashing "rent-seeking", mostly misusing the term in the process, confusing rent-seeking with leasing/renting land or capital. WeWork's whole business is built on renting as far as I can tell.
Others have mentioned this but to reiterate: imagine a WeWork location should move to a larger space, but the CEO doesn't own a sufficiently large space.
At this point the CEO has a conflict of interest: on the one hand, he should move the location, because that's best for WeWork; on the other hand, he should keep it where it is because that's best for his real-estate company.
There are many potential conflicts but that's probably the easiest to use as an illustration.
This unfortunately is not uncommon outside of silicon valley either. The recent Sears debacle was helped along quite a bit by a CEO that was self-dealing to his own personal financial interests. And in a case very similar to the CEO of WeWork I recall the CEO of a restaurant holding corporation personally purchased the land where he knew he'd direct his company to build restaurants and lease it back to the company at exorbitant rents. (Though he was also jailed for criminal conduct as well, basically soliciting outright bribes from vendors.)
Just something to remember the next time a startup CEO tells you that "we" have to "work hard and give up some of our compensation" to "make a positive change in the world".
If I were an investor in WeWork, I would be concerned about this as well. Except that I'm not an investor, and I'm assuming 99% of angry commenters aren't either.
Devil's advocate: Conflicts of interest are absolutely everywhere and can never be avoided completely. For example, here's a conflict of interest in my own job: I want my employer to pay me as much money as possible, and my employer wants to pay me as little as possible.
And if I were a manager/director/executive, I would want to hire as many people as possible to boost my stature. And the company would want to hire as few people as possible to keep their expenses low.
The fact that a conflict of interest exists, isn't in itself a irreconcilable problem. It only becomes one if one party tries to hide it from the other, and deceives them to get what they want. Presumably that isn't happening at WeWork.
If you're an investor in WeWork, I can understand your concern, and your wanting your board representatives to take a close look at these agreements. From what I hear though, the investors and board of directors are all perfectly happy with the arrangements that have been made. Perhaps a little less soapboxing from the peanut gallery is in order.
We should add two mandatory clauses to cooperate law:
1. Major shareholders must disclose any business relationships between the company and shareholders' other business interests.
2. Shareholders can demand a vote on whether an above-mentioned business relationship causes a conflict of interest. If so, the relationship must be terminated.
I am more surprised that Neumann allows his name to be known in these investment groups
Just form the Wyoming Series LLC or BVI segregated portfolio company, no beneficial owner information will be in public records, but even the state and registered agent can be kept in the dark if you want.
I expect value has been extracted this way for centuries.
>"Mr. Neumann owes his personal wealth largely to sales of WeWork stock. It is unclear how much WeWork stock he has sold, but he has told some friends it is in the hundreds of millions of dollars."
Honest question - are investors OK with this? Isn't he essentially enriching himself with VC money that has yet to see a return realized?
Couldn't this be seen as a hedge that even if investor loose their shirts he himself has managed to enrich himself with a real-estate portfolio?
It was amusing to me that this sorry of thing is seen as potentially quite a big issue in tech yet is totally common in the real estate industry. I was made aware of this by today's Matt Levine piece https://www.bloomberg.com/opinion/articles/2019-01-16/even-c...
My wife’s family did this also. They owned the buildings and leased them back to the company.
It saved their butts when a partner they took on tried to take over their very valuable company.
I don’t see the problem unless there’s obvious overpricing, corruption, or failures to disclose. At some point it makes better sense to put property under a holding company or similar.
See... this is apparently quite legal but insider trading gets you prison. This is arguably more of a conflict of interest/questionable act than insider trading.
I imagine the company could also find cheaper places/better terms for leasing than the CEO owned properties which, to me, is mismanagement if not low-level fraud.
>He may be willing to bet on WeWork's viability in ways that other landlords won't.
Perhaps, but as someone else in this thread said
>The self-leasing strategy + WeWork makes the property value higher (presumably because the rent-ability of the property is proven when a WeWork tenant moves in). Then the property owners can leverage the property.
