This is one of the worst management announcements I have ever read. While on the one hand, I can appreciate the forward-looking nature of making the company better in the future and an acknowledgement of some of its shortcomings (which every company has).
But the worst crime of all is announcing Conrad's resignation and providing zero credit, thanks, or goodwill towards him for being the birther of the company which wouldn't exist in the first place if not for him. Even if he had recently run into trouble setting the company straight or other problems, it's outright shameful to simply skip right over his contribution to making the company what it is and for being responsible for making it happen from day 1.
This crime wouldn't be so awful if it had come from someone who wasn't already a previous entrepreneur himself.
This is pretty sad... Parker probably would have gotten a nicer goodbye announcement had he died.
You are massively underestimating the magnitude of this screw up. You seem to be implying that this was a mistake and changes had to be made, but it's time to move on. Non-compliance can put everyone under you at risk of going to jail. "Compliance" is short for "compliance with the law" and "non-compliance" is short for "breaking the law".
I'm not exaggerating here, Sacks is making a deliberate decision not to mention Conrad and act as if he's taking this as seriously as possible. It seems that nobody was hurt by this non-compliance so I hope deeply that nobody goes to jail for this - but that is what is on the line, make no mistake.
From the earlier post about unlicensed deals in Washington state:
> Washington law is particularly severe when it comes to the unlicensed sale of insurance. Under the law, anyone who knowingly sells, solicits, or negotiates insurance without the proper state license can be punished with a prison sentence of up to 10 years, as well as a civil penalty of up to $25,000 for each violation.
Important consideration here may be that zenefits employees would possibly be liable. Does anybody know if they were made aware of the issues before Nov 2015?
Depends but it's possible. Given the decision though it was important to distance themselves, both culturally and legally. Anybody who is seen to contribute to non-compliance WILL NOT be celebrated. What the regulators want to see, what the employees need to see. In fintech/regtech, if you contribute to making others in the company non-compliant you should be dead to the company - not because they necessarily did anything "evil" or anything like that, just because that's how it HAS to be treated.
Is this comment for real? The company was flouting law, and he's the CEO. When it's some dirty banker, HackerNews wants the CEO in jail. When it's an SV darling, we are upset that his send-off didn't give him enough credit?
Don't forget the banker doesn't even need to have broken a law. By virtue of their profession, they should be in jail. At least according to most of HN.
You are overlooking the tiny detail that selling derivatives that act like insurance was a multi-trillion dollar financial WMD that could have reduced the global economy to ashes, while there appear to be no victims materially affected in this case, and the people running this company are easy-to-jail small fry.
People were complaining more about too-big-to-jail. Had the bankers actually have been prosecuted, you might have a point.
There were most certainly victims in this Zenefits case. My employees count amongst them. We were wronged by Zenefits and people with medical problems found themselves out of insurance because of this company, then Parker tried to shift blame to us but the issue all along was him using unlicensed, inexperienced brokers in the states we have employees in.
Well, of course you should get a nicer announcement if you die than if you are fired for incompetent decision making which has a good chance of having the company shut down as part of your 'compete by being willing to commit felonies that other companies won't commit' business model.
I think, like most situations, that the public has very little information and context. For all you know, the situation is exceedingly complex for the board and Parker.
Sacks is smart. Parker is too and he wouldn't take it lying down but clearly wants to do the right thing: preserve the integrity of the company and its employees over himself. You can see that in his actions as he resigned from the board and is being really quiet -- that's tough as a founder.
I wouldn't overly judge the memo. The audience isn't you or me, it's the employees of Zenefits. It's their message to interpret and internalize. And they already know who their founder is and what he contributed to Zenefits.
Also, employees under the guidance of their former CEO could face multiple years in prison for crimes committed while they were at the company and under instruction from the CEO. If your employees are now facing significant jail time because of how you trained them to do their job, you should get zero credit or goodwill.
His contribution may also be its destruction (had things continued).
I can't imagine any reasonable company wanting to do business with Zenefits right now or even some time from now even if there is evidence they've improved and corrected things. Its too risky for a company to entrust them with their HR & insurance needs, and I wouldn't even want to be remotely associated with them. Any company with a smart CEO or General Counsel would advise to wait a while, and I think that'd be best case scenario. There goes your "growth"
The new guy publicly throwing the old guy under the bus is actually a a step in a recommended strategy for turning a company around. See this blog post from Marc Andreessen's archive: http://pmarchive.com/guide_to_big_companies_part1.html
I remember a book amount management consulting and it mentioned one firm (only referred to as the "Butchers") who only ever recommended this one action regardless of the actual state of the company. Of course they spent vast amounts of chargeable time analysing operations to produce data that supported the conclusion they had already made.
Thanks for the link - just bought it. I've seen some of those techniques used during my time working. P.T. Barnum was right - "There's a sucker born every minute", especially in management.
The announcement is not a crime. The problems which forced the situation which produced the announcement were the crimes. Which explains the tone of the announcement.
I read somewhere that if the new guy writes the memo, it means the old one was fired. If the old guy writes a goodbye, it means he's actually stepping down.
It seems Parker was fired, and not 'stepping down'.
Even if he resigned, he resigned under duress. This wasn't an "I'm spending time with my family and kids" resignation/firing; it was a "oh shit we're screwed, we need to mitigate the damage and throw Parker under the bus to save the company". It's very likely he was a big part of the resignation discussions.
Doesn't "throw[ing someone] under the bus" imply they're not completely at fault? This was not an honest mistake or some above-board disruption of an existing industry.
This was someone willfully, knowingly committing many (hundreds? thousands?) of felonies in the interest of making money and growing the company.
