Burning Down Companies for Fun and Profit

The entire premise that capitalism is founded on is that if you are willing to risk your future on a business venture, and you win bigly, then you get to reap the rewards. The flip side of that coin is that if the business tanks, then you get to deal with the loss. If a big company fails, our system can deal with it. It goes into bankruptcy court, creditors are paid, balance sheets are updated, and vultures can swoop in to pick the carcass clean. That’s the system. That’s the deal.

Scott Galloway, a professor, writer, and podcaster, who I think is doing some of the best work out there right now, wrote an article showing how CEO’s are extracting literal fortunes from the companies they run, while at the same time essentially burning down the business, and ruining the futures of the companies they are supposedly leading. The current gold-medal-winning example is, of course, Adam Nueman, of WeWork fame, who caused the company to over leverage, setting fire to NINE BILLION dollars of VC money, and then got paid another ONE BILLION dollars to bugger off.

Adam Neumann founded WeWork in 2010, but he didn’t start burning Benjamins at epic scale until Softbank began shoveling billions into the WeWork furnace in August 2017. By the time Neumann was fired in September 2019, Softbank had invested $10.3 billion; a few months later it wrote off $9.2 billion of that. That’s a $13.1 million (daily burn rate) on Softbank’s money alone, or like flying a decade-old Gulfstream G450… into a mountain … every day. Impressive, but only half the story. Neumann’s compensation for this value destruction was complicated by his ouster and a subsequent lawsuit, but we estimate he made off with around $1.02 billion, most of it coming out of Softbank’s deep pockets. That’s $1.5 million per day during those two years…

Company after company, spending tens of billions of dollars on failed acquisitions, while their CEO’s get paid hundreds of millions, and pretty soon, you find that you’re talking about real money. Money that’s being set on fire, and flushed down the drain. Money that could have, oh, I don’t know, allowed the company to pay a living wage to all of its employees. Money that could have allowed employees to take more than a trivial number of vacation days.

I watched this happen to my own company, Arvin when it got bought by Meritor. I understand how this happens. The purchase was sold to the shareholders and the media as a “merger of equals,” and everyone was told that the CEO of Arvin would become the CEO of ArvinMeritor in 2 years. The executives all split $50M as a collective pat on the back for being so great. The CEO of Arvin got $15M of that. However, Meritor started selling off portions of Arvin before the ink was dry, and used that money to float their heavy trucking business, which was hemorrhaging money. One year into the “merger,” they pulled the ripcord on Arvin’s CEO’s golden parachute, and paid him another $19M to bugger off. In 3 years, they sold off the only thing left to a private equity firm, who flipped it to Faurecia. They wrote checks to the executives equalling three years of Arvin’s profits over the course of a year.

This was all standard corporate raiding. I get it. It’s all perfectly legal, and it happens every day in America. But it was obscene, and it still stinks. Arvin was a great company to work for. I didn’t realize how great it was at the time, because I didn’t have any perspective. After seeing how Meritor worked, and working for other companies, I see now just how great it was, and it makes what happened sting all the more.

I finally got around to looking at who held stock in Arvin and Meritor, and found that investment banks owned 70-80% of the stock involved, so this was something that they all colluded with each other about to make happen, and they didn’t need a shareholders meeting or press releases at all. It was all for show.

A lot of this sort of thing involves stock transfers, and a lot of people use the excuse that it’s all “paper” money, but stock is a functional store of value, just like fiat currency, or gold, or digital money, or property. Saying that these things don’t count because they are financed by stock is a cop out. Further, when the executives get paid in money, that’s a real check that the company writes. It’s a real line item on the ledger, and not some accounting trickery. It’s money that could have helped a real person with a real problem, instead of going into someone’s account who can only ever use it as bragging rights.

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