"Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company."
Mr. Neumann "is WeWork’s largest individual shareholder and has voting control over the company, so it is not clear that the board can say no."
https://www.bloomberg.com/amp/opinion/articles/2019-01-16/we...
This quote reminds me of something that was said in the movie The Founder (2016).
https://www.imdb.com/title/tt4276820/
(Spoiler alert, possibly.)
“You’re not in the hamburger business. You’re in the real estate business.”
Maybe these things are exactly what happen everywhere and I'm just applying a perception of corruption-as-usual.
https://arstechnica.com/information-technology/2012/10/how-s...
That sounds like a recipe for disaster.
But yeah, big money doesn't have to be very smart, in principle. Like this pitch, 45 minutes for $45B dollars from the Saudi prince: https://www.economist.com/business/2019/03/23/masayoshi-son-...
This article has another good quote:
> The stockmarket, for its part, values SoftBank itself at a steep discount to the sum of its listed constituents (see chart 1), despite a $5.5bn share buy-back in February. Worries that Mr Son is paying over the odds are thought to be a big factor. Take WeWork: when Mr Son slashed his investment to $2bn, SoftBank’s shares leapt by 6%.
See also: https://techcrunch.com/2017/06/01/the-meeting-that-showed-me...
It seemed even more ingenious/mischeviois, because in exchange for franchise deal they leased land to franchisers, not even the parent company. So they didn't milk their company.
Im not sure if thats the whole of mcd corporation income structure, but the movie hinged on this one.
Hope I didnt spoil too much, there's more to the picture anyways.
If it’s true, that’s not a good look for him or the company.
> One of the landlords behind the building was no ordinary owner: It was Adam Neumann, WeWork’s chief executive, who leased the property to WeWork after buying it, according to people familiar with the situation.
> Mr. Neumann has made millions of dollars by leasing multiple properties in which he has an ownership stake back to WeWork, one of the country’s most valuable startups. Multiple investors of the privately held company said the arrangement concerned them as a potential conflict of interest in which the CEO could benefit on rents or other terms with the company.
Clearly an ethical guy we're dealing with here. I'm sure this will all pan out well down the road.
It’s standard practice to buy a building personally and rent it back to your own company. It’s what accountants recommend you do.
It's also not unusual for some larger companies to have their head office owned by the founder / majority shareholder in a separate company, Monsoon and Arcadia in the UK are two examples of this
Seriously where’s the vetting VCs are supposed to be doing? Used to be you had to hustle AND have a good idea to have a VC ready company. Now it seems like all you need to do is hustle and be in the tight geographical location (Sillicon Valley) and you will get money for stupid things like this damned Coworking company with free beers.
https://www.theglobeandmail.com/news/british-columbia/vancou...
In the case of WeWork, this isn’t a franchise, WeWork has the ability to own the property outright and lease it out. The CEO owning the property effectively guarantees him a good return on his investment and his rent profit goes into his pocket while WeWork the company passes him the profit.
If there are holes in the logic please elaborate. That is the best I can compare the two.
I’m sure McDonald’s makes a bit of profit off of leasing to a franchisee, although I can’t say. In the case of McDonald’s it seems it is providing a valuable service to a franchisee. No need for a franchisee to try to negotiate property deals, nor put up real estate capital to own the land. McDonalds is effectively cutting out a 3rd Party landowner middleman that could arbitrarily raise rent once the restaurant is opened.
Compare to Subway, which also franchises but doesn’t lease property, to see what difference that makes.
McDonalds is a much stronger company just based on their ownership of some of the most valuable real estate across the USA.
They both expanded a marginally profitable (and hard to grow) business by expanding a few locations than leveraging the capital to buy real-estate, which allowed them to stop caring about the original and individual franchised business success. Using the massive income of being commercial property landlords, even if the franchises failed, they had revenue growth. Now that Kroc is gone, the reference to McDonald's as a corporation is convenient, since the history is understood and available.
The movie "The Founder" might clear things up.
The movie The Founder is mostly fake. It's unlikely to clear much up.
Just googling the history, so you can understand what happened, is a minimum when having a discussion about history. Whoever went so far as to wasting a point downmodding me, didn't even do that.
Who owned the real estate? Ray Kroc?
According to https://www.moaf.org/publications-collections/financial-hist... Franchise Realty Corp was owned by McDonald’s.
From wikipedia: At the closing table, Kroc became annoyed that the brothers would not transfer to him the real estate and rights to the original San Bernardino location
Regardless of the legal agreements, the intent was the same. Since the beginning of this thread, it looks like nitpicking to avoid concession, so you can believe what you want. GL with that.
To recap, history. Ray Kroc is analogous to Adam Neumann. 2 founders who leveraged real-estate over the initial franchise business. Substituting McDonald's in name for Ray Kroc is a matter of a temporal situation (or laziness).
Adam Neumann, who controls WeWork, set up a scheme where Adam Neumann and relatives bought real estate and leased it to WeWork (no franchise model in this case, by the way). The intent was for Adam Neumann to benefit. The analogy is flawed and misleading, the conflict of interests is evident and this anomalous situation is being corrected.
A much better analogy to what McDonald’s did in the beginning is what WeWork intends to do now: https://www.bloomberg.com/news/features/2019-05-15/wework-wa...
“WeWork is creating an investment fund that aims to raise billions of dollars to buy stakes in buildings where it will be a major tenant”
(Still, it’s not exactly the same, I think, as it will be a fund partially owned by WeWork and partially by external investors; I don’t fully understand what was the structure for Franchise Realty but as far as I understand external investors provided loans to that corporation.)
It is not in the movie (which, again, is largely fictitious) that Ray Kroc took personal ownership of properties, and benefitted personally from the corporation he controlled (not counting the above-board appreciation-of-the-overall-corporation, which of course he benefitted from, but capitalists mostly don’t argue with this).
There was an intermediary acting as the owner, and there are no franchisees in WeWork’s case.
WeWork is vastly, vastly more sketchy.
Maybe he would later sell those real estates whose price have been inflated because of WeWork's presence.
It is indeed a real estate company.