15 ms·

Parker Conrad Steps Down as Zenefits CEO

581 points by philip1209 11y ago

minimax 11y ago
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.
- deleted 11y ago
  [deleted]
philip1209 11y ago
Confirmed by multiple sources: USA Today reporter > https://twitter.com/jguynn/status/696847880921833473 https://twitter.com/jguynn/status/696847880921833473 Fortune reporter > https://twitter.com/eringriffith/status/696847400456097792 https://twitter.com/eringriffith/status/696847400456097792
minimaxir 11y ago
Context on some of the compliance failures: http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...
- sharkweek 11y ago
  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.
- x0x0 11y ago
  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. http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...
  - mikemac 11y ago
    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.
    - phonon 11y ago
      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.)
      - debaserab2 11y ago
        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.
        joahua 11y ago
        Sell inappropriate product, customer isn't covered, death due to lack of (covered) treatment ensues?
        jeffwass 11y ago
        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.
dang 11y ago
We changed the url from https://twitter.com/williamalden/status/696847841294024704 https://twitter.com/williamalden/status/696847841294024704 to this one, which gives more info. We can change it again if anyone suggests a more substantive URL.
- philip1209 11y ago
  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.
  - deleted 11y ago
    [deleted]
  - dragonwriter 11y ago
    > I hear that it was compliance-related 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.
- mayank 11y ago
  Honestly, the Buzzfeed story has more information in it than the Venturebeat article linked, which basically just has the announcement text: http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed#.fw6y2R1Z http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...
  - dang 11y ago
    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.
fblp 11y ago
That is a well written email announcing the change. I liked the emphasis on vision, culture and focus.
- dkarapetyan 11y ago
  Which part is good? Sounds like the usual legalese. Rough times, change of culture, some tough decisions. Usual fare.
  - exw 11y ago
    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...
    - brandnewlow 11y ago
      It shows the Sacks and whoever worked on this with him are very very smart. Clear language requires smarts.
    - Riod 11y ago
      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.
      - exw 11y ago
        <<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).
___ab___ 11y ago
Move fast and break things (laws included).
feed16 11y ago
"Our culture and tone have been inappropriate for a highly regulated company" That might not be a bad thing. It could be precisely because it was inappropriate that Zenefits got ahead.
- dragonwriter 11y ago
  > 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.
- deleted 11y ago
  [deleted]
- alexqgb 11y ago
  Generally speaking, racking up a bunch of Class B felonies is "inappropriate" for any company, heavily regulated or otherwise.
- rhizome 11y ago
  This is essentially thief and drug dealer logic.
jstalin 11y ago
That internal audit must be a doozy.
firloop 11y ago
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.
- tedmiston 11y ago
  He was removed involuntarily. > Zenefits also removed Conrad from its board of directors, while adding three prominent investors, according to an announcement on Monday.
feed17 11y ago
Our culture and tone have been inappropriate for a highly regulated company. This might not be a bad thing. It could be precisely because it was inappropriate that Zenefits got where it is today.
staunch 11y ago
A classic coup d'état. This is the danger of taking VC and hiring a COO that clearly wants to be CEO. 1. Wait for a misstep by the current leader. 2. Play it up as a huge problem that could threaten the company. 3. Suggest that maybe someone else could do better.
- deleted 11y ago
  [deleted]
- grinich 11y ago
  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.)
  - jonknee 11y ago
    You lose board seats and thus your ambitious COO can start a board fight against you and take your job.
- exw 11y ago
  > 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. Edit: fixed typo (thanks @gingerrr)
  - gingerrr 11y ago
    I completely agree with your point, just wanted to say as a sidenote I think the word you wanted is "flout" rather than "flaunt".
  - flylib 11y ago
    as a counter point Zenefits already won against the state of Utah when they tried banning them so yes people have already stood up to defend them http://fortune.com/2015/04/13/zenefits-utah-ban-insurance/ http://fortune.com/2015/04/13/zenefits-utah-ban-insurance/
deleted 11y ago
[deleted]
goeric 11y ago
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. * disclaimer: I am a very happy Zenefits customer
- chetanahuja 11y ago
  "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).
  - Riod 11y ago
    Curious, who would that provider be? We are a smallish company too
    - chetanahuja 11y ago
      Trinet.
      - outericky 11y ago
        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.
        zifnab06 11y ago
        I have something useful! 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.
newman314 11y ago
