Skytop and IGI Events

Zenefits’ C-Suite Shakeup: IG Comes to Silicon Valley

It’s not every day that a CEO of a unicorn valued at $4.5 billion resigns.

But that’s exactly what happened earlier this week when Zenefits announced Parker Conrad, the HR software company’s cofounder and CEO, had resigned.

What happened?

Back in November, BuzzFeed reported that Zenefits was allowing its sales team to sell health insurance without licenses in at least seven states. (The fintech company, which was founded in 2013, generates revenue when its customers buy health insurance policies from insurers via the platform.)

Making things worse, details emerged yesterday suggesting Conrad allowed his California-based brokers to fake their mandatory training. The former CEO is said to have thought the 52-hour certification program—which was required by the state—was too long. So he created the company’s own training program, effectively allowing employees to fudge their numbers.

Compliance might not be sexy to investors or executives. But as David Sacks, the company’s new CEO, stated in his letter to employees announcing Conrad’s departure, compliance “is like oxygen” for a company in a heavily regulated industry.

If the stars align, hot, fast-moving and growing tech companies chug along as fast as they can toward an IPO. But in that race to the finish line, they cannot act in ignorance of their IG obligations. Sooner or later, it’ll catch up to them—just ask Conrad.

In Silicon Valley, there’s a tendency for startups to act as though the rules don’t apply to them as they seek to disrupt industry after industry. This makes sense to an extent, because startups have to move fast in order beat their competitors and reward their investors with an IPO.

But those IPOs have to be successful. Though Zenefits received that impressive $4.5 billion valuation, we’re now looking at a company that ran headfirst into the brick wall of reality.

A long path forward

Sacks’ letter, which is posted on the company’s blog, lays out a useful model for a bold, wholesale change—including the creation of a new C-suite position, the Chief Compliance Officer.

“We must admit that the problem goes much deeper than just process,” Sacks tells his staff. “Our culture and tone have been inappropriate.”

The new CEO obviously has his work cut out for him as he attempts to turn a laissez-faire tech company into a more formidable force in a heavily regulated industry. Moving forward, Zenefits will emphasize integrity in all that it does—including its compliance obligations.

It’s true hindsight is 20/20. But it’s probably safe to say that Zenefits executives and investors wish the company was built on strong IG principles from the outset. At the very least, the unicorn would have a lot less of a headache.

It remains to be seen if the cavalier attitude that characterizes most tech companies—i.e., “grow first, ask questions later”—will actually damage Zenefits (and other startups that inevitably encounter similar problems) in the long run. What investors, regulators, customers and the markets do over the next couple of quarters will give us the answer.