Zenefits, in a Shake-Up, Appoints New C.E.O., Replacing Parker Conrad

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Parker Conrad, a co-founder of Zenefits, in 2014.Credit Jim Wilson/The New York Times

Zenefits, a fast-growing San Francisco start-up that has attempted to shake up the health insurance brokerage industry, said on Monday that Parker Conrad, its co-founder and chief executive, had resigned from the company and from its board of directors.

Mr. Conrad was replaced by David Sacks, who joined Zenefits a year ago as its chief operating officer. Mr. Sacks previously had led his own start-up, Yammer, which was acquired by Microsoft in 2012.

Mr. Conrad’s recent tenure was rocked by lapses in complying with health insurance regulations in several of Zenefits’ markets. The company makes software that is intended to streamline the way small businesses buy health insurance for their employees. The company was valued at $4 billion in a funding round last year, and its investors have called Zenefits one of the fastest-growing business software companies in history.

But in the last few months, a series of reports by BuzzFeed News found that the company was cutting corners in its rise. According to BuzzFeed, Zenefits employed unlicensed brokers to sell insurance to customers, resulting in scrutiny from regulators and the undoing of many of its sales. In an email to employees on Monday, Mr. Sacks pointed to these failures as the reason for Mr. Conrad’s departure.

“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 wrote. “As a result, Parker has resigned.”

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“Some decisions have just been plain wrong,” said David Sacks, Zenefits’s new chief, who has vowed to reform company practices.Credit David Paul Morris/Bloomberg, via Getty Images

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.

But in a highly unusual move in Silicon Valley, where a break-anything culture is revered, Mr. Sacks called on Zenefits to straighten up its image.

“We must admit that the problem goes much deeper than just process,” he wrote. “Our culture and tone have been inappropriate for a highly regulated company.”

In addition to naming a new chief executive, Zenefits also appointed three new members to its board of directors: Antonio Gracias, of the investment firm Valor Equity Partners; William E. McGlashan Jr, of the firm TPG Growth; and Peter Thiel, a co-founder of PayPal who is now an investor at Founders Fund.

Though its current investors say they remain enthusiastic about Zenefits’ prospects, the resignation represents a second disappointment for Mr. Conrad, who was pushed out of SigFig, a start-up he was a co-founder of in 2007. In an interview in 2014, Mr. Conrad was frank about his fear of reprising that failure at Zenefits, which he described as the plausible danger in a company growing so quickly.

“Even when we think things are going well, it always feels like the wheels are ready to come off the cart,” he said.