The wording around values is odd. What were the previous values if one of the new values has to do with integrity?
- geofft 11y ago
  It says that two paragraphs earlier: > 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.
- deleted 11y ago
  [deleted]
sergiotapia 11y ago
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'.
- gkoberger 11y ago
  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.
  - pbreit 11y ago
    Yeah, I think they needed to signal to pretty much all their constituents they they're cleaning up their act.
  - pc86 11y ago
    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.
    - dragonwriter 11y ago
      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.
    - rabbit106 11y ago
      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.
timrpeterson 11y ago
YC, you might want to slow down your own growth. Your unicorns aren't fairing well. Gotta keep your game tight. -says someone who doesn't know much but can spot obvious trends.
- geofft 11y ago
  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.
  - apsec112 11y ago
    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. https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act#RICO_predicate_offenses https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corru...
    - dragonwriter 11y ago
      > 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.
    - gertef 11y ago
      fraud?
      - thomasjudge 11y ago
        Intentionally dishonest or not completely honest -> "intent to defraud" + computer = "Wire Fraud" ianal
latchkey 11y ago
"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." Ummm… what were the values before the switch?!?
- StavrosK 11y ago
  1. Make money 2. Make more money 3. Make so much money
  - zekevermillion 11y ago
    More like, 1. Survive until next year 2. Survive until exit
    - StavrosK 11y ago
      This whole deal reminds me of this Stewart Lee bit: https://www.youtube.com/watch?v=W2firijxQOo https://www.youtube.com/watch?v=W2firijxQOo
- jcsnv 11y ago
  #2 should be #1
  - BinaryBullet 11y ago
    Haha. Yeah. That jumped out at me. #2 - Put the customer first (except when listing our core values, then put them second). I understand the sentiment, just a weird juxtaposition with "#2" and "first"
  - viraptor 11y ago
    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?
  - konklone 11y ago
    er no, #1 should be #1
deleted 11y ago
[deleted]
PhilWright 11y ago
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.
- itsjeremy 11y ago
  Values-wise, any change was an improvement.
- pquerna 11y ago
  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.
  - exw 11y ago
    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)
- exw 11y ago
  <<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...
sillysaurus3 11y ago
Why do those laws exist in this case? What's the danger that they protect against?
- minimaxir 11y ago
  Scams are rather common in the insurance industry. The consequences of a bad insurance policy are why regulation is important.
neptunespear 11y ago
This was the guy that publicly rescinded a job offer on Quora, right? What a colossal dick he sounds like.
- hga 11y ago
  Indeed it was: https://www.quora.com/What-is-the-best-way-to-start-my-career-Uber-or-Zenefits?share=1 https://www.quora.com/What-is-the-best-way-to-start-my-caree... A pretty big clue, of the "writing in the sky with fire" variety.
neptunespear 11y ago
This was the guy that publicly rescinded a job offer on Quora, right? What a colossal dick he sounds like.
us0r 11y ago
"The Zenefits spreadsheet covers 132 unique insurance policies sold or serviced from November 2013 through August 2015." Is that really all they sold? Utah had pretty dismissal numbers as well. How did they get to multiple billion valuation?
- FireBeyond 11y ago
  I assumed that meant "products", as in 132 unique insurance products, rather than 132 belly buttons insured (phraseology in the health insurance industry).
  - phonon 11y ago
    No, they probably mean group health plans (companies covered) sold. Probably average a dozen lives per policy maybe. They "signed up" 10,000 companies as of a year ago[1]...but I'm not sure how many of those they sold health insurance to! [1] http://www.siliconbeat.com/2015/01/15/zenefits-releases-growth-numbers-headed-for-100m-in-revenue/ http://www.siliconbeat.com/2015/01/15/zenefits-releases-grow...
guelo 11y ago
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.
- eldavido 11y ago
  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.
  - SeoxyS 11y ago
    Laws need to evolve with society. Often, that means that they are challenged due to a edge case in a changing society.
flylib 11y ago
no surprise they jumped on the first chance they could to get rid of Conrad
CGamesPlay 11y ago
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.
- vasilipupkin 11y ago
  They keep it. He is a shareholder like any other.
  - vasilipupkin 11y ago
    to the downvoters: is the deposed CEO not a common shareholder like any other common shareholder?
- 100k 11y ago
  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.
- deepinsand 11y ago
  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.
- kenbaylor 11y ago
  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)
- tedmiston 11y ago
  He does not necessarily keep even vested equity. He most likely loses unvested equity. I have no idea about the termination clause for his contract, but it is a definite possibility to lose it all.
philip1209 11y ago
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.
- jgalt212 11y ago
