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Zenefits CEO Parker Conrad Resigns

Over Compliance Issues
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Zenefits founder Parker Conrad has resigned as chief executive. Bloomberg News

Parker Conrad has resigned as chief executive of health-insurance brokerage Zenefits

after coming under fire for what the highflying startup says was inadequate compliance
procedures and internal controls.
The company, which last May was valued at $4.5 billion just two years after Mr. Conrad
founded it, said Monday that David Sacks, the chief operating officer, would take over.
In a strongly worded letter to employees announcing Mr. Conrads departure, Mr. Sacks
criticized the culture and business practices created by his predecessor. 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, Mr. Sacks said in the
letter. As a result, Parker has resigned.
Mr. Sacks said the company has hired an auditing firm to review the companys
procedures around insurance licensing after reports that Zenefits may have flouted state
regulations. He also has hired a new chief compliance officer, Josh Stein, a former
federal prosecutor.
Mr. Sacks also indicated the company will retrench, focusing on small-business
customers who are more natural users of its software. Zenefits had sought to attract midsize companies with greater than 100 employees, but former employees say they
sometimes struggled to sign up those customers, who are more sophisticated buyers of
health insurance.
Mr. Conrad couldnt be reached for comment. In a statement, he said: I am immensely
proud of the organization we have built and the industrywide impact weve had but
recognize that our companys management infrastructure and policies havent kept pace
with our meteoric growth.

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Elevating a strong management hand with successful experience and impeccable

credentials is without a doubt in the best interests of the company at this time.
Zenefits, incorporated as YourPeople Inc., is fast becoming a symbol of Silicon Valley
excess in the latest tech boom, growing feverishly and at all costs to meet heady
expectations. By last fall, Zenefits had about 1,600 employees and had raised over $500
million from investors including venture-capital firm Andreessen Horowitz and mutual-fund
giant Fidelity Investments.
The investors flocked to Zenefitss business model that promised to upend the healthinsurance industry. Zenefits gives away human-resources software to small businesses
and then collects commissions from health-insurance carriers when users of the software
sign up for benefits.
But the company last year ran into trouble trying to hit ambitious revenue targets and
to retain employees, The Wall Street Journal has reported. Fidelity, which invested in the
May funding round, marked down its stake on Sept. 30 by 48% to a price that implied a
valuation of around $2.3 billion.

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Additionally, Buzzfeed reported earlier that Zenefits may have violated state
regulations in several states that require certain staff members to be licensed as health
insurance brokers. Zenefits has said it is conducting a review of its internal controls and
is in communication with regulators.
The company also has had trouble managing its own human resources department. In
December, the Journal reported Zenefits offered a few thousand dollars to many
former employees to stave off claims it failed to pay employees for unused paid-time off
and for overtime required under California law. A Zenefits spokesman at the time cited an
error in the employee handbook for the issue.
Mr. Conrad, 35 years old, is known for his brash style and the companys operations
reflected that. His companys mantra ready, fire, aim is followed by many Silicon
Valley startups meant to encourage aggressiveness.

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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.
Zenefits clearly sought to lay blame for the companys struggles at the feet of Mr.
Conrad. Our culture and tone have been inappropriate for a highly regulated company,
said Mr. Sacks, who is changing the companys motto to one that will likely please
regulators: Operate with integrity.
But what the former chief operating officer didnt 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 companys 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. Mr. Sacks couldnt be reached for comment on

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Monday.
Mr. Sacks is the former chief operating officer of PayPal, and then he later founded workcollaboration service Yammer Inc., which sold to Microsoft Corp. in 2012.
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COMMENT

CLEAR

Comments (5 of 13)

POST

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8:59 am February 16, 2016

Chris wrote:
Ha! Saw this coming and frankly who didn't with a piece of crap like Parker Conrad running the
show. Good riddance and don't let the door hit you on your way out of the valley
3:07 pm February 11, 2016

Bob Herzog wrote:

The lack of respect that Zenefits showed for the Health Insurance industry, Clients and Brokers
has finally come to be recognized. When your losing 20%+ of your clients after 90 days it
makes it very hard to grow. Zenefits found out that it comes down to customer service, people
want to see their broker and have a relationship with them, not just a voice on an 800 number.
This is also an industry that requires a license to do business, not just run a back office boiler
room.
8:19 pm February 9, 2016

Jon Fox wrote:

Their "free" payroll and benefits administration are paid for by becoming agent on the group
products. Unfortunately, they know next to nothing about the insurance markets they claim to
represent. As we see from the article they just skipped the step of licensing and structure
required in the industry.
3:18 pm February 9, 2016

dsfdsgfdhgf wrote:
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2:02 pm February 9, 2016

Julie Morris wrote:

This was seen as coming from a mile away in some quarters. Parker had no idea what he was

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going up against and thought his cadre of lawyers and lobbyists could perpetually bail out even
the most egregious compliance violations. Hubris plays well on the playground of SV, but not in
the real world. Insurance is insurance, no matter how much you want to talk up the SaaS part,
and it is regulated by state governments with incredible authority and discretion to fine and
sanction brokers (which, let's face it, is all Zenefits really is) as much as they deem necessary.
The competition out there is fierce in this space and it's only going to get tougher. The fun tech
part is over, now it's old school business and this group is ill-equipped to take that on,
especially on a a state-by-state level. The devaluation of the stock was correct, but probably not
nearly steep enough.

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