How do we work?
This week, I have been saddened by how a company once valued at US $47 billion had to file for bankruptcy protection, which analysts say was a last-ditch attempt to address its massive debt and operational issues.
The company in question is WeWork, founded in 2010, with a business model that includes taking long-term leases on office buildings and selling short-term memberships to offices geared towards co-working.
In effect, the company is right there influencing the world of work!
WeWork’s business model simply means it provides office and other commercial properties to businesses in a way that allows co-sharing of facilities that allows it to make a good margin and the clients also save money.
Its co-working spaces model, and the commercial real estate portfolio, dotted across 39 countries, enjoyed strong venture capital funding and made it as valuable as US $47 billion at one point on the private market.
But the company has endured a 98 per cent decline in its share price this year, with a market capitalisation of less than $50m.
With the chain of events at the start of the year, when in August it raised doubt about its ability to service its debts and other operational challenges, it sent jitters through the market.
The suspected trouble crystallised on November 6, when in a statement the company confirmed that it was indeed troubled!
The company’s statement confirmed a restructuring support agreement with stakeholders to reduce its existing debt. “But WeWork spaces remain open and operational, and we will continue to provide our members with the exceptional experience they have come to expect,” WeWork’s statement read.
“WeWork is here to stay, and we plan to remain in the vast majority of buildings as we move into the future. We remain committed to investing in our products, services and world-class team of employees to support our community,” the CEO of WeWork, David Tolley, said.
WeWork has a strong foundation, a dynamic business and a bright future. Nice, but still in bankruptcy protection.
So what actually accounted for this sudden reversal of fortune of WeWork? There are very strong factors—three mainly talked about. The first school of thought is that the company never recovered from the fallout it had with its co-founder, Adam Neumann. Neumann left the company in 2019 after a “boardroom” disagreement which saw him in a US$440 million payoff deal.
In a statement, Neumann described the fall from grace of WeWork as “disappointing” and that it had been “challenging” to “watch WeWork [fail] to take advantage of a product that is more relevant today than ever before.” Interestingly, Neumann has formed a new company, Flow that is also in the real estate business.
The second argument is that the strong shift in investor appetite in the last few years has seen a reduction in the portfolio of funds available to support ventures such as the model WeWork was operating.
To some, the seemingly “free cash” that venture capitalists made available had waned, making it difficult for companies, including WeWork, to secure the much-needed liquidity cover that could prevent bankruptcy.
The third point, which is the focus of today, has to do with the pandemic effect. According to analysts, a root cause analysis would strongly support the impact of the pandemic on the company’s dwindled fortune.
In part, you would find that the pandemic brought about a change in the way businesses operate today, especially with the remote working model replacing the need for a physical office space.
According to a bankruptcy expert at the law firm Sabino & Sabino based in New York, USA, and also a law professor at St John’s University’s Tobin College of Business, Anthony Sabino, “first, and most obvious, this [the bankruptcy protection filing] was the pandemic [at work]”.
“Who anticipated that no one would be permitted to go to the office like in the old days? The pandemic not only directly caused vacant offices, but it decimated the market for office space.
“It forced companies to go to remote work, and some have even embraced it. Whether voluntary or not, the result is the same: a marked decrease in the need for office space, WeWork’s sole commodity,” Sabino is quoted as saying.
I agree with the claim made by Sabino. In the September 3, 2022, edition of this column, for example, l explained how the shift in work patterns due to the pandemic had forced a new normal with workers.
I explained how a report filed by Kalyeena Makortoff for the Guardian newspaper in the UK on August 22, 2022, explained how workers of Apple had launched a petition over the firm’s return-to-office stance.
Apple Chief Executive, Tim Cook, in a memo, had called for “in-person collaboration” among staff, at least three days a week from September 22. But the workers would rather want to collaborate in other ways, claiming that Cook’s order could stifle diversity and staff well-being by “restricting their ability to work remotely”.
“We believe that Apple should encourage, not prohibit, flexible work to build a more diverse and successful company where we can feel comfortable to ‘think different’ together,” the Financial Times of London reported, in reference to the petition.
The COVID-19 pandemic sent millions of workers around the globe from working in offices to working remotely and brought some changes to the way life is generally organised.
Significantly too, it has brought changes to the way businesses operate, workers go about their normal duties, and in the broader sense, the way the wider economy functions.
Before the pandemic, remote work had been on the discussion table for a considerably long time for most companies.
In fact, many had questioned whether remote work would ever work. But that argument was more or less settled during the height of the pandemic. The argument changed drastically from “Could it work” to “How do we implement the best solution in remote work”.
And the implementation seems to have a serious knock-on effect on WeWork. The question now is this: How do we work?