  > that scaled its sales efforts at a record-breaking pace Yes, but what would have sales been if they hadn't used unlicensed brokers?
  - pyre 11y ago
    I think the point was that there might be some lessons to be learned that can be applied to industries that don't require such licensing.
  - monkeyprojects 11y ago
    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....
- geofft 11y ago
  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.
  - ericd 11y ago
    /s? Because Sam has done an incredible job.
  - sama 11y ago
    Thanks for your feedback, really appreciate it.
cavisne 11y ago
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.
- exw 11y ago
  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-offer-on-quora-2015-5 http://www.businessinsider.com/zenefits-ceo-rescinds-job-off...
- mikemac 11y ago
  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.
  - w1ntermute 11y ago
    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.
jusben1369 11y ago
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"
jusben1369 11y ago
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"
speby 11y ago
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.
- justin_vanw 11y ago
  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.
- bigtones 11y ago
  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.
- tomasien 11y ago
  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.
lquist 11y ago
Good riddance. Zenefits is the most bug-ridden piece of software I've ever used. It's completely unusable at times.
tomasien 11y ago
Zenefits is lucky to have David Sacks for CEO. But this is an important reminder to Fintech companies: compliance is your life.
andrewfromx 11y ago
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.
- dininglogistics 11y ago
  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.
deleted 11y ago
[deleted]
halcyondaze 11y ago
What's with these new values? 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. Did these not exist prior to Conrad stepping down? If they did, and this still happened, they're clearly bad values to hold. For one, they're unspecific and don't have a clear opposite. No one is going to take the opposite on these, meaning they can't really be values. No one will proudly state that #1 Don't operate with integrity. #2 Put ourselves first. #3 Make Zenefits at least a mediocre place to work. Are good values, so the values the new CEO espoused aren't really actionable or value-able in any way. Anyone have a different take that I might be missing?
- tempestn 11y ago
  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.
  - halcyondaze 11y ago
    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.
- rjvir 11y ago
  "Put ourselves first" (the opposite of #2) is kind of similar to "Make this a great place to work for employees" (#3).
- tedmiston 11y ago
  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.
namelezz 11y ago
What's wrong with 2016? Too many resigns.
cat-dev-null 11y ago
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?
raz32dust 11y ago
Anyone notice the top 3 posts on HN are about CXOs stepping down? http://imgur.com/TUKnHpU http://imgur.com/TUKnHpU
- hitlery4dictatr 11y ago
  I also read HN.
tedmiston 11y ago
> Our culture and tone have been inappropriate for a highly regulated company. > Effective immediately, this company’s values are... Translation: This will no longer be an enjoyable place to work.
- aaronbrethorst 11y ago
  Making "Move fast and break things" be an axiom of your development process is not a prerequisite for having fun at the office.
- draw_down 11y ago
  Companies that break the law in the course of business rarely are enjoyable places to work, after some time of course.
pg_is_a_butt 11y ago
Zye!
premalshah 11y ago
Poor zenpayroll had to change their name to gusto. Now it looks like a good move. Distance yourself from the unicorn.
pedalpete 11y ago
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. Probably not the last we'll hear from him.
selvan 11y ago
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?.
- ___ab___ 11y ago
  It is unquestionably a crime. One could argue that it was worth it (I doubt it) but there's absolutely no question that what happened was criminal.
jernigan 11y ago
Best Superbowl 50 Commercials http://www.osoti.net/featured/2495/ http://www.osoti.net/featured/2495/
eitally 11y ago
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.
dimva 11y ago
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.
- pc86 11y ago
  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.
  - acveilleux 11y ago
    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.
JonFish85 11y ago
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.
- JoeAltmaier 11y ago
  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.
  - JonFish85 11y ago
    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.
  - run4yourlives2 11y ago
    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.
nacs 11y ago
From the Zenefits homepage: "Payroll, benefits, time, compliance, and more" And the article: "Parker Conrad has resigned as CEO of Zenefits, following a number of regulatory compliance failures" The irony..
morgante 11y ago
Kindly review the HN guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html 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.
- run4yourlives2 11y ago
  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.
  - dang 11y ago
    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.
    - run4yourlives2 11y ago
      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.

