Could a unicorn culture have been Zenefits’ undoing?

Could an “inappropriate” company culture be at the heart of why Zenefits, a unicorn valued at more than $4 billion, is now in the hot seat?

That is one reason given in a blog post by David Sacks, the company’s former chief operating officer who recently joined the company. He  is the former CEO of Yammer, which Microsoft bought in 2012 for $1.2 billion.

Now Sacks is the new chief executive and is setting the course to correct whatever led Zenefits employees to sell insurance without being licensed. As BuzzFeed has reported, in Washington state alone, as many as 80 percent of the insurance Zenefits sold has been by unlicensed brokers.

Sacks called the company’s processes and controls inadequate, and went on to address the culture:

We must admit that the problem goes much deeper than just process. Our culture and tone have been inappropriate for a highly regulated company. Zenefits’ company values were forged at a time when the emphasis was on discovering a new market, and the company did that brilliantly. Now we have moved into a new phase of delivering at scale and needing to win the trust of customers, regulators, and other stakeholders.

Based in San Francisco, Zenefits has gone after the human resources software market. Last year, it received a $500 million infusion at a $4.5 billion valuation.

For Zenefits, the fallout, so far, has included the resignation of Parker Conrad, a former journalist turned entrepreneur. He was the founder and CEO of Zenefits, which rose from small startup to unicorn in the space of three years.

Other changes include the hiring of Joshua Stein, a former federal prosecutor and vice president of legal at the company, as the firm’s new chief compliance officer. Sacks also named three new board members, including Peter Thiel, the co-founder of PayPal.

Where was the due diligence of the investing community, asks Pando Daily’s Sarah Lacy:

Board members don’t run a company day-to-day, and the cult of the founder has lead to far less oversight than ever before. But it goes to show how asinine it is during a correction to blithely shrug and say, “Great companies will be funded in any market. “Great companies will be fine.” “Great companies will always be able to IPO.”

Sure. The problem is none of us seem to know which of these unicorns are “great.”

Above: Parker Conrad, Zenefits’ former CEO. (Karl Mondon/Bay Area News Group)

 

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