WeWork is a provider of coworking spaces, including physical and virtual shared spaces. In the past week, WeWork had 3 board members resign based on “a material disagreement regarding board governance and the company’s strategic and tactical direction.” With this announcement, WeWork revamped its boards with experts in steering large corporate restructurings after raising doubts that it will survive. Below you will learn more about WeWork change in board members.

As reported by Wall Street Journal on August 9, 2023 by Alexander Gladstone, Akiko Matsuda and Konrad Putzier.

WeWork Taps Directors With Bankruptcy Chops After Board Resignations

WeWork reshuffled its board after the resignation of three directors who disagreed with its governance and strategy, replacing them with corporate bankruptcy experts as it cast doubt on its ability to survive turmoil in the office-building market.

The flexible workspace provider, once valued at $47 billion but now a penny stock, said Tuesday that board members Daniel Hurwitz, Vivek Ranadivé and Véronique Laury resigned last week because of “a material disagreement regarding board governance and the company’s strategic and tactical direction.”

To succeed them, WeWork appointed to its board four new independent directors, all of whom have prior experience steering businesses through complex corporate defaults and bankruptcies.

The company’s stock plunged after WeWork disclosed the board reshuffle on Tuesday and said that due to weaker-than-expected demand and higher member churn, it has substantial doubt about its ability to continue as a going concern.

WeWork shares continued falling on Wednesday, settling at 13 cents, down 99% since their public listing in 2021. A WeWork representative declined to comment. Hurwitz, Ranadive, and Laury didn’t respond to requests for comment.

While the going-concern warning doesn’t mean WeWork will restructure its debt or go bankrupt, it illustrates the severity of challenges facing the business, once among the world’s most valuable startups with backing from SoftBank and other venture investors.

WeWork is vulnerable to a weakening office market because of its massive rent bills for leasing office space. The company typically leases its offices under long-term deals and effectively sublets desks to companies short-term. By locking itself into leases, WeWork has to pay rent whether or not it can fill desks—a recipe for big losses when demand for offices falls.

Leases are “a boom and bust structure,” said Jamie Hodari, chief executive of WeWork competitor Industrious, which runs most of its spaces under revenue-sharing deals with landlords. “When times are bad you have to stomach every penny of the downside.”

The stalled push to get workers back in their offices after pandemic shutdowns has left WeWork operating at a loss that hasn’t narrowed as much as the company expected. It reported a net loss of $700 million over the first half of 2023 on Tuesday, following net losses of $2.3 billion, $4.6 billion and $3.8 billion for the years 2022, 2021 and 2020.

WeWork had hoped it would benefit from remote and hybrid workplace strategies adopted during the pandemic era. “Flexible office space has tailwinds,” former CEO Sandeep Mathrani said last year. “It almost reminds me of my shopping-center days, when e-commerce sales were going up and brick-and-mortar sales were going down.”

Instead, physical occupancy rates for offices have remained below prepandemic levels and pressured WeWork’s ability to service its debt.

WeWork’s meteoric ascent as a venture-capital darling was fueled by hype surrounding its charismatic co-founder Adam Neumann, who was ousted in 2019 after investors raised concerns about his unorthodox management style and related-party transactions with the company. WeWork’s plans for an initial public offering collapsed, but it went public in 2021 through a merger with a special-purpose acquisition company.

The company has been shoring up its finances by shrinking its footprint. WeWork in recent years renegotiated many unprofitable leases, in some cases ditching them entirely in return for cash payments. It said in November it would close 40 underperforming locations in the U.S. to cut costs, without specifying which buildings. Since April, it has stopped paying rent at 315 W. 36th Street in Manhattan, pushing the property’s landlord into default on a $127 million mortgage in June, and the loan was sent to a special servicer, according to credit-rating firm DBRS Morningstar.

Businesses in financial distress often add restructuring experts as independent members of their boards to evaluate strategic options and, if necessary, guide the company through chapter 11. As independent directors, they are obligated to act as disinterested experts with no bias or allegiance to any particular party and solely focused on maximizing the business’ value. They are often asked to navigate complex negotiations between insiders, creditors, and other stakeholders whose interests are frequently in conflict.

A relatively small group of people serve as independent directors in many different chapter 11 cases, often hired by multiple companies on referrals from the law firms that handle the largest corporate restructurings.

WeWork’s new directors include Paul Aronzon, who is currently also an independent director for bankrupt crypto company Genesis Global and has also served in similar roles in the reorganizations of family entertainment venue Chuck E. Cheese, petrochemical supplier TPC Group, cosmetics maker Revlon and other formerly bankrupt businesses.

Another new director is Elizabeth LaPuma, also an independent director of Surgalign Holdings, a medical technology company that filed for bankruptcy in June. LaPuma was previously head of balance sheet advisory at UBS, and worked in Lazard’s financial institutions and restructuring group, where she was involved in several of the largest bankruptcies during the financial crisis.