Major news is coming from Zenefits, the HR automation company based on a disruptive technology that has spawned anxiety and lawsuits from the payroll and benefits industry.

On Monday, CEO and co-founder Parker Conrad resigned amidst much speculation as to the cause.

In his place, former PayPal executive David Sacks steps in.

Sacks, in an email to Zenefits employees, suggested that the company had had some problems with compliance.

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

Sacks emphasized that the company must not seek to downplay wrongdoing, but to acknowledge it and pledge to do better. One of the measures the new CEO highlighted was the appointment of a former federal prosecutor, Josh Stein, as Chief Compliance Officer.

"Josh is already in communication with regulators to advise and update them of our compliance issues," Sacks wrote.

He added, "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."

Not only will Zenefits adapt its processes to be in line with the law, wrote Sacks, but the company must change its tone. Sacks is referring ostensibly to the “new kid on the block” boisterousness that the startup brought to its confrontations with competitors, particularly during a legal battle with Automatic Data Processing Inc.

Despite the apparent concession from corporate leadership that Parker had made serious mistakes, the former CEO was nevertheless quoted in a company press release announcing his successor.

“David is a strong leader who will take Zenefits to the next stage of development, as it evolvesfrom a startup to a large-scale national leader,” he said. “I am immensely proud of theorganization we have built and the industry-wide impact we’ve had but recognize that ourcompany’s management infrastructure and policies haven’t kept pace with our meteoric growth. Elevating a strong management hand with successful experience and impeccable credentials iswithout a doubt in the best interests of the company at this time.”

After rising quickly to an estimated value of $4.5 billion, Zenefits hit a rough patch in November, with revenue falling short of investor expectations.

Today, the company also announced the addition of three well-known investors to its Board of Directors:

Antonio Gracias, founder and Managing Partner of Valor Equity Partners
Bill McGlashan, founder and Managing Partner of TPG Growth
Peter Thiel, co-founder of PayPal and of Founders Fund

Instant Insights /

Zenefits CEO resigns, new head David Sacks focuses on compliance

More From HR Executive

Related Stories

Recommended For You