Zenefits CEO bows out amidst compliance allegations

Parker Conrad leaves the company he co-founded after reports revealed unlicensed brokers sold health insurance. Why does this matter and what does it mean for compliance professionals?

The newswire has been buzzing with several articles highlighting the importance of compliance this week, culminating with the recent announcement that Parker Conrad, CEO of Zenefits, an online HR software startup, resigned Monday. COO David Sacks has taken reign as CEO. As you can imagine this is quite a shock to most Zenefits employees.

There are several reports on the Internet, but the story remains the same and made me think about the importance of culture, open communication channels and how taking the time to understand the root cause (contributing factors) usually enables an actionable solution to a tough problem before it gets out of hand.

“For us, compliance is like oxygen. Without it, we die.” Sacks wrote in an email to employees on Feb. 8, when they learned of the change.

From what we know, it appears that Zenefits fostered a culture that prioritized hitting sales targets at all costs, and it is widely alleged the company crossed the line and broke the law. This case is a clear example of where compliance needed to be an independent function so it had its own voice to the Board. This approach allows compliance the freedom to speak up and be heard and not be suppressed by operating pressures.

It doesn’t take a scandal like this to know that every company needs to enforce (and sustain) a culture of accountability and a safe environment to speak up – this is simply a harsh reminder. With the correct tooling to enable that communication, employees are more apt to report compliance misconduct before it’s too late. Whether its through Hotlines, Disclosures or simply submitted Questions the tools need to be readily accessible and front-of-mind for employees and executives alike.

The swift takeover by Sacks is telling and exemplifies a great focus on immediately addressing the culture and creating a shared vision of purpose. He’s taking the right first steps towards stabilizing the company during a period of organizational chaos, shock and increased scrutiny from industry and the media. The immediate appointment of a new Chief Compliance Officer is promising, but the proof will be in the quality of the compliance program he implements.

The New York Times reported that “Mr. Sacks vowed to reform the company’s processes for dealing with regulators. He appointed Josh Stein, a former federal prosecutor, to become the firm’s chief compliance officer. Mr. Stein will be charged with coordinating with state insurance regulators and putting into place the findings from an outside audit of its policies that Zenefits commissioned last year.”

This is another essential step, ensuring your compliance program is defensible and transparent. In communicating with regulators, it is essential that you can quickly and clearly demonstrate the policies, procedures and controls that you have implemented. This can best be done if you have a technology platform in place that consolidates all your compliance related activity, metrics and reporting into one suite of dashboards, rather than the, sadly, all too prevalent collection of information silos that most CCOs are struggling to consolidate, correlate and derive intelligence from.

If you’re a compliance executive who has been watching the development of this story, ask yourself, would you know if similar misconduct is happening in your organization today. Now is a good time to start putting together a strategic plan to examine your culture’s ethics and compliance climate, identify gaps and create an environment that makes it very clear to employees how to report concerns. Is your compliance department subsumed in another department? Consider making it an independent function for the most impact and effectiveness.

Don’t get caught flat footed like Conrad. “Compliance is like oxygen”, you may not notice it’s presence, but you will certainly notice its absence.