February 12, 2016
How Likely Is Zenefits to Change?
by Alan Katz
Not especially. Zenefits, its values and its culture reflect those of Silicon Valley. That is both a blessing and a curse in insurance.
Zenefits changed CEOs the other day, but is meaningful change really likely at Zenefits? Founder Parker Conrad is out as Zenefits’ CEO, and David Sacks— who was its chief operating officer—is now in charge. The reason: lax compliance procedures leading to investigations by Washington state and others concerning alleged sales of insurance policies through unlicensed agents. If found guilty by Washington regulators, Zenefits could face a criminal fine of as much as $2.8 million, see some employees go to jail and potentially lose millions in commission dollars. While the penalties are unlikely to reach those levels, that is what is at stake.
Perhaps this situation is a result of incompetence and naiveté by the company’s management. Maybe. Then again, it could be the result of a culture that puts growth above adherence to the rules—an “act now and ask for forgiveness later” attitude—an approach sometimes applauded and rarely condemned in Silicon Valley and similar locales; unless, that is, it hurts the bottom line.
Not surprisingly, then, when Sacks took over he declared the company’s old culture inappropriate and promised to instill new values in the company. On taking over as CEO, he informed employees that “a new set of values are necessary” for the company to continue considerable growth. He ended his letter proclaiming, “This is Day 1.”
I don’t doubt Sacks’ commitment or intentions. But is Zenefits really likely to change its core values? Can it transform its culture? The problem, as I see it, is that the company, its values and its culture reflect those of Silicon Valley. That is both a blessing and a curse.
They dream big in Silicon Valley, and Zenefits became big, one of the fastest-growing enterprises in American business history. The company is funded by an A-list of Silicon Valley heavyweights. As of May 2015, Zenefits became the single largest investment of Andreessen Horowitz, one of the Valley’s most august venture capital firms. Several of its board members are Silicon Valley royalty.
The Valley values speed, innovation and disruption (“worships” might be a better word). While I’ve questioned whether Zenefits’ business model is innovative, the fact remains that the company has quickly shaken up more than one established industry.
However, being of the Silicon Valley model also means Zenefits exists in a bubble (not the stock market-crashing kind, but the island of unreality variety). For example, none of the executives listed on Zenefits’ site has any background in human resources, payroll or insurance sales. Yet that is what the company does. Outside Silicon Valley, this would raise eyebrows, maybe even create concern. But not there. Of course, Zenefits has direct reports with subject matter expertise, but why do none of the company’s top eight leaders (nine before Conrad’s departure)? It looks like a bubble to me.
Sacks is a Silicon Valley rock star. In a December 2014 Pando’s article reporting on Sacks’ joining Zenefits as chief operating officer, Conrad was quoted as saying, “When you have an opportunity to hire LeBron, you hire LeBron.” And it was an apt analogy. Sacks is good. Extremely good. He was the first COO of PayPal and was the founding CEO of Yammer (purchased by Microsoft for $1.2 billion). He knows how to run a company—a Silicon Valley company.
It’s also true that Sacks has been COO and a board member of Zenefits for a year now. Doesn’t that make him part of the company’s “old” culture? As chief operating officer, didn’t he have at least some responsibility for knowing about Zenefits’ compliance problems? Maybe he did and raised the alarm internally months ago. Maybe.
So that’s where Zenefits stands at the moment, stuck in a vortex of maybes. Maybe it takes an insider to lead the company outside the Silicon Valley bubble. Maybe it takes someone who has seen the company’s failure to understand what can no longer be overlooked or ignored. Maybe Zenefits can both grow and follow rules. Maybe the company can swagger less and execute better.
Who knows? Until it’s clear Zenefits has the willingness and ability and to change, perhaps a bit of skepticism is in order.