Harvard Case - WeWork: But Does the Corporate Governance Work?
"WeWork: But Does the Corporate Governance Work?" Harvard business case study is written by J. Yo-Jud Cheng, Stephen E. Maiden. It deals with the challenges in the field of Strategy. The case study is 14 page(s) long and it was first published on : Apr 29, 2021
At Fern Fort University, we recommend WeWork implement a comprehensive strategic overhaul focused on strengthening corporate governance, refining its business model, and establishing a sustainable path to profitability. This includes a shift towards a more conservative growth strategy, a renewed focus on operational efficiency, and a commitment to transparent and accountable leadership.
2. Background
WeWork, founded in 2010, disrupted the traditional office space market by offering flexible, shared workspaces with a community-driven ethos. Its rapid expansion, fueled by significant venture capital funding, led to a global presence and a valuation exceeding $47 billion. However, WeWork's aggressive growth strategy, coupled with questionable corporate governance practices, ultimately resulted in a failed IPO attempt and a significant financial downturn.
The case study focuses on the company's tumultuous journey, highlighting its rapid expansion, its unconventional business model, and its struggles with corporate governance. Key protagonists include Adam Neumann, WeWork's charismatic but controversial founder, and the board of directors, who faced increasing pressure to address the company's financial instability and governance concerns.
3. Analysis of the Case Study
This case study can be analyzed through various frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: High - The flexible workspace market is attractive to new players due to low barriers to entry.
- Bargaining Power of Buyers: Moderate - Customers have options but may be locked in by WeWork's community and amenities.
- Bargaining Power of Suppliers: Low - WeWork has significant leverage in negotiating with landlords and service providers.
- Threat of Substitutes: High - Traditional office spaces, co-working spaces, and remote work options pose significant threats.
- Competitive Rivalry: High - The flexible workspace market is highly competitive, with numerous established players and new entrants.
b) SWOT Analysis:
- Strengths: Strong brand recognition, unique community focus, global footprint, innovative workspace designs.
- Weaknesses: High debt levels, unsustainable growth model, weak corporate governance, lack of profitability, reliance on venture capital.
- Opportunities: Expansion into new markets, diversification of services, development of technology-driven solutions, focus on sustainability.
- Threats: Economic downturn, increased competition, regulatory changes, changing work trends, negative public perception.
c) Business Model Innovation:
WeWork's initial business model was based on disruptive innovation, offering a value proposition that appealed to a growing segment of the workforce seeking flexible and collaborative workspaces. However, the company's rapid expansion and reliance on debt financing led to a business model mismatch, where its growth outpaced its ability to generate sustainable profits.
d) Corporate Governance:
WeWork's corporate governance structure was characterized by a lack of transparency, a concentration of power in the hands of the founder, and a board of directors that failed to effectively oversee the company's financial and operational decisions. This resulted in a culture of unchecked growth and a disregard for long-term sustainability.
4. Recommendations
a) Strengthen Corporate Governance:
- Independent Board: Establish a truly independent board of directors with diverse expertise and a strong commitment to ethical practices.
- Transparency and Accountability: Implement robust financial controls, transparent reporting mechanisms, and clear accountability for all stakeholders.
- Executive Compensation: Align executive compensation with long-term performance and profitability, rather than short-term growth metrics.
b) Refine Business Model:
- Profitability Focus: Shift from a growth-at-all-costs mentality to a focus on achieving profitability and sustainable growth.
- Operational Efficiency: Streamline operations, optimize costs, and implement data-driven decision-making across all aspects of the business.
- Diversification: Explore new revenue streams beyond traditional workspace rentals, such as technology solutions, event spaces, and community-building services.
c) Implement a Sustainable Growth Strategy:
- Strategic Expansion: Focus on targeted market expansion, prioritizing high-growth and profitable regions.
- Strategic Alliances: Partner with technology companies, real estate developers, and other relevant players to enhance offerings and expand reach.
- Value Creation: Emphasize value creation for both members and stakeholders, focusing on building a strong community and delivering exceptional customer experiences.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: WeWork's core competency lies in creating vibrant and collaborative workspaces. The recommendations align with this by focusing on operational efficiency, community building, and value creation for members.
- External Customers and Internal Clients: The recommendations prioritize the needs of both members and employees, aiming to create a sustainable and fulfilling work environment for all.
- Competitors: The recommendations address the competitive landscape by focusing on differentiation through community, technology, and operational excellence.
- Attractiveness ' Quantitative Measures: The recommendations aim to improve profitability and long-term sustainability, which can be measured through metrics such as revenue growth, operating margins, and customer satisfaction.
6. Conclusion
WeWork's journey highlights the importance of strong corporate governance, a sustainable business model, and a commitment to long-term value creation. By implementing the recommended changes, WeWork can regain investor confidence, achieve profitability, and establish itself as a leader in the flexible workspace market.
7. Discussion
Other alternatives not selected include:
- Selling the Company: This option could have provided a quick solution but would have resulted in a loss of control and potentially a negative impact on the company's brand and culture.
- Continuing with the Existing Business Model: This would have been a risky approach, as the company's unsustainable growth model was already proving to be detrimental.
Key assumptions of the recommendation include:
- Market demand for flexible workspaces will continue to grow.
- WeWork can successfully implement the recommended changes and achieve profitability.
- Investors will be willing to support WeWork's new strategy.
8. Next Steps
- Immediate: Implement a new board of directors with strong governance expertise.
- Short-term: Conduct a comprehensive review of the business model and identify areas for improvement.
- Mid-term: Implement operational efficiency measures and begin to diversify revenue streams.
- Long-term: Focus on building a sustainable and profitable business that delivers value to all stakeholders.
By taking these steps, WeWork can navigate its challenges and emerge as a stronger and more sustainable company.
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Case Description
This public-sourced case describes the lapses in board oversight that led to the dramatic rise and fall of collaborative office space company WeWork and its charismatic leader, Adam Neumann. The case is set in September 2019 and follows board member Mark Schwartz into a critical board meeting to discuss many of the issues facing the company as it tries to raise billions through an IPO: lapses in governance oversight and fiscal discipline, CEO Neumann's erratic behavior, and perhaps even fraud. The case offers an opportunity to evaluate WeWork's strategy and path to future profitability; the board and other stakeholders' role in WeWork's hypergrowth and rapid fall from grace; differences in corporate governance in private versus public companies; and the governance changes that occur in preparation for an IPO. With WeWork on the brink, students are put in Schwartz's shoes in the board meeting and challenged to answer the question: What would you do and why?
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