WeWork parent We Company filed its S-1 Registration Statement with the SEC last month, taking an important step toward an IPO. The shared workspace start-up had previously been one of the most hotly anticipated IPOs of 2019, but the filing officially confirmed many corporate governance red flags that had been hinted at over the years in media reports.

Many prospective investors have now balked at the company's governance structure, and the company may now go public at a valuation of just $10 billion to $12 billion, according to Reuters. That would be a massive haircut compared to the $47 billion valuation it fetched in the private markets just eight months ago. We Company is now making some changes due to the backlash.

WeWork shared workspace

Image source: WeWork.

Trying to address those red flags

In an amendment to its S-1 filed this morning, We Company is proposing numerous changes to its corporate governance "in response to market feedback."

Many of the changes are intended to address concerns that CEO Adam Neumann has repeatedly engaged in self-dealing, such as a controversial arrangement from earlier this year whereby WeWork changed its name to We Company and paid Neumann $5.9 million for the trademark "We." Neumann agreed to return the money earlier this month, but that's just one example.

Here's a summary of the proposed changes:

  • We Company intends to appoint a lead independent director by the end of 2019.
  • Supervoting Class B and Class C shares will get diminishing voting rights. Those classes currently get 20 votes per share, and We Company will reduce that to 10 votes per share. Both classes are predominantly held by Neumann.
  • In the event that Neumann dies or becomes incapacitated, supervoting stock voting rights will automatically decrease to one vote per share.
  • If Neumann's supervoting shares become less than 5% of outstanding capital stock, that will also trigger a similar reduction to one vote per share for supervoting share classes.
  • No immediate family member of Neumann's will sit on the board, and the board as well as its committees and subcommittees will be comprised of a majority of independent directors.
  • The board, rather than a succession committee led by Neumann's wife Rebekah, will vote on a successor CEO.
  • We Company added Frances Frei, its first female director, to its board earlier this month, and commits to improving the board's gender and ethnic diversity.
  • Neumann will return any profits he has received from real estate deals he has entered into with We Company. The chief executive has received criticism for personally purchasing real estate to lease back to the company. Neumann has also relinquished control of ARK, the fund that We Company set up earlier this year to purchase commercial real estate to lease.
  • Neumann has entered into a lockup agreement for one year, and will not be able to sell more than 10% of his shares in each of the second and third years after the offering.

Will the revamped corporate governance structure be enough to address investor concerns? Only time will tell.