It can also mean (and, IME, usually means) that the person recieving the blame was at fault but that the people doing the blaming are also substantially at fault for the same offense, and are deflecting the blame to a particular target as a scapegoat.
Where do you get "willingly, knowingly committing . . . felonies in the interest of making money . . ."? That's not what any of the articles say.
Inadequate process controls means employees were supposed to follow the law but things slipped through the cracks sometimes. Seems that happened a lot in Washington. But I'm pretty sure most of Zenefits' business is in CA. I would assume the brokers for most sales were licensed properly.
In a memo to employees about the management change, Sachs didn’t dance around the company’s issues when it comes to regulatory compliance.
“The fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned,” writes Sachs. “In order for us to move forward as a company, we cannot seek to hide or downplay the problem.”
He was definitely fired. Just look at few factors:
* There is basically 0 credit given to the Conrad (the company's founder) in the memo. That's likely because this was a fight and not a mutual decision.
* He's giving up his board seat. When it's merely a case of needing a new CEO, you don't necessarily lose your board seat.
I agree with the sentiment, but probably a more accurate and slightly less bold claim is that the old guy getting a chance to speak means the change was amicable.
I love the way Conrad gets all the blame and is thrown under the bus...
'The fact is that many of our internal processes, controls, and actions around compliance have been inadequate, and some decisions have just been plain wrong. As a result, Parker has resigned.'
Not much subtlety there. Presumably as COO he had nothing to do with 'internal processes, controls, and actions around compliance' which seems a little odd to me. So what was he doing all day then?
I also like how the company values are instantly changed...
'Effective immediately, this company’s values are: ...'
Which is interesting because most companies spend ages coming up with the correct values for the company and it usually involves feedback from employees.
As a former Zenefits user, and after contentiously conversing with Parker a few times on social media then soonthereafter reading how the company flouts laws and regulations while feigning simple ignorance of them, I'd say the buck certainly stops with him.
He needed to finally accept that his company has some serious internal issues that have cost a not-unsubstantial amount of people a lot of time, money and grief over the years, including some of my own employees. The company certainly has a lot of promise, but was managed the wrong way from day 1 and it needs someone with some real experience to right the ship if they are to stay viable.
The issues go far beyond insurance. The whole platform was a mess when my company used it and support was virtually non-existent because of their complete ineptitude.
Responsibility ends with the CEO. If you're the CEO your job is to make sure things don't go wrong and take the dive under the bus if you let things get bad enough that its required.
David Sacks joined Zenefits about 13 months ago, so I presume while as COO he is somewhat responsible, it seems far more likely his opinions being different from Conrad is what led to Conrard's removal.
This is a great question, especially since it seems like he would have been in charge of the salesforce (where a lot of these issues happened).
So unless he wanted to change these processes and Parker stopped him, it does feel like there is another side to this story... (modulo many of the other issues that must of driven this change)
"But what the former chief operating officer didn’t acknowledge is that for a long period of time he and Mr. Conrad worked closely together, sitting next to each other at work and meeting regularly for dinner, according to a person familiar with the matter.
The person said that Mr. Sacks, who describes himself in his Twitter profile as a “hypergrowth addict,” helped spearhead the company’s large fundraising shortly after joining the company in December 2014 as well as its strategy to grow quickly despite a lack of internal controls and processes."
Does anybody think that writing down company values has any effect on anything ever? This is what people do to go through the motions of leadership when they have no clue what their employees actually do.
Right. So sick of that dumb shit. Anyone gullible enough to buy into propaganda like that is too stupid to hire, imo. I havent worked anywhere whereupon hearing mission statement oriented bullshit from the ceo or minions that I didnt say to myself, "ok...whatever...".
Maybe I'm unlucky, but I've never seen a company where this is true, if they are > 5 people. And those were non-profits where growth wasn't really a concern.
TBH, I knew a number of folks within Google Search who took "Don't be evil" very seriously. I dunno about the top-level execs, but there were plenty of folks with mid-level VP or Director titles who cared deeply about the user experience and doing right by users.
Whenever a major organization develops a new system as an official standard for "X", the primary result is the widespread adoption of some simpler system as a de facto standard for X...
Looks like the WSJ article has some additional information, including this rather telling quote about the current company values, which seem rather different than the set of values Sacks espouses:
<<Mr. Conrad, 35 years old, is known for his brash style and the company’s operations reflected that. His company’s mantra — “ready, fire, aim” — is followed by many Silicon Valley startups meant to encourage aggressiveness.
Such a cavalier approach often works well for tech companies, such as Facebook Inc., whose motto in the past was famously “move fast and break things.” But it may have served Zenefits poorly as it operated in the regulated insurance industry.>>
Over the long run there are an infinite number of thing to "break", or "disrupt"...you'd better have a solid product when you attempt to fill the void you've created...
The analogy of conquering armies pushing forward and failing to nail down resupply lines comes to mind...
In football it's called out kicking your coverage...
Hypergrowth is not necessarily an evil, but the old maxim "cover your flanks" is generally apt...
If he were indeed following the "move fast and break things" mantra, then i guess someone should have warned him that doesn't include things like.. the law.
<<Which is interesting because most companies spend ages coming up with the correct values for the company and it usually involves feedback from employees.
>>
"Operate with integrity", "put the customer first", and "make this a great place to work for employees" seem like pretty generic / good values (that are probably based on a lot of experience Sacks has from Yammer).
The fact that they are called out in this email seems pretty telling of why Parker had to go...
oh wow. Hopefully zenefits stands behind their employees, because this looks scary:
In Washington state [...] 83% of the insurance policies sold or serviced by
the company through August 2015 were peddled by employees without necessary
state licenses [...]
[...]
