Sep 23, 2019 - Economy

Silicon Valley's fraying cult of the founder

WeWork CEO Adam Neumann.

WeWork CEO Adam Neumann. Photo: Cindy Ord/Getty Images for WeWork

For 25 years Silicon Valley has built successful companies by handing control to inventive and driven but sometimes eccentric or reckless startup founders. From Facebook to Google, these leaders often receive special kinds of voting stock that let them sell shares to the public — and become fabulously wealthy — while retaining power over their firms.

Why it matters: As the latest wave of tech startups lines up for its string of IPOs, the pendulum may be swinging the other way — with investors demanding problematic founders step back or cede control.

  • As WeWork's public offering falters amid questions about the company's business model and the behavior of founder and CEO Adam Neumann, Softbank, WeWork's biggest investor, is pushing to replace Neumann, the Wall Street Journal reports.
  • Several stories have targeted detailing Neumann's excesses, from his penchant for alcohol to an epic pot-filled private plane flight to examples of WeWork doing business with other entities he controlled.

Where it stands: For now, Neumann still has his voting stock, but WeWork needs access to cash to keep funding and expanding its growing network of office-sharing spaces.

  • Neumann's troubles come in the wake of founder Travis Kalanick's 2017 ouster from Uber, which he had built and controlled. His board turned on him after accounts surfaced of a culture of sexual harassment, gender discrimination, retaliation and bullying that he'd overseen. 

The big picture: There have been other cautionary tales of placing too much faith in a charismatic founder (see: Theranos). In other cases, eccentric founders remain in control, such as Elon Musk, though concerns remain about his judgment, temperament and ability to adhere to securities law.

Our thought bubble: Entrepreneurial drive doesn't necessarily translate into true leadership, particularly as organizations grow.

  • When control passes from founders, right now it usually goes to professional managers beholden to short-term market forces, and that isn't necessarily a great answer, either.
  • The industry needs to develop a better system for cultivating founders who have ethical values as well as disruptive ideas.

The bottom line: Being an effective CEO requires a range of skills and few individuals have all of them. But when founders are guaranteed to remain in control, they're empowered to be reckless, licensed to misbehave, and difficult to hold accountable.

Go deeper: Why WeWork waits

Editor's note: This story has been corrected to clarify that the Wall Street Journal's coverage reported on only one pot-filled private plane flight by Neumann (not multiple pot-filled plane flights).

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