581 points by philip1209 11y ago

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.

deleted 11y ago
[deleted]

philip1209 11y ago

Confirmed by multiple sources: USA Today reporter > https://twitter.com/jguynn/status/696847880921833473 https://twitter.com/jguynn/status/696847880921833473 Fortune reporter > https://twitter.com/eringriffith/status/696847400456097792 https://twitter.com/eringriffith/status/696847400456097792

minimaxir 11y ago

Context on some of the compliance failures: http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...

sharkweek 11y ago
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.
x0x0 11y ago
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. http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...
- mikemac 11y ago
  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.
  - phonon 11y ago
    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.)
    - debaserab2 11y ago
      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.
      - joahua 11y ago
        Sell inappropriate product, customer isn't covered, death due to lack of (covered) treatment ensues?
      - jeffwass 11y ago
        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.

dang 11y ago

We changed the url from https://twitter.com/williamalden/status/696847841294024704 https://twitter.com/williamalden/status/696847841294024704 to this one, which gives more info. We can change it again if anyone suggests a more substantive URL.

philip1209 11y ago
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.
- deleted 11y ago
  [deleted]
- dragonwriter 11y ago
  > I hear that it was compliance-related 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.
mayank 11y ago
Honestly, the Buzzfeed story has more information in it than the Venturebeat article linked, which basically just has the announcement text: http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in-washington-state-done-by-unlicensed#.fw6y2R1Z http://www.buzzfeed.com/williamalden/80-of-zenefits-deals-in...
- dang 11y ago
  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.

fblp 11y ago

That is a well written email announcing the change. I liked the emphasis on vision, culture and focus.

dkarapetyan 11y ago
Which part is good? Sounds like the usual legalese. Rough times, change of culture, some tough decisions. Usual fare.
- exw 11y ago
  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...
  - brandnewlow 11y ago
    It shows the Sacks and whoever worked on this with him are very very smart. Clear language requires smarts.
  - Riod 11y ago
    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.
    - exw 11y ago
      <<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).

___ab___ 11y ago

Move fast and break things (laws included).

feed16 11y ago

"Our culture and tone have been inappropriate for a highly regulated company" That might not be a bad thing. It could be precisely because it was inappropriate that Zenefits got ahead.

dragonwriter 11y ago
> 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.
deleted 11y ago
[deleted]
alexqgb 11y ago
Generally speaking, racking up a bunch of Class B felonies is "inappropriate" for any company, heavily regulated or otherwise.
rhizome 11y ago
This is essentially thief and drug dealer logic.

jstalin 11y ago

That internal audit must be a doozy.

firloop 11y ago

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.

tedmiston 11y ago
He was removed involuntarily. > Zenefits also removed Conrad from its board of directors, while adding three prominent investors, according to an announcement on Monday.

feed17 11y ago

Our culture and tone have been inappropriate for a highly regulated company. This might not be a bad thing. It could be precisely because it was inappropriate that Zenefits got where it is today.

staunch 11y ago

A classic coup d'état. This is the danger of taking VC and hiring a COO that clearly wants to be CEO. 1. Wait for a misstep by the current leader. 2. Play it up as a huge problem that could threaten the company. 3. Suggest that maybe someone else could do better.

deleted 11y ago
[deleted]
grinich 11y ago
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.)
- jonknee 11y ago
  You lose board seats and thus your ambitious COO can start a board fight against you and take your job.
exw 11y ago
> 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. Edit: fixed typo (thanks @gingerrr)
- gingerrr 11y ago
  I completely agree with your point, just wanted to say as a sidenote I think the word you wanted is "flout" rather than "flaunt".
- flylib 11y ago
  as a counter point Zenefits already won against the state of Utah when they tried banning them so yes people have already stood up to defend them http://fortune.com/2015/04/13/zenefits-utah-ban-insurance/ http://fortune.com/2015/04/13/zenefits-utah-ban-insurance/

deleted 11y ago

[deleted]

goeric 11y ago

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. * disclaimer: I am a very happy Zenefits customer

chetanahuja 11y ago
"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).
- Riod 11y ago
  Curious, who would that provider be? We are a smallish company too
  - chetanahuja 11y ago
    Trinet.
    - outericky 11y ago
      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.
      - zifnab06 11y ago
        I have something useful! 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.