Washington law is particularly severe when it comes to the unlicensed sale
of insurance. Under the law, anyone who knowingly sells, solicits, or
negotiates insurance without the proper state license can be punished with a
prison sentence of up to 10 years, as well as a civil penalty of up to
$25,000 for each violation.
A large part of the insurance industry does not like the Zenefits business model (free software to be your broker), so I'd bet regulators are presumably getting a lot of pressure from the insurance lobby to do something quick.
Except when "being your broker" means "some random sales dude with no training nor experience is handling your company's health insurance."
It's not particularly hard to get licensed (usually around $100, a training course of 40-100 hours (which they are large enough, they could set up inhouse), and possibly fingerprinting). Is it a hassle to get licenses in multiple states? Yeah--though most states honor other state's licenses, and just require the fee then.
In any case, this is table stakes--and if they can't get this basic aspect right (after being warned for years!) how well do you think they manage the tricky stuff? And why aren't they hiring experienced health brokers in the first place?
(The stuff about illegal rebates because they give away their software is garbage though. I'm 100% on their side for that.)
I don't disagree that it's super easy to get a license and should be done regardless – but, geez, why is that a requirement? What's so special about selling health insurance that you should go to jail for up to 10 years if you're not licensed in it?
I'm curious because there must be something obvious I'm missing.
Because this is people's health you're talking about.
Do you feel drivers should have to get a drivers licenses? I hope you don't think Uber should just hire people off the street and put them in cars without proper licenses.
A simple health example off the top of my head - you sell health insurance to someone without understanding the product because you're so keen to 'make the sale'. Meanwhile you promised the buyer it would cover that heart condition he has when in fact you have no idea that it doesn't. A couple years later he needs heart surgery and finds out the plan he's been paying into doesn't cover his condition and now he cannot work to provide for his family, nor can he get treatment to get better.
> Because this is people's health you're talking about.
That argument is about as valuable as "think of the children."
> Do you feel drivers should have to get a drivers licenses?
That's not the right analogy. The equivalent would be requiring special licenses for all car dealership employees, which is not required. Salespeople aren't themselves doing anything medical and there's no reason they should have additional requirements beyond normal salespeople. We already have laws covering both (a) fraud, (b) minimum requirements of healthcare plans.
> A simple health example off the top of my head
Existing consumer protection laws would cover this. You can't sell a product and claim it has a feature which it doesn't — that's fraud.
Nothing about health insurance should mean that salespeople should require licensing. It's pure rent-seeking. There are plenty of other dangerous things which are sold by salespeople without licenses.
Perhaps a specific Zenefits example of employee incompetence is of use here.
The lady in this example is clearly not competent, and should not be selling products that people depend on for their health.
Not sure why you feel having gone through the hoops to demonstrate competence, learn about the various products, and how to advise clients of their options is merely 'rent seeking'.
---
"I made like $15,000 in the time I was there, just on commissions. And I never got my license," said an insurance salesperson who left Zenefits this summer. She estimated she had more than 100 conversations with different customers about insurance. "I took my test three times in a row, and I failed. They still let me work."
Without her license, she had to improvise on calls with customers.
When faced with a tricky question, "I would just google it,” she said. She would tell the customer, "Hold on one second, let me email the expert, he's on the line, hold on one second, I'll get back to you.” But in reality, “I would pick one of the first three links and I would just go off of that."
I deal with incompetence on a daily basis. Everyone from banks to airlines have incompetent employees, and we're not demanding that all customer support agents undergo licensing requirements. We live in a free market and the best way to deal with incompetence is the market. (Ex. I switched my bank after getting frustrated with incompetent tellers.)
Once again: the worst that an insurance salesperson can do is sell you bad insurance. They're not actually involved in medical procedures, so any harm they can do is financial. And if that harm is due to fraud (misrepresenting a product to you), you have legal remedies. Bank customer support people have just as much potential to cause financial harm, but we don't require them to be licensed.
Even more to the point: I can personally sign up for insurance directly on the internet, without talking to any licensed salesperson. If licenses salespeople are so essential to insurance, why can I buy insurance without interacting with one?
As far as I'm concerned, the only professions which should require government licensing are those where tort is insufficient to correct wrongs. (ie. someone can die: doctors, civil engineers, etc.)
"Once again: the worst that an insurance salesperson can do is sell you bad insurance. They're not actually involved in medical procedures, so any harm they can do is financial."
Sorry, there are very clear knock-on health effects here you're sweeping under the rug. Eg, if you're expecting to be covered for an urgent emergency life-saving procedure. Maybe you personally have sufficient cash on hand to pay for any required emergency surgery, that doesn't mean it's just a 'financial' problem to everybody else.
Do you really think it's appropriate to have someone be denied a medical procedure, and hope they survive so they can go through a legal challenge afterwards for 'fraud', and hope they can successfully provide proof of fraud over incompetence based on some phone conversation several years ago?
Instead of the much simpler solution of requiring some minimum license for the insurance seller?
I'm not sure about your online purchase example. Are you 100% sure these are the same insurance products requiring licenses as mentioned in the article, that no human sanity checks the product during the purchase process, or that the online algorithm itself didn't go through a sufficient license-compliant certification process?
> if you're expecting to be covered for an urgent emergency life-saving procedure
You will never be refused emergency treatment just because your insurance doesn't cover it. That's the law in the United States.
You will get a huge bill afterwards and there will absolutely be financial consequences, but not medical ones.
It's illegal for a hospital ER to refuse you due to lack of sufficient insurance. The point is that you won't die, so you will be around to come back and sue the broker. (In fact, insurance lawsuits are super common.)
Not to mention that we're dealing with a hypothetical case where you do actually have insurance but it's somehow insufficient (which, by the way, is unlikely under Obamacare). In that case, you would absolutely get treated, but your insurer would refuse to cover the bill and would pass it on to you. You could then sue Zenefits for misrepresenting the product and seek damages to cover the bill.
