Never Mind We: The Next Unicorn To IPO Is Firmly Controlled By Just One Man

For an organization dedicated to community, WeWork has handed a stunning amount of control—and cash—to one person.

The company’s s-1 filing yesterday shows that chief executive Adam Neumann will hold at least 50% of shareholder voting right after the shared office company completes a public offering later this year. The filing explains the decision, saying, “Adam is a unique leader who has proven he can simultaneously wear the hats of visionary, operator and innovator, while thriving as a community and culture creator.”

Forbes last estimated Neumann’s stake to be worth $4.1 billion and the filings list the founder as the beneficial owner of more than 100 million shares. His real power, however, comes from 20-to-1 super voting rights granted to Neumann by other executives and investors.

The set up will give Neumann, 40, the ability to dictate the outcome of any vote put before shareholders, such as who sits on the board (currently all men). In short: complete control.

It’s not an uncommon arrangement for tech companies with founders who remain active, including at Facebook and Amazon. The trouble is not everyone believes WeWork is a tech company, though it is valued as such because of its meteoric growth rate.

The trend already concerns some corporate governance experts, and it’s even more worrisome at WeWork, which also has an unusually large number of related party transactions involving Neumann and his wife Rebekah (a cofounder and CEO of their school WeGrow).

“Usually a related party transaction is done to give someone an advantage,” says Drew Bernstein, partner at public accounting firm Marcum Bernstein & Pinchuk. “What avoids the appearance of conflict of interest is not having the transaction in the first place.”

For instance, since 2016 WeWork has paid $20.9 million to rent space in four buildings in which Neumann has an ownership interest. (Of that, $11.6 million was reimbursed for improvements.) Future lease payments on these locations total $236.6 million—or 0.5% of the company’s total lease commitments.

This arrangement garnered a lot of attention before the s-1 was released, though some experts now say the relatively modest scale of the real estate entanglement (four of 528 total locations) make it less of a concern looking forward. As part of yesterday’s filing, WeWork laid out a plan to transfer management of the properties to the company, including a purchase option.

More surprising to Bernstein is the succession plan. Should Neumann die or become permanently disabled in the next decade, Rebekah would would be one of three people responsible for selecting a new CEO. In some scenarios, she could also decide who sits on the selection committee. “The investors better really like this couple,” he says.

There is also a question of incentives. Neumann has been granted 42.47 million options, many of which only vest if the company’s market capitalization crosses $50, $72 and $90 billion in ten-years. Compared to profitability or per share value, Bernstein says, market cap can more be easily pushed higher.

Neumann receives no salary from WeWork (technically he doesn’t even have an employment agreement). He has instead cashed out with debt, including a $500 million personal line of credit secured by a so far undisclosed number of Class B shares. The company itself also granted him a series of three loans totaling $32 million. Two of the loans were paid back with stock.

Neumann last sold shares in October 2017 and is not selling in the public offering.

“This is the type of company that is going to be held accountable,” says Bernstein. “Is this normal for a company like this? It’s not a normal period of time. It was only seven years ago that the term unicorn was coined. Every one of them is unique in their own way.”

For more: WeWork Files IPO Plan, Showing First-Half Losses Grew 25%

This post first appeared on Forbes.com. To see the original, click here.