Zenefits Scandal Highlights Perils of Hypergrowth at Startups
nytimes.com
nytimes.com
I have no real information though, so for all I know he could have been stabbed in the back instead.
I suspect if it goes to a real investigation, lots of people at Zenefits are in deep trouble.
Didn't work out that way for Zenefits. They seemingly lost.
Many people understand that taxi regulations (for the most part) negatively affect them, and in many cases are extremely frustrated with them: see Washington, DC. Most people aren't familiar with and don't care about the company that manages their health insurance, and as a result there's little public support.
Go back and you find people wanted to cut the number of Taxii on the roads. I would much rather you use a bus than a Taxi. The problem was regulatory capture constricted past this point.
ex: We don't want a lot of them on the road making traffic worse. Drive to B -> C you add X congestion, call a cab they drive from A -> B to pick you up, then B->C that's X + Y congestion, pollution, risk for accidents etc.
PS: The real issue is after regulation people tend to forget why it was added. "Let's deregulate Banks!"
The explicit reason given, at least in the case of NYC, was the desire to make driving taxis more profitable. During the Great Depression there were more drivers than passengers and it couldn't pay the bills. How do we solve this? Limit the supply of drivers, therefore raising the price and reducing competition. From a consumer standpoint this is terrible.
We would have ended up with an explicit monopoly for a specific company if it weren't for some folks getting convicted of corruption (taxi company bribes) scuttling that deal.
> I would much rather you use a bus than a Taxi. The problem was regulatory capture constricted past this point. >ex: We don't want a lot of them on the road making traffic worse. Drive to B -> C you add X congestion, call a cab they drive from A -> B to pick you up, then B->C that's X + Y congestion, pollution, risk for accidents etc.
Why limit it to taxis? There is a great way to promote public transit, reduce air congestion and pay for roads: tolls and congestion pricing. This would affect all drivers, not just certain drivers.
>PS: The real issue is after regulation people tend to forget why it was added. "Let's deregulate Banks!"
The irony is it appears you've forgotten why these regulations were created in the first place.
Yes, but what regulators didn't realize (and still don't) is that economic incidence is tricky. Just because you can charge more, doesn't mean any specific factor in the production chain gets to partake in any of that.
For example, just because Gucci bags surge in popularity doesn't mean the Gucci office janitor can charge more for his labor -- the supply of such services is unaffected and they can find more providers at the same price.
And indeed, the same dynamic applied for taxi medallions: sure, you can charge more to passengers, but the immense supply of qualified drivers -- who only need a small takehome -- means that they'll bid up the price of the medallions (rental price or capitalized) so that the drivers are still poverty level, and almost all the monopoly profits go to medallion holders, not drivers.
Is it? If it's not paying the bills, then you're not going to have people doing it. Making sure that the price is at a point where it can sustain itself makes it much more likely that it'll still be there tomorrow.
https://books.google.com/books?id=VXpyNs5EaHEC&pg=PA119&lpg=...
It confirms the story that I have heard previously that taxi medallions were introduced to protect consumers. This doesn't mean that profit was not a reason but I'd like to see something that shows the "explicit" reason you state.
Because people (especially in the US) couldn't care less about other people, regulation that annoys consumers is "bad", and the consumers then defend the companies breaking those particular laws. Those companies exploit the fact that in every industry, consumers always outnumber providers (or conversely, every person consumes from many more industries than those where they provide), and so the disregard for this kind of regulation will always work. Every new company will get consumers to gang up on the far fewer incumbent providers until they break the regulation that protects them, and so on, industry by industry.
It's a little like the robber barons, who used every new wave of immigrants to beat up the previous generation of immigrants who tried to unionize, and then hired the new ones in their place... that is, until the next wave of immigrants. Except the new way of doing this is far more effective, because it's always easy to obtain a majority that supports you and feel like they're doing the right thing at the same time.
Most of the AirBnB and Uber horror stories you hear are things that don't happen, or happen far less relative to the overall volume, in a world of licensed taxis and professional hotels/B&Bs.
Does the good of current regulations outweigh the bad? Likely not, in many cases. But there are reasons (at least some of) these regulations exist outside of capitalism being terrible and the successful trying (and succeeding) at pushing out competition.
Landlords often are annoyed about regulations (and some tenants unfortunately abuse them) but many came about because of the abusive practices of the slumlords.
Our society deems having a safe place to live pretty essential so landlords have a massive amount of power over their tenants if unchecked.
When people are asking politicians why Joe Doe was able to operate his "taxi" company that wouldn't stop his car outside of the ghetto without a $50 "oops, I got lost fee", it seems obvious why regulation is put in place.
That isn't to say that said regulation remains entirely useful, just that your argument isn't really bore out by the history.
The reason why zenefits is having issues is that the laws they broke are still entirely relevant to everyone involved.
The so-called "sharing economy" could as well be called "fuck you economy".