> same insurance products requiring licenses as mentioned in the article
They're not the same in that I'm talking about individual insurance and the article is group insurance, but that's irrelevant to the point. If there are serious medical consequences to buying insurance without licensed supervision, I shouldn't be able to buy my own insurance online.
FYI I believe they meant emergencies as in, any kind of medical service or procedure that your life may depend on. Which does not automatically mean the "emergency room." I.e. a much-needed surgery, drug, testing, etc.
This happens all of the time, people cannot go see a doctor or receive a medication because of an insurance goof up. And then they have to wait. And wait. And legal remedies are not guaranteed to solve the problem, and such remedies should not be relied upon as a fallback for untrained insurance salespeople.
What exactly are you trying to convince us of? That insurance sales should be have no licensing requirements? And you're hinging your argument on the fact that it is "financial" and not "health" related (which like I said above is not true). In that case are you also in support of getting rid of licensing and other regulations in the banking and finance industry?
You will never be refused emergency treatment just because your insurance
doesn't cover it. That's the law in the United States.
You will get a huge bill afterwards and there will absolutely be financial
consequences, but not medical ones.
Even ignoring the financial consequences, you literally have no idea what you're talking about. Hospitals are required to patch you up this second, yes -- but they don't have to treat underlying conditions until you're going to die from them. Regardless of how much damage that does. You can certainly die of very treatable diseases. Need a ct/mri, blood scans, cancer tests? Well, unless you're going to die of it this second, a hospital is not (and often won't) required to perform them.
The law you're citing -- EMTALA -- merely requires hospitals to stabilize patients.
>Once again: the worst that an insurance salesperson can do is sell you bad insurance. They're not actually involved in medical procedures, so any harm they can do is financial.
That's it, huh? Just financial? Only, you might get stuck holding the bag for a bunch of medical bills that aren't covered by some insurance policy you bought, so you get to spend your sick days fighting a legal battle against a company you might never be able to recover a cent from.
As someone in the industry but not in the US, I'd say this is a case where your ignorance (and you are clearly ignorant here) is more of a hindrance than a benefit.
Providing insurance advice is the same as financial planning, mortgages, investments and any of a number of professions that are all licenced by the state. The reason for these licences is because not having them creates a wealth of misinformation that can (and historically has) resulted in massive amount of fraud and theft from consumers, because - like you - they generally aren't knowledgeable enough to be able to discern a difference of professional opinion from someone selling snake oil.
A licence is a minimum requirement to show to everyone that you have grasped the basic concepts and rules surrounding the product you are advising others on. It does some other things as well, like ensure you have proper E&O insurance and stay up to date with changing legislation, but that isn't its primary purpose.
Licencing is a form of consumer protection. End of story. Arguing that it isn't necessary and/or consumers in these industries don't need protection to counter their ignorance (which is the entire reason they are buying advice in the first place) is naive almost to the point of being moronic.
Errr...maybe the insurance carriers only want knowledgeable people selling their stuff? Who do you think gets sued if there is a problem? Insurance has been sold for a long long time. Another aspect is that if you a professional insurance agent, losing your license is a serious issue...so you won't act in ways to jeopardize it.
My Twittersphere is telling me that Alden's coverage of the company has brought this all to light, then I got thinking about what a great hire that was for BuzzFeed, poaching him from the NYT.
Excellent. I hope this is the first of several CEOs to lose their jobs over a lackadaisical approach to following the law. I cannot stand the attitude that several of the most "successful" startups follow that laws are just barriers to profit, and I think more CEOs (and investors) should be held accountable for blatantly ignoring these laws on their way to many billions of dollars.
Uber, Airbnb and Theranos come to mind first. As much as I want to see the daily fantasy sports put out of business, they at least had the foresight to punch a legal hole in the system to try to create a business (and not to mention they seem to be in the death throes anyhow).
It bothers me that investors seem to be so nonchalant about investing in a business that is in very questionable legal circumstances. I don't really know how to solve it, but it feels like investors do their due diligence (I hope!), but figure that the legal system is slow so there's a good chance that they can exit before any legal ramifications kick in.
I dunno - I think of it as testing the law. If they didn't try, nothing would change.
And selling insurance without a license? If it was just flouting protectionist laws I'm all in favor. So many regulations are about keeping some lobby profitable, and not protecting the public.
Is the place to test the law in the marketplace, or in court? It's fairly easy for startups to argue the case that "the government is keeping you down", especially when their very existence depends on that argument. But there is also generally a flip-side to the argument as well. In Airbnb's case, zoning laws, insurance requirements and such are all in place not to protect the interests of Marriott (at least not entirely); they exist because populations as a whole want them to exist.
Making sure Grandma actually has the life and health insurance products you claimed to sell her (or, more likely, told her where the right products for her), is a lot more than keeping "some lobby" profitable.
The reason to require a license to sell insurance is that it's a complicated product and most people don't know enough about it to make appropriate decisions on their own. You want to make sure the people selling it are both informed enough to give their clients the right information and also not crooks.
Using healthcare.gov might not have been the best example of health care's simplicity, considering its estimated size is hundreds of million of lines of code and cost tens of millions of dollars. The process may be easy for the consumer, but it's obviously much harder in the backend.
This must be a really rough thing to go through, but I am sure Parker is doing what is best for the company at this time (whether it was forced on him or voluntary). Zenefits is the greatest thing to happen to SMB's in years, and I am excited to see it continue to grow.
Maybe Parker will make a triumphant Jack Dorsey-like return when the time is right. Or maybe he'll disrupt another multi-billion dollar industry. Whatever it is, smart people will follow him.