newman314 11y ago

The wording around values is odd. What were the previous values if one of the new values has to do with integrity?

geofft 11y ago
It says that two paragraphs earlier: > 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.
deleted 11y ago
[deleted]

sergiotapia 11y ago

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'.

gkoberger 11y ago
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.
- pbreit 11y ago
  Yeah, I think they needed to signal to pretty much all their constituents they they're cleaning up their act.
- pc86 11y ago
  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.
  - dragonwriter 11y ago
    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.
  - rabbit106 11y ago
    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.

timrpeterson 11y ago

YC, you might want to slow down your own growth. Your unicorns aren't fairing well. Gotta keep your game tight. -says someone who doesn't know much but can spot obvious trends.

geofft 11y ago
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.
- apsec112 11y ago
  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. https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corrupt_Organizations_Act#RICO_predicate_offenses https://en.wikipedia.org/wiki/Racketeer_Influenced_and_Corru...
  - dragonwriter 11y ago
    > 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.
  - gertef 11y ago
    fraud?
    - thomasjudge 11y ago
      Intentionally dishonest or not completely honest -> "intent to defraud" + computer = "Wire Fraud" ianal

latchkey 11y ago

"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." Ummm… what were the values before the switch?!?

StavrosK 11y ago
1. Make money 2. Make more money 3. Make so much money
- zekevermillion 11y ago
  More like, 1. Survive until next year 2. Survive until exit
  - StavrosK 11y ago
    This whole deal reminds me of this Stewart Lee bit: https://www.youtube.com/watch?v=W2firijxQOo https://www.youtube.com/watch?v=W2firijxQOo
jcsnv 11y ago
#2 should be #1
- BinaryBullet 11y ago
  Haha. Yeah. That jumped out at me. #2 - Put the customer first (except when listing our core values, then put them second). I understand the sentiment, just a weird juxtaposition with "#2" and "first"
- viraptor 11y ago
  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?
- konklone 11y ago
  er no, #1 should be #1

deleted 11y ago

[deleted]

PhilWright 11y ago

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.

itsjeremy 11y ago
Values-wise, any change was an improvement.
pquerna 11y ago
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.
- exw 11y ago
  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)
exw 11y ago
<<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...

sillysaurus3 11y ago

Why do those laws exist in this case? What's the danger that they protect against?

minimaxir 11y ago
Scams are rather common in the insurance industry. The consequences of a bad insurance policy are why regulation is important.

neptunespear 11y ago

This was the guy that publicly rescinded a job offer on Quora, right? What a colossal dick he sounds like.

hga 11y ago
Indeed it was: https://www.quora.com/What-is-the-best-way-to-start-my-career-Uber-or-Zenefits?share=1 https://www.quora.com/What-is-the-best-way-to-start-my-caree... A pretty big clue, of the "writing in the sky with fire" variety.

neptunespear 11y ago

This was the guy that publicly rescinded a job offer on Quora, right? What a colossal dick he sounds like.

us0r 11y ago

"The Zenefits spreadsheet covers 132 unique insurance policies sold or serviced from November 2013 through August 2015." Is that really all they sold? Utah had pretty dismissal numbers as well. How did they get to multiple billion valuation?

FireBeyond 11y ago
I assumed that meant "products", as in 132 unique insurance products, rather than 132 belly buttons insured (phraseology in the health insurance industry).
- phonon 11y ago
  No, they probably mean group health plans (companies covered) sold. Probably average a dozen lives per policy maybe. They "signed up" 10,000 companies as of a year ago[1]...but I'm not sure how many of those they sold health insurance to! [1] http://www.siliconbeat.com/2015/01/15/zenefits-releases-growth-numbers-headed-for-100m-in-revenue/ http://www.siliconbeat.com/2015/01/15/zenefits-releases-grow...

guelo 11y ago

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.

eldavido 11y ago
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.
- SeoxyS 11y ago
  Laws need to evolve with society. Often, that means that they are challenged due to a edge case in a changing society.

flylib 11y ago

no surprise they jumped on the first chance they could to get rid of Conrad

CGamesPlay 11y ago

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.

vasilipupkin 11y ago
They keep it. He is a shareholder like any other.
- vasilipupkin 11y ago
  to the downvoters: is the deposed CEO not a common shareholder like any other common shareholder?
100k 11y ago
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.
deepinsand 11y ago
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.
kenbaylor 11y ago
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)
tedmiston 11y ago
He does not necessarily keep even vested equity. He most likely loses unvested equity. I have no idea about the termination clause for his contract, but it is a definite possibility to lose it all.

