We Co., the parent of coworking space company WeWork, has had a bad few months. Documents from its canceled IPO revealed that it’s losing more than $5,000 per new customer, and the company has dropped in value by nearly 80 percent this year. Many blame former CEO Adam Neumann, ousted in September, for the company’s financial troubles, citing his profligate spending (he had a “spa and ice bath” attached to his office) and brazen conflicts of interest (he trademarked the word “We” then had the company pay him $5.9 million in licensing fees).
On Tuesday, Wall Street Journal reported that SoftBank has offered Neumann $1.7 billion to walk away from the company. The deal has three components: a $185 million “consulting fee,” a loan of $500 million, and roughly $1 billion to buy out some of Neumann’s equity stake in We. The package will give SoftBank majority control and leave Neumann with an estimated 10 percent stake in the company he co-founded. The package is truly a boatload of money, even by our ridiculous standards of executive pay and golden parachutes. But is this the biggest severance package of all time?
To assess the deal, you first have to separate out SoftBank’s $1 billion purchase of most of Neumann’s shares. Prior to this deal, Neumann had majority voting power in We, so in addition to having a fair amount of latitude to run the company into the ground however he saw fit, investors would have a difficult time ousting him without buying out his stock. If it’s clear that SoftBank needed to make a generous offer to get Neuman out of the picture, what’s less obvious is whether the $1 billion was especially lavish.
Another way to look at that question: What is We worth? Because We cancelled its IPO, it’s hard to say, though recent estimates pegged its value at around $10 billion or perhaps a bit less. The deal SoftBank offered Neumann values the company at around $8 billion, but as John Coffee, director of the Center on Corporate Governance at Columbia Law School, said in an email, “Softbank has always had an optimistic (to delusional ) view of We Work’s value.” He added, “That Neumann walks away with $1 billion or more is bothersome, as he destroyed most of the value in a promising business. He reminds me more of Martin Shkreli than Elon Musk. The former is a felon, while Musk is just reckless.”
If you count only the $185 million consulting fee, other former CEOs have fared better. Former CEO of GE Jack Welch, who retired from the company in 2001, is sometimes reported as having received the biggest severance package of all time. He took home $417 million, although his track record was arguably better than Neumann’s. Vanity Fair called him “one of the best C.E.O.s in the history of corporate governance,” pointing out the company’s stock increased 40-fold during his tenure.
Neumann’s package is not too far out of line with the $120 million that CVS Caremark’s CEO Thomas Ryan received in 2010, when he retired after 37 years at the company, serving 12 years as its head. Ryan oversaw a period when the pharmacy turned into the health conglomerate we know today. He orchestrated CVS’ purchase of Eckerd drug stores and the retail clinic operator MinuteClinic, as well as CVS’ merger with the pharmacy benefit manager Caremark, a business unit that now accounts for more than half of the company’s revenue.
A more typical severance package for a CEO of a major company would be in the ballpark of $22 million—just 11 percent of Neumann’s consulting fee. Pacific Gas and Electric’s former CEO Geisha Williams received $2.5 million when she resigned in January amid the runup to the company’s Chapter 11 bankruptcy. When Aramark CEO Eric Foss resigned in August after receiving negative feedback from an activist investor dissatisfied with the company’s growth rate, he left with two years’ salary and a bonus, a package likely worth around $87 million.
Others can only dream of Neumann’s new riches. Andrew Mason, co-founder and CEO of Groupon, fared particularly poorly when he was fired: He took home a mere $376 as severance in 2013 after investors saw that the money-hemorrhaging company lacked a route to profitability. In 2016, LendingClub CEO Renaud Laplanche was fired after a scandal emerged showing the company had misstated information when it sold LendingClub loans to investors. Laplanche walked away with nothing when the board withheld the $870,000 in severance that he would otherwise have been entitled to receive. Former CBS CEO Les Moonves, best known for the allegations that he sexually harassed or assaulted at least six women, was slated to receive $120 million, but was denied the amount listed and left with nothing because of his “willful and material malfeasance.”
The deal Neumann received probably isn’t the goldest-golden parachute of all time, although it may be at the top of the leaderboard for companies that have never turned a profit. His departure shows that it still pays to start a business that loses dazzling amounts of money, as long as you can find the right set of willing investors to finance your misadventures.