"Zenefits is the greatest thing to happen to SMB's in years"
Not sure about that. We tried working with Zenefits for our benefits and their agents screwed up so many times while trying to onboard our small team that we got alarmed and went with another provider (who ended up being a lot cheaper too).
We ended up going with Trinet as well after looking at them. If you look what Zenefits is really doing, they appear to be just another rent seeker - their entire goal seemed to be to get you to use their software, and in exchange become the insurance agent of record vs. cutting the actual cost of the insurance.
It is my understanding that in order to get those lower price Trinet becomes the employer to your employees, therefore they can get a huge discount on group rates. However, your employees technically now work for Trinet, not your company. While perhaps ok at a small scale, as you grow, that's not exactly a great position to be in.
Previous company had the following in their contract:
TriNet Group, Inc. (“TriNet”): The Company’s payroll and other human resource management services are provided through TriNet, a
professional employer organization. This arrangement between the Company and TriNet means that TriNet will be considered your
employer of record for payroll and human resource management purposes and your managers here at the Company will be responsible for
directing your work, reviewing your performance, setting your schedule, and otherwise directing your work at the Company. This means
that the Company and TriNet are co-employers, and you are technically a “co-employee”. As a “co-employee” of TriNet, you will be
required to accept the policies and procedures set forth in TriNet’s Terms and Conditions Agreement (“TCA”).
More or less: income came from TriNet, insurance/benifits all came from TriNet, but I technically worked for $company.
Through this co-employment, TriNet becomes the employer of record for the 314,000+ employees of its 12,000+ clients (as of 9/30/15).
Because this co-employment gives a PEO significant scale, the PEO can offer its clients services/rates that a smaller company with less employees can never access.
In addition, through the co-employment model, a PEO also has 'skin in the game' with compliance issues, because everything is reported under their FEIN number.
Hope this helps. Happy to explain more or give you additional (independent) resources. jock.breitwieser AT trinet DOT com
However they spin it, technically you worked for TriNet. TriNet probably has some professional services agreement with your company that pays what it costs to employ you (salary, taxes, benefits), but your W2 says TriNet.
It kind of sounds like Zenefits is looking at some heavy (multi million dollar) fines, and they're trying to drive the narrative before fines and regulatory actions are announced.
Super conspiracy theory but I wonder if Sacks saw this coming from a mile out. From Paypal he has heaps of experience with what puts you on a regulators radar. Maybe he saw a naive CEO who would land in trouble soon enough.
Zenefits is a weird mix of wall street sales types and ex Yammer employees, the former might be out the door pretty soon.
I don't know that this is even a particularly strong conspiracy theory - when Sacks joined, A LOT of people were predicting that he would be the CEO within 12-18 months. Parker always felt like he was the wrong person to operate such a large and complex company. Great example of his immaturity here: http://www.businessinsider.com/zenefits-ceo-rescinds-job-off...
Didn't Sacks make a ton of money from the Yammer deal though? I'm surprised he even took another job; thought he'd go the mostly full time angel/VC route. A COO for any company is not a cakewalk.
And Elon made a ton of money from PayPal, yet he founded and is running two companies that are a lot more impressive than an enterprise SaaS provider. Not everyone is content to sit on the sidelines after they've hit it big.
I predict that Parker will join YC as a part-time partner. This may shed him in a negative light, but it does not erase the things he has accomplished in the last few years. Zenefits became a billion-dollar company that scaled its sales efforts at a record-breaking pace. Startups can learn a lot from him about building a sales machine.
Nothing like what they have been. And that is the point the only way to scale up at the rate zbenefits did was via dubious means.
Then the day comes when you need to become above board and someone has to be the fall guy. The important question here is not what the press release says but the money being paid....
That sounds like even more of a mistake than inviting the guy who sold Loopt for $43M to some random prepaid credit card company after raising $39M of investment money to be a part-time partner at YC.
What a crap comment. Do you also spit on the walls of the houses of your friends when you visit?
Knowing when to sell and when to hold is a very tricky decision, plenty of people don't know what call to make and end up riding their companies all the way into the abyss. If you've done considerably better then maybe it's time you told the story, if you didn't admit you're jealous and get over it.
It's funny that pointing out that someone made 10% RoI is spitting on walls. It's not a fantastic return, but it's certainly not a failure.
But that goes to the original problem: YC participation is advertised as a way to make money beyond your wildest dreams, but the only people who can actually expect to do that are investors. So many good and competent founders fail that even a modest success is enough qualification to lead YC; at the same time, the fact that so many good and competent founders fail is so taboo that pointing out that YC's president was only modestly successful looks like an insult.
And, to bring this back on topic, it is more-or-less this taboo that compels companies like Zenefits to prioritize stupendous growth over complying with the law. They could have grown cautiously and still made well over a 10% RoI, but they wanted to gamble harder.
I know plenty of YC founders (and even an early employee or two) that have ended up financially independent because of it.
Investing in, founding, and leading a company are three different skillsets. The best founding CEOs usually are not venture capitalists; you don't see Larry Page, Elon Musk, or Steve Jobs wishing they were investors. Similarly, it's possible to be a good founder and terrible leader (eg. Parker Conrad, Pierre Omidyar), or a good leader but incapable of founding something (Eric Schmidt, Sheryl Sandberg) or a mediocre founder but excellent investor (Sam Altman, Paul Graham, Eugene Kleiner, Don Valentine).
> 2. Play it up as a huge problem that could threaten the company.
It absolutely was a HUGE problem. Even if he was set up, Conrad created a toxic culture that had to change.
