“I was giv­ing [ clients] to peo­ple who didn’t have their in­surance li­cense. ... Like, it was re­ally il­le­gal”

Bloomberg Businessweek (North America) - - Focus On/ Energy -

ap­proved ev­ery ben­e­fits change or va­ca­tion re­quest for hun­dreds of (later, more than 1,000) em­ploy­ees. “We have peo­ple in HR now, but they ac­tu­ally don’t have ac­cess to the HR sys­tem,” Con­rad said in an in­ter­view at Techcrunch Dis­rupt last year. “I do all of it my­self. I’m a lit­tle crazy.”

The prob­lems were much deeper than a dis­or­ga­nized of­fice. In­surance bro­kers must pass a state li­cens­ing exam be­fore they can legally sell or ad­vise peo­ple on in­surance. Each state has a dif­fer­ent exam and train­ing re­quire­ments. In Cal­i­for­nia, bro­kers had to spend at least 52 hours on an on­line train­ing course. Zen­e­fits says Con­rad cre­ated a Google Chrome browser ex­ten­sion that al­lowed peo­ple to by­pass the 52-hour rule by mak­ing it ap­pear as if they were work­ing on the course when they weren’t. The ex­ten­tion was called “the macro.” (Con­rad de­clined to com­ment on the Chrome ex­ten­sion.)

Ev­ery state has a dif­fer­ent bro­ker­age exam. A per­son li­censed only in Cal­i­for­nia can’t legally sell in­surance to a com­pany in Ken­tucky un­less he ap­plies for a re­cip­ro­cal li­cense. Zen­e­fits sold its prod­uct all over the coun­try, and its man­age­rial chaos seems to have kept it from prop­erly track­ing who passed their state ex­ams or got re­cip­ro­cal li­censes.

Con­rad worked closely with Sam Blond, Zen­e­fits’ trim, tanned vice pres­i­dent for sales, who liked to party. When their team closed a big ac­count, Blond and Con­rad poured shots for ev­ery­one in the of­fice. Zen­e­fits had kegs in its of­fice. In an on­stage in­ter­view at a tech con­fer­ence in 2015, Blond told a story about how he and Con­rad once got so drunk at a San Fran­cisco steak­house that they wres­tled each other on the restau­rant floor. “Half an hour ago we were in the green­room, and we saw two bot­tles of un­opened drinks,” Blond said at the same tech con­fer­ence while sit­ting on­stage with Con­rad. He smiled. “They’re no longer un­opened.” (Blond de­clined to com­ment for this ar­ti­cle.) Last year the man­age­ment com­pany that runs Zen­e­fits’ of­fice space com­plained about cups of beer and used con­doms found in the stair­wells. “Do not use the stair­wells to smoke, drink, eat, or have sex,” Emily Agin, Zen­e­fits’ direc­tor of real es­tate and work­place ser­vices, re­minded em­ploy­ees in a com­pa­ny­wide memo.

Sacks wasn’t averse to a lit­tle de­bauch­ery. A few years ago, ac­cord­ing to mul­ti­ple news re­ports, he hired Snoop Dogg to per­form at his Marie An­toinette-themed 40th birth­day party. In­stead of in­vi­ta­tions, Sacks sent lit­tle cakes. He showed up in pe­riod dress. But at Zen­e­fits, he was dif­fer­ent. Em­ploy­ees say he didn’t so­cial­ize. He stared at his phone in meetings. He some­times even es­caped to an of­fice in a nearby build­ing for alone time. Most of Zen­e­fits’ prob­lems re­mained in­ter­nal. In­vestors couldn’t see them. Those they could see seemed fix­able—as demon­strated when Sacks flew to Salt Lake City and stood be­hind the Utah gov­er­nor while he signed a law al­low­ing Zen­e­fits to op­er­ate in the state. In May 2015, six months after Sacks joined the com­pany, it raised $500 mil­lion in a third fundrais­ing round, at a valu­a­tion of $4.5 bil­lion. Zen­e­fits also said it would quin­tu­ple an­nual re­cur­ring rev­enue, to $100 mil­lion, by the end of 2015. “They used to say they were the No. 1 sup­plier to An­them for small-group busi­ness [com­pa­nies with 50 or fewer em­ploy­ees]. It wasn’t true,” says Dar­rel Ng, a spokesman for An­them Blue Cross. Zen­e­fits says it re­grets any fac­tual ex­ag­ger­a­tions that oc­curred un­der prior lead­er­ship.

Still, Zen­e­fits kept grow­ing. By the mid­dle of 2015 it was serv­ing 14,000 busi­nesses and in the process of hir­ing more than 1,000 ad­di­tional em­ploy­ees. “They told me that they were ex­pand­ing so fast that once a month had gone by, I was guar­an­teed to move up,” says Aaron Se­maan, 28, who joined as an en­try-level sales rep in April 2015, mak­ing $35,000 a year. The head­quar­ters be­came a hodge­podge of dis­con­nected of­fice space sprawled over two, then three, then four floors of the high­rise. Zen­e­fits also opened a satel­lite of­fice in Ari­zona that it packed with low-level sales reps who cold-called prospects. One man­ager in Ari­zona says he in­ter­viewed and hired peo­ple so quickly that when they showed up for work, he’d of­ten for­got­ten who they were.

Se­maan was one of the few who came to Zen­e­fits al­ready li­censed as an in­surance bro­ker. And yet, for some rea­son— he still doesn’t know why—he wasn’t al­lowed to sell in­surance. He was a cold­caller: When he found an in­ter­ested com­pany, he passed it off to the bro­ker as­signed to close the deal. But, as the com­pany has pub­licly ac­knowl­edged, not all Zen­e­fits bro­kers had passed their tests. “I was giv­ing [clients] to peo­ple who didn’t have their in­surance li­cense,” Se­maan says. “They were sell­ing in­surance il­le­gally. Like, it was re­ally il­le­gal.” He says that one woman worked at Zen­e­fits as an ac­count ex­ec­u­tive for four months with­out pass­ing her exam. “I had mul­ti­ple talks with my boss about it. I would tell him, ‘I don’t think it’s fair or right for me to be set­ting peo­ple up to make these sales when they don’t even have li­censes.’ ” His boss didn’t re­spond to in­ter­view re­quests.

“The com­pany cul­ture of pres­sur­ing and bul­ly­ing em­ploy­ees to cut cor­ners and do the wrong thing is over,” says Sacks.

Zen­e­fits be­gan court­ing what it calls en­ter­prise com­pa­nies— those with more than 100 em­ploy­ees. Un­like small busi­nesses, big­ger com­pa­nies have en­tire HR depart­ments that en­joy long­stand­ing re­la­tion­ships with in­surance bro­kers. Sacks says he thought it was un­re­al­is­tic for Zen­e­fits to pur­sue them

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