And never mind the fact that he's basically guaranteeing he has a tenant for each building, that will also likely making physical improvements to lure in customers (which will mostly carry over for a future tenant) and effectively building free equity in the property so even if WeWork suddenly folds he can sell the properties at competitive prices and still walk away with a profit.
>Landlords may have been asking him to personally guarantee leases.
Perhaps with the first location or two but a quick google search shows they've raised billions in funding which would be more than adequate (unless they are growing too fast, which appears to be the case, see below).
Now as far as guaranteeing rent here's something interesting
>In March 2018, SEC filings indicated that WeWork had raised over $400 million alongside private equity fund The Rhone Group to start a fund to purchase properties directly.[33] In April, documents filed by the company in association with a plan to raise $500 million through the issue of high-yield bonds showed that the company's revenues rose in 2017, but costs rose faster, and the company owed $18 billion rent
I don't know how many of the sites he owns but even if it is only 10% there is 1.8 billion 'free' money servicing loans on commercial properties he owns.
I don't see a problem with this if it's properly disclosed to investors, workers, and users of the service. If you don't like it, literally nobody is making you give your wealth to him, and there are plenty of alternatives that would benefit the local economy wherever you are.
Ah yeah, the old McDonalds farming-scheme. Buy some land, raise some cattle under your flag and milk them till they are dry. They have all the work and risk and you get all the fat money. At least a good farmer knows how to maintain them well for longterm-milking.
I can understand (but definitely wouldn't approve) if this happened early in the company's life but given when it happened and what the company has been valued at in the past few years, I really do not understand what this guy is doing.
As long as WeWork isn't paying more than market rates on its rent, then it's fine. But if they're paying more, then the CEO is corrupt -- he's using his control of his company to enrich himself personally rather than steering the company towards success.
It's not just about rent being in line with market norms. In order for it not to be personal enrichment at WeWork's expense, it's also got to be assumed that these particular leases on this particular properties were sincerely believed to be the best possible use of the $110m of WeWork shareholders' funds committed to properties its execs had an ownership interest in: i.e. that there were no competing locations (or capital investments) that might have been expected to yield higher customer revenues and nothing comparable on offer at below market rates. Additionally, we've got to assume WeWork execs were not in competition with WeWork to acquire actual [part]-ownership of the buildings (the article provides an example of Neumann trying to personally buy a stake in a building knowing that WeWork wanted to occupy it but WeWork blocking it because they were happy to stump up for title deeds as well as the lease. It certainly doesn't rule out the possibility he used his knowledge of WeWork's requirements to acquire other freehold titles which WeWork might have preferred to buy rather than just lease though).
Or a better option - he leased/bought the building with interest X and sub-leased it to WeWork for X+50%.
From Adam N (We CEO) history, he is not common from such a rich family to afford buying building worldwide.
Oh, self dealing. Shocking. For what happens when this gets rampant enough, please see DOMO. Wouldn't be surprised if Neumann owned a coffeeshop or fast casual restaurant ala Cubby's and mandated that said eatery cater all locations.
Classic Ponzi Scheme. People have been wondering how WeEork has't gone bankrupt yet. Well you don't go bankrupt if you can keep raising/lending more to pay up your losses. Until the day you can't anymore.
How is this wrong? Is WeWork publicly funded? Either way, is he withholding his status as landlord from investors? How is this even a conflict of interest? This sounds like a normal real estate deal: sale-leaseback to a management company.
Conflict of interest: The CEO, who is supposed to have the companies best interest in mind, would benefit if the company made bad financial decisions like renting too much property from him.
Bloomberg is saying that this was disclosed in last year's bond prospectus. To me that's the minimum required but it's probably just better to avoid the appearance of any sort of conflict of interest.
Just look at WeWork's WEWORK COMP. 18/25 REGS bond. Total junk. Can't wait for an economic slowdown in 2019/20, and see WeWork default on its debt holders.