Parker never seemed to understand that he could not flout laws & regulations like Uber; Uber has leverage because consumers love their product, and is able to put pressure on the incumbents and regulators; in contrast, NOBODY would stand up to defend Zenefits, and regulators will shut them down unless they clean up their act asap.
Except that here, it really is a huge problem. There's nothing to "play up" when you're being formally investigated for a massive number of Class B felonies.
What does this have to do with raising VC? Those kind of things happen at any large company. (Zenefits has over 1500 people on staff and growing rapidly.)
"Effective immediately, this company’s values are:
#1 Operate with integrity.
#2 Put the customer first.
#3 Make this a great place to work for employees."
I don't agree. What happens if the customer tries to force you to do something that compromises your integrity as seen by other customers and regulators?
It's a joke on saying "Put the customer first" as the second item in your priorities. "Put the customer after integrity, but before all that other stuff" doesn't roll off the tongue as well.
Do you work in a larger company? This is crystal clear (if you know what to look for) vs. the usual generic communication that happens in larger companies around these types of changes...
This was rather clumsily written. Even if your company messed up, shoving your CEO with a boot up his ass is bad for morale. The reason why most communiques are generic is because there's very little upside to being abrupt publicly.
<<The reason why most communiques are generic is because there's very little upside to being abrupt publicly.>>
You are quite wrong, if anything, employees appreciate openness and decisiveness, vs. sweeping changes under the rug with generic language. There is actually a ton of upside to creating honest communication, but it's much harder than hiding behind empty phrases, which then builds a culture of speculation (of what "really happened"), politics, and distrust.
I have no idea what really happened behind the scenes and why exactly the new CEO used this language, but I can assure you that any email from David Sacks will not be clumsy, but very deliberate and written to achieve a specific purpose. (There is some speculation on earlier threads around of why it might have been written this way).
Not talking about employees. You can release whatever message you want internally. It's the external message where upside downside needs to be a consideration. By which I mean whatever you say in email can be printed and quoted. Disseminate the message not email
I both appreciate and agree with your point, but in this case I think the issues was that their new CEO had to assume that, given the high visibility of the company, whatever message he was going to send out to his internal team was also going to get leaked to the press.
If you are in that type of situation, you have to chose between your employees and external parties, and looks like he decided that creating a trusted relationships with his employees was more important...
What did you find well written about the culture? Genuinely curious, because I have the exact opposite view. The culture section is blatantly obvious and the new values don't seem to provide any guiding force. Pushing down decision making in the company (a point of his which I agree with) only works if the values you're pushing actually inform action. Which these don't.
Trying to operate an Uber/AirBnB style ignoring of regulations can work when you're dealing with hundreds of small time, underfunded municipal governments. But when your regulators are federal and state level you have to straighten the ship real quick if the eye of Sauron looks your way.
True, but that's taking a very "realpolitik" attitude toward it.
What about the fact that breaking the law is (often) morally wrong in its own right? Even if you disagree with the law, I don't want to live in a place where laws are toothless and optionally followed; the side effects of such lawlessness would be horrible, and huge.
This whole thing really got me thinking about how we in SV/SF think about laws and their enforcement. It might sound a little mean, but I almost hope they make an example out of Parker Conrad and Zenefits to nudge the pendulum of VC-funded companies a bit back toward respect for laws and compliance, rather than this "fuck it, they won't enforce it and if they do, we'll just have our well-connected VC partner make an off-record call to the governor/senator/regulator and magic it away" that seems so common today. All in the name of GROWTH.
> That might not be a bad thing. It could be precisely because it was inappropriate that Zenefits got ahead.
...for now. But if the end result is massive fines, plus a bunch of their sales staff (and maybe their superiors) getting thrown in prison under Washington's criminal laws relating to selling insurance without a brokers license, plus ruining the company's relationship with customers and with the insurers whose products it sells (and possible breach-of-contract actions from those insurers).
Well, then, getting ahead for a little while before the whole thing caught up to them isn't going to seem like a big advantage.
I agree that they're not particularly specific, but I don't think that a value has to be controversial - ie that its opposite could also be a reasonable value - in order to be useful. By selecting certain things as key values and excluding others, and possibly by ordering the values by priority, you still give some direction.
Maybe not have a complete opposite that could also be valid, but at least state some sort of preference or be able to be used to make a real decision.
He goes on to say that he wants to push decision making ability down in the company, but if you're looking at those 3 values, it seems hard to make clear decisions based on them.
I can't help but agree. This is the completely generic corporate-ification of values to the point that they're meaningless. If I were a Zenefits employee, this would be a red flag to reconsider working there.
Meh. I've never seen a corporate values statement that wasn't warmed over claptrap. The very idea you need a mission statement or list of values means the coolness has left the building.
What happens to founder equity in high-profile cases like this? If he's given up his position at the company as well as on the board, did he keep much of his equity? This has to be a difficult time for Parker.
Either one of two things: a) like normal employees now, VCs insist founders vest over 4 years, so what he has vested he keeps, or b) the board says he was fired 'for cause' and can claw back ALL his equity (many but not all contracts have such provisions)
Founders are subject to vesting like other employees. Sometimes VCs will require a new vesting period when investing. I suspect he lost any unvested shares.
It's looking like at least some of the success of this company involved breaking the law. And we are worried about whether the CEO will be wealthy enough after being canned? Why are we not calling for heads?
Most VCs will mandate founder equity to vest over 4 years. They must be actively employed for it to vest, so since he's stepping down and resigning from the board, I guess he'll lose what he hasn't vested.
Ohhhh I would be fascinated to see a RICO case against YC for every startup they've funded that's broken laws. That seems entirely in the spirit of RICO, the more I think about it: it's specifically about organizations that make money off of other people breaking the law at their direction, and who might otherwise avoid liability because they themselves didn't break the law.