philip1209 11y ago

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.

jgalt212 11y ago
> that scaled its sales efforts at a record-breaking pace Yes, but what would have sales been if they hadn't used unlicensed brokers?
- pyre 11y ago
  I think the point was that there might be some lessons to be learned that can be applied to industries that don't require such licensing.
- monkeyprojects 11y ago
  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....
geofft 11y ago
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.
- ericd 11y ago
  /s? Because Sam has done an incredible job.
- sama 11y ago
  Thanks for your feedback, really appreciate it.

cavisne 11y ago

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.

exw 11y ago
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-offer-on-quora-2015-5 http://www.businessinsider.com/zenefits-ceo-rescinds-job-off...
mikemac 11y ago
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.
- w1ntermute 11y ago
  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.

jusben1369 11y ago

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"

jusben1369 11y ago

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"

speby 11y ago

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.

justin_vanw 11y ago
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.
bigtones 11y ago
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.
tomasien 11y ago
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.

lquist 11y ago

Good riddance. Zenefits is the most bug-ridden piece of software I've ever used. It's completely unusable at times.

tomasien 11y ago

Zenefits is lucky to have David Sacks for CEO. But this is an important reminder to Fintech companies: compliance is your life.

andrewfromx 11y ago

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.

dininglogistics 11y ago
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.

deleted 11y ago

[deleted]

halcyondaze 11y ago

What's with these new values? 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. Did these not exist prior to Conrad stepping down? If they did, and this still happened, they're clearly bad values to hold. For one, they're unspecific and don't have a clear opposite. No one is going to take the opposite on these, meaning they can't really be values. No one will proudly state that #1 Don't operate with integrity. #2 Put ourselves first. #3 Make Zenefits at least a mediocre place to work. Are good values, so the values the new CEO espoused aren't really actionable or value-able in any way. Anyone have a different take that I might be missing?

tempestn 11y ago
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.
- halcyondaze 11y ago
  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.
rjvir 11y ago
"Put ourselves first" (the opposite of #2) is kind of similar to "Make this a great place to work for employees" (#3).
tedmiston 11y ago
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.

namelezz 11y ago

What's wrong with 2016? Too many resigns.

cat-dev-null 11y ago

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?

raz32dust 11y ago

Anyone notice the top 3 posts on HN are about CXOs stepping down? http://imgur.com/TUKnHpU http://imgur.com/TUKnHpU

hitlery4dictatr 11y ago
I also read HN.

tedmiston 11y ago

> Our culture and tone have been inappropriate for a highly regulated company. > Effective immediately, this company’s values are... Translation: This will no longer be an enjoyable place to work.

aaronbrethorst 11y ago
Making "Move fast and break things" be an axiom of your development process is not a prerequisite for having fun at the office.
draw_down 11y ago
Companies that break the law in the course of business rarely are enjoyable places to work, after some time of course.

pg_is_a_butt 11y ago

Zye!

premalshah 11y ago

Poor zenpayroll had to change their name to gusto. Now it looks like a good move. Distance yourself from the unicorn.

pedalpete 11y ago

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. Probably not the last we'll hear from him.

selvan 11y ago

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?.

___ab___ 11y ago
It is unquestionably a crime. One could argue that it was worth it (I doubt it) but there's absolutely no question that what happened was criminal.

jernigan 11y ago

Best Superbowl 50 Commercials http://www.osoti.net/featured/2495/ http://www.osoti.net/featured/2495/

eitally 11y ago

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.

dimva 11y ago

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.

pc86 11y ago
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.
- acveilleux 11y ago
  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.

JonFish85 11y ago

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.

JoeAltmaier 11y ago
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.
- JonFish85 11y ago
  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.
- run4yourlives2 11y ago
  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.

nacs 11y ago

From the Zenefits homepage: "Payroll, benefits, time, compliance, and more" And the article: "Parker Conrad has resigned as CEO of Zenefits, following a number of regulatory compliance failures" The irony..

morgante 11y ago

Kindly review the HN guidelines: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html 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.

run4yourlives2 11y ago
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.
- dang 11y ago
  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.
  - run4yourlives2 11y ago
    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.