"Yes it really does seem like a conflict of interest! “A WeWork spokesman said all related-party deals are reviewed and approved by the board or an independent committee and disclosed to investors,” so that is good, but on the other hand, “Mr. Neumann, the 39-year-old executive who founded WeWork in 2010, is WeWork’s largest individual shareholder and has voting control over the company,” so it is not clear that the board can say no. (He got that control in 2014 with some super-voting stock; before that, he once tried to do a related-party deal and got turned down by the board.)
"One thing I will say, though, is that if you told me that a privately owned real estate company was engaging in transactions with its controlling shareholder and CEO that raised possible conflicts of interest, I would be like “ha, yeah, that’s the real estate industry for you.” Conflicts of interest are more common there, as everyone knows these days after years of stories about Donald Trump’s business dealings, and it is not surprising for a founder/controller/CEO to be involved in a deal with his company on multiple sides and in multiple ways. Private tech startups, on the other hand, tend to be a bit more pristine. They are not complex moneymaking structures for their founders but mission-driven enterprises where everyone’s incentives are ostentatiously and lavishly aligned: If the company gets big, the founder becomes a zillionaire; if not, he walks away with only his modest salary and a track record for failing ambitiously. WeWork is a weird company because it is a real estate company that thinks it’s a tech startup; it seems to have the culture and New-Age-y patter and grandiose ambition and valuation of a tech company. But what if, deep down in its heart, it really is a real estate company?"
> WeWork’s CEO Makes Millions as Landlord to WeWork
What risk? He's already pocketed the profits. If WeWork defaults, his property management company takes the loss, possibly sells the property, and perhaps files for bankruptcy. It doesn't affect his personal finances.
"Risk" has become cognitive poison. There can be, and often is, a huge divide between _financial risk_ and _risk of grave personal consequences_.
But the whole point is that as CEO he now has a huge conflict of interest. It's not hard to see him prioritizing occupancy at locations he owns over other WeWork properties solely to ensure he gets paid first.
The entire image and “vibe” of this guy / his team is supposed to be an egalitarian re-invention of the status quo. The kibbutz story. The “community adjusted EBITDA.” The rebranding to “We.” But this sort of real estate self-dealing isn’t a We move, it’s a Me move. And thus, we find ourselves facing a bigger issue that is far more troubling if you’re a shareholder or employee (and somewhat enjoyable if you’re a competitor): the emperor has no clothes and the CEO is full of shit. He is self-serving and isn’t optimizing for the benefit of those around him.
As others in the tech industry are only beginning to figure out, once your curated narrative dies and the reality of who you really are comes to the surface, an unstoppable cycle of “bad press” and “negative sentiment” emerges. That’s a hard cycle to work out of, especially if the value of your company is predicated on your image / the image of the company. Hiring Obama’s speech writer and lobbying Congress doesn’t fix the underlying issue, and eventually you’re living in a Reverse Metcalf’s Law situation that’s scaling in the wrong direction.
As WeWork is built on an image of selling “a new, better way of working” to companies of all sizes, it becomes extremely problematic if people start to associate the brand with “the rich keep getting richer, and they’re screwing us over and working us to the bone along the way.” An image of a “collaborative enterprise” becomes a laughable fantasy novel next to the reality of, “we are funded by third world despots and our CEO is lining his pockets with as much of our money as possible, while scheming up ways to do petty things such as avoid paying the cleaning staff any sort of decent wages or benefits.”
This isn’t the We Company. It’s the Me Company. That’s not very innovative. That doesn’t foster greater productivity. And eventually, a lot of tenants aren’t going to pay for it, because it seems a lot of them really think they’re paying to be part of a progressive, futuristic environment. If their smartest and most progressive employees start telling them they don’t want to visit the office, they’re going to get rid of that office. Companies’ desire to please their knowledge workers — what originally drove WeWork’s success — thus ends up killing it.