RICO cases are limited to a small number of serious crimes, like kidnapping, extortion, arson, drug trafficking, and so on. They don't cover breaking insurance regulations.
> RICO cases are limited to a small number of serious crimes, like kidnapping, extortion, arson, drug trafficking, and so on.
Mail and wire fraud, which can include pretty much any knowing misrepresentation for commercial gain using the covered media, are among the predicate acts for RICO, along with the offenses you list.
So, it may not be as far out as you seem to think to imagine RICO applying.
Also, apparently holding Magic: The Gathering tournaments where ante is allowed falls under RICO. Sponsoring underage gambling. I recall that being used as the reason why none of the major tournaments used the ante rule - they were all afraid of being prosecuted as racketeers.
you don't seem to believe in the concept of punishment must fit the crime? There are fines for breaking certain regulations. There is a reason they are just fines and not beheadings.
you mentioned your desire to inflict disproportionate punishment. I am pointing out that there is a reason fines are levied as opposed to more severe punishments, in case of certain violations.
also, I did not say that you mentioned beheadings. I mentioned beheadings to illustrate a point.
> Zenefits’ company values were forged at a time when the emphasis was on discovering a new market, and the company did that brilliantly. Now we have moved into a new phase of delivering at scale and needing to win the trust of customers, regulators, and other stakeholders.
i.e., they valued growth over integrity and following the letter of the law. That evidently works for some startups some of the time, but this seems like a bad industry to try that approach in.
Looking forward to hearing Parker's side of the story one day.
The one thing you can't deny is he built an amazing business, absolutely agree that it needs to manage the regulatory hurdles, but that wouldn't even have been an issue if he hadn't gotten them this far.
This is kind of like Uber firing Travis with a "we operate in a highly regulatory space. Compliance is our oxygen and so Travis, who has constantly flouted regulations, is gone"
Growth of Zenefits is a dream for many entrepreneurs. Instead of working with legacy compliance related issues, Parker would have chosen to deal with them latter, to focus on the growth. Parker would have driven by excitement of hyper growth. If he had chosen to work with compliance related stuff, not sure they would have gotten this far, this quickly. Is the compliance issue a mistake (or) Is it a crime?. If compliance issue is a crime, did he even aware of that?.
Conrad stepped down from the board as well. Here's hoping new leadership can bring the company in compliance and turn the trajectory of the company around.
I think the regulations for selling insurance are reasonable and necessary, but it looks like both Zenefits and Conrad will have benefited more from flouting them and getting caught than they would have if they followed the law from the beginning.
It doesn't bode well for regulation and our society in general when flouting the law has a higher return than following the law, even if you get caught.
I get what you're saying and I agree with you, but what's the alternative? It's hard to justify a $5,000,000 fine or a multi-decade prison sentence for selling someone insurance without a license.
The fine is pretty easy to justify and is all that can be assessed against Zenefits the corporation. And since it's well funded, multi-million dollars would be warranted so the fine is substantial enough.
It would be a lot more suprising to see them go after employees or look at prison unless there were agravating factors like actually defrauding the buyers with regards to the nature of the coverage.
First, Zenifits business model was novel for a double-ended marketplace... get suppliers (insurance companies, etc.) to sustain the business.
How do Zenifits compare to Paychex (the old standby of payroll processing) and Workly? What are folks using right now to expedite/automate employee provisioning (& termination) around HR things?
Theranos should take this as a clear sign of what they need to prepare for if they can't clearly explain the shenanigans they've been accused of, some of which are similarly brazen flaunts of well-established agency/industry regulation.
It has more information on the leadup for sure, but given the current announcement, the text of Sacks' email seems even more relevant. I wouldn't normally say that about a corporate communication but it is an unusual one.
Eventually we'll have some system to aggregate related urls that isn't so all-or-nothing.
Thanks, I'm sure more articles will come online soon.
I hear that it was compliance-related, and that Zenefits is holding a mandatory all-hands right now for all employees. Peter Thiel also joined their board.
The buzzfeed article cited elsewhere in the thread goes into to details on at least one of the major compliance problems: most of their policies in Washington State -- which has rather strict, including potential prison sentences, rules on this -- were apparently sold by unlicensed brokers, in violation of both the law of the State and Zenefits contracts with insurers.
If you would like to engage in a polite debate over the extent to which it's appropriate for governments to regulate the economy for consumer protection, I'm happy to do so.
I will not, however, engage with ad hominem insults.
There's nothing ad hominem in pointing out that your argument is based on ignorance because you lack specific knowledge of this area of expertise. Sorry, but pretending you are on some equal footing with people much more experience in a particular industry is the only logical fallacy here - False Balance.
If I argued - as a non-doctor - that anyone should be able provide medical advice to people without being an MD, or that Joe Shmo should be able to provide legal advice without being admitted to the Bar, you'd rightly call that attitude ignorant and naive. The same holds true with your argument. It simply comes from a place too far removed from the topic at hand to be considered even remotely viable.
Don't take it as an attack on you, it isn't. Do take it to mean that you are clearly out of your element, and that with a little bit of research on your part, you'll understand why this is so.
What you posted was against the HN guidelines not because it was an ad hominem but because it called names ("you are clearly ignorant", "naive almost to the point of being moronic"). It's particularly uncivil to say things like that and then add "don't take it as an attack on you", as if you hadn't added to the problem.
You clearly have experience and knowledge. There was no need to make this personal. If someone is ignorant, show them that by responding factually and stop there. Don't rub their face in it.
1. You are ignorant on this topic. This doesn't mean the same thing as "You are stupid", it means precisely: "You lack key knowledge about this particular topic." That's how I used it.
