Crisis of the Week: Zenefits CEO Resigns After Compliance Failures
February 16, 2016
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Health-insurance brokerage Zenefits is in the Crisis of the Week spotlight this week after the company’s chief executive, Parker Conrad, resigned for what the company termed “inadequate compliance procedures and internal controls.” The company’s problems were exacerbated earlier this month when Buzzfeed published a story alleging the company’s use of unlicensed brokers in Washington state. The company also is being investigated by California regulators.
In a letter to employees, Chief Operating Officer David Sacks said he would replace Mr. Conrad as CEO, saying: “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.” The company also announced the hiring of its first chief compliance officer, a former federal prosecutor.
Using only the statements made by Mr. Sacks and Mr. Conrad in the links provided, the crisis experts looked at how well did the company handle this crisis? Is there anything it could have done better? What should the company do next in its efforts to rehabilitate its reputation.
Jolie Balido, president, Roar Media: “Driven by its famous mantra—‘ready, fire, aim’—health-insurance brokerage Zenefits finds itself on the receiving end of a veritable firestorm, under attack for state licensing violations and human resources troubles. In response, its chief executive resigned, and his replacement, former Chief Operating Officer David Sacks, has taken commendable steps, including acknowledging the problems, implementing a strategy and sharing the plan with the public.
“From a communications standpoint, Mr. Sacks has made it clear Zenefits is committed to a new motto of ‘operate with integrity’ and is implementing bold new procedures to keep better pace with its rapid growth–having hired a former prosecutor as its first chief compliance officer and a Big Four auditing firm to investigate. Thankfully for Zenefits, mistakes and crises are not uncommon among U.S. corporations and people will likely forgive and forget.
“However, it remains to be seen whether the strategy reflects any of the same overzealous ‘ready, fire, aim’ approach that got Zenefits into trouble to begin with. Does the response–including narrowly blaming the CEO/founder who rocketed Zenefits into a $4.5 billion business, and radically changing a growth-driven culture–represent the solution? Only time will tell.
“Zenefits must truly clean up its act and ensure its corrective measures are meaningful and not just for appearance’s sake. While some or all of the measures may ultimately benefit Zenefits, the company must not let an impetuous rush to change squelch any of the magic that winged its success. Zenefits will benefit from clear, consistent communications to help regain lost trust, all while reminding the public, as Mr. Sacks has done, that ‘successful companies have multiple founding moments.’”
Peter LaMotte, senior vice president, Levick: “When Zenefits found itself in a no-win position, the decision to end the tenure of the brash and controversial chief executive, Parker Conrad, was a smart first move. The tone of messaging taken by David Sacks, the new CEO, shows a well-thought-out effort to not only distance the firm from Mr. Conrad but to show actions that are meant to symbolize a new era of leadership. It is likely Mr. Sacks received counsel encouraging as much transparency as possible in the midst of this crisis. For that reason, the letter to Zenefits employees was also published to the corporate blog for all stakeholders and interested parties to read.
“The content of this message to employees went beyond the news of Parker’s replacement and addressed financials, company culture and additional management changes. If a company is looking to rebuild a reputation in the wake of crisis, public transparency is the fundamental first step. Zenefits will also have to deliver on promises made and continue to maintain overt transparency moving forward in order to truly gain trust from customers, regulators and investors.”
Mary Stengel Austen, president and CEO, Tierney: “In the highly regulated insurance industry, Zenefits missed step one of handling a crisis by forgoing a risk mitigation plan that could have revealed the severity of the lack of compliance procedure and internal controls. Once a company has considered the risks that could impact the company’s ability to operate and have operationally fixed, mitigated or prepared for what it can control, that’s the time to put a crisis communications plan in place.
“In handling the crisis, the company communicated a commitment to transparency by admitting faults and poor decision making and followed that with clear action: Changing leadership, instituting new values, hiring an auditing firm, cooperating with regulators and preparing employees for change. Pairing transparency with action is right and can only be made better by consistency.
“Statements from the company offer a muddled understanding of the role of the former CEO, new CEO and new chief operating officer in getting the company to this point. While blame is placed squarely on the former CEO, he’s also quoted in the press release as endorsing the new CEO’s ability to move the company forward. Likewise, the new CEO calls for accountability yet does not address his role in decision making and leading the company. It raises the question of whether there was or will be enough distance between the practices, leadership, and decisions of the old and new CEO.
“Zenefits will need to focus on righting its compliance issues, rebuilding trust with customers, and thoughtfully shifting the culture to ‘operate with integrity’ from operating with the historical ‘ready, fire, aim’ mentality.’”