2. I provided a few paragraphs telling why these conditions exist, and why arguing against them is not something someone educated in the topic would consider even attempting.
3. When you continue - over the course of several comments - to progress with your argument from a position of clear ignorance, it does indeed require increased naivety to the point of absurdity.
If you are going to take a stance on a subject you know little about, and then continue to assert that opinion, you can't get upset when people use more and more direct means to communicate with you. Don't assert a position that is based from a position of ignorance; seek to learn instead.
Also: I'd just like to point out the ironic nature of asserting meaningless comments are against 'guidelines' while at the same time suggesting guidelines are irrelevant for a much more important human concern.
"You lack key knowledge" is already an order of magnitude less name-calley than "You are ignorant", because it doesn't take the form "You are X". But why diminish the other person at all? Build them up by increasing their knowledge.
The distinction here is simple. Factual comments about insurance and licensing: great for HN. Comments about people's knowledge levels and getting tangled in personal bickering: bad for HN.
I assumed that meant "products", as in 132 unique insurance products, rather than 132 belly buttons insured (phraseology in the health insurance industry).
I see this as a case of a brilliant entrepreneur (Parker) tackling the world of health care and winning. I don't view these horrible crimes he's accused of as anything other than tatics from the status-quo and his competition. It wasn't possible to get from point A to point N (where Parker took the company) without breaking these "rules" but he didn't actually break any rules because this is all new territory. Any new business "distrupting" an existing one will anger the people losing money. And they will use their lawyers and try and fight for every last dollar by claiming this "distruption" isn't legal for reason x,y,or z. David is now taking the company from point N to point Z because Parker is tainted. That's fine. I think this was always the plan. And as a shareholder I think Parker is very happy David is now CEO moving to step Z.
<< It wasn't possible to get from point A to point N (where Parker took the company) without breaking these "rules" but he didn't actually break any rules because this is all new territory.>>
This is complete nonsense. It's not hard to become a licensed commercial insurance agent, and the rules around selling commercial insurance are very clear - you have to be licensed. This is neither new territory, nor disruptive, it's simply sloppy and not something that would be tolerated by the CEO of a 20 person startup, let alone a billion dollar unicorn.
Winning? The company is a giant mess, and the shit has not even hit the fan yet, this is just the start.
Parker didn't accomplish anything positive as CEO of Zenefits, ever. There's a ton of companies using Zenefits services who aren't happy. They haven't left because switching is a major pain in the ass. You think it's by accident that Parker chose to disrupt three of the industries with the highest customer retention rates. This board knows damn well that it's not because the (industry) solutions are awesome, it is because switching is painful and costly. Zenefits overall customer satisfaction sucks, as does feedback from employees and overall morale, check GlassDoor.
Parker found a way to piss off not just one highly regulated industry (health insurance) but three. He told a "journalist" from BI that the CEO of ADP "threatened him like Dirty Harry" in true SF/SV tabloid fashion. You think Warren Buffet ever did something like that?
From day one, on stage at TC Disrupt, he acted like a cocky spoiled brat, which is precisely what he is.
He managed to create enemies with many of the companies Zenefits originally did business with, and then relished in it when it made headlines, ala "project nutshot".
Zenefits is a company that is not only on track to lose hundreds of millions of its investors money, but it literally put its employees freedom at stake. People could be facing jail time because of how blatantly Zenefits ignored the law. More than 80% of sales in WA were by unlicensed reps. Tip of the iceberg.
Had Zenefits reached a $60M run rate without breaking the law, without requiring over $500M in VC, without requiring a near $100M burn rate, without Parker being abusive and unprofessional, well I'd have no choice but to congratulate Parker on his accomplishments.
All this guy did was burn through a ton of money, make a fool out of his investors and mismanage this company to the point where the massive fundraising at a $4.5B valuation, and all but inevitable write down, have sent every employees shares into a watery grave.
Learn from this. Don't try to romanticize the Zenefits story. If you look beyond the PR machine, you'll find a company that has done almost everything wrong under the helm of someone who was more interested in accomplishing something for himself, "proving people wrong", because of the self-described chip on his shoulder.
Just be glad you're not David Sacks, because unwinding this mess is going to be nearly impossible, and investors are going to be brutal. I wouldn't want to have to answer to Jordan Catalano.
And Travis at Uber? Also "proving people wrong", because of a chip on his shoulder? Did Uber flaunt the law? Or did they end up changing the laws because people like Uber so much? I'm pretty sure this is how every big disruption goes. It's messy. People get super pissed. And it comes down to political views on were the regluations even needed in the first place.
By messy, do you mean like creating a working environment that encourages people to commit felonies in order to accelerate sales? Because usually employees get screwed out of stock in hyper-growth start-ups that raise hundreds of millions at unsustainable valuations, not go to jail. No one typically has to worry about breaking the law in order to meet absurd sales goals. You think maybe just maybe Parker kind of painted the company into a corner by telling investors like Fidelity and TPG that Zenefits could become a $100 Billion market cap company and that they're leaving money on the table. Zenefits fall from grace will become the cautionary tale from this technology boom. Disrupt an industry all you want, just don't put your employees freedom, or your own, at risk.
Also, invoking TK is pointless and shows that you can't distinguish apples from oranges.
But the worst crime of all is announcing Conrad's resignation and providing zero credit, thanks, or goodwill towards him for being the birther of the company which wouldn't exist in the first place if not for him. Even if he had recently run into trouble setting the company straight or other problems, it's outright shameful to simply skip right over his contribution to making the company what it is and for being responsible for making it happen from day 1.
This crime wouldn't be so awful if it had come from someone who wasn't already a previous entrepreneur himself.
This is pretty sad... Parker probably would have gotten a nicer goodbye announcement had he died.