FTFY
If you've seen the HBO series Deadwood (a masterpiece, BTW), I'd say we're replacing an Al Swearengen with a George Hearst. Both may be villains, but the scale makes all the difference...
There is a lot more transparency with Uber, however if they achieve a near total monopoly on transportation such as Google did for search, the end result from a consumer experience standpoint may end up the same, with different trade offs.
The alternate issue, the employees/drivers, won't matter in the long run because there won't be drivers whether it was Uber or medallion holders.
thats a ludicrous reductionism as to what "publicly traded" company actually means and it discredits the rest of otherwise reasonable argument to say this.
No, if Uber is ever nationalized, then the owner will be society.
If Uber merely goes public, then the owners will still be the stockholders, its just that it will be easier to trade in the stock.
You mean those in society with disposable income to invest (or a 401K). That's not quite the same as "society".
> The medallion owners largely were individuals who had the access to credit and leveraged in as the values rose.
Sure, they were small-business entrepreneurs. As I said, they are Swearengen to Uber's Hearst, but their immigrant employees certainly benefit from the regulation, too.
> The alternate issue, the employees/drivers, won't matter in the long run because there won't be drivers whether it was Uber or medallion holders.
Perhaps, but there will be other similar issues.
It's unreal that people would attempt to defend this.
It could also be that insurance industry participants are more centralized and organized than taxi and real estate companies, but I'm less sure that this was a driving factor in the regulation.
while it isn't possible to "front run" your insurance deal as your broker, putting you into the wrong insurance has a variety of outside financial consequences that are not insurance related at all.
For example - Zenfits could theoretically "redline" certain kinds of businesses into certain kinds of insurance, even though the employee pools qualify for something better/totally different. By doing so, Zenefits could make more profit per insurance policy sale and renewal, but their is more risk in the lifetime customer that they will explode, since it is the wrong policy. Zenefits see hypergrowth and projections towards even further hypergrowth. However, they also create systemic SMB risk
Since SMBs do not typically get lots of help with these sorts of HR issues, the "wrong" insurance could be the difference between bankrupcy and existence 5 years down the line, even though there is competition among policies. The broker is supposed to act as guidance among many competing insurance policies against that eventuality, hence the regulation.
If Zenefits can't guarantee their employees can actually act not in Zenefits interest as brokers when queried about two policies and the benefit to the customer, despite what Zenefits would make out of the sale, because of behavior within Zenefits, then there are problems for the businesses that brokered with them, and any bank that loaned them money (since part of the premise there is that this stuff is properly managed!)
I'm actually surprised I'm the first one who mentioned it. People are very focused on the Zenefits as startup issue, rather than focusing on "What if it was say one of AIG's largest franchisees (or insert some conglomerate of insurance brokers, especially as famous as AIG) who was doing this." Once framed this way, it becomes much more obvious that the startup issue and how it relates to growth is a different set of issues and framing than "cheating on tests in insurance brokering/lacking proper insurance brokers doing the sales/place of regulation in insurance."
This especially becomes true when if you turn on the tv and hear the occasional pitch about loans against life insurance policies, or question too deeply why AIG was even betting in the subprime mortgage market and became systemic risk if they are an insurer.
It must mean that insurance itself is a kind of financial instrument, or cash flow, or something where you can create exchanges off of it in its own way(1). Which means there is fiduciary duty of some sort when the initial underwriting for the insurance is written.
This is going to be a headache for anyone who bought one of those policies and/or underwrote one.
(1)Technically speaking, options, futures, and forwards all started out as insurance contracts, some dating back as far as before Hammarabuai's code, so insurance contracts today must be some remainder of something special, I suppose.
The regulatory pushback that Uber and AirBnB have demonstrated has been in the public face.
The fraud that Zenefits is being accused of was not expected by the consumer. They offered themselves as an insurance broker where the agents were licensed insurance brokers. It turns out that isn't the case. That's probably considered fraud.
The issue is people allege that daily fantasy sports is more akin to the illegal type of gambling because it doesn't require enough skill whereas the law was intended to cover the traditional type of fantasy sports which require more than 1 day commitment and smaller sums of money.
If the customers of Zenefits knew they aren't brokers, and if it was publicly clear and accepted, then maybe there is a slight chance of justification. "Public do not want regulation" they could say. Airbnb never said they were a hotel. Uber went out of their way to prove they aren't a taxi company. They did not disguise as one.
Hey night last slightly longer than Zenefits, but I would expect to see major changes in how they operate.
I don't know enough about Draftkings to say one way or another other than it appears they have greased the right palms to continue to operate for the time being.
Uber broke rules in individual cities, facing the choice of (a) not entering a city, or (b) entering the city by breaking rules. Stretching local rules didn't threaten the survival of Uber the company, it just meant they might be shut down in a single city or area.
Zenefits apparently broke rules in such a way that it did threaten the existence of the company. If the news coverage is accurate, insurers could decide or be forced to cut them off as a broker, they could lose their licenses, or have a pile of lawsuits.
You can only get away with it for so long...
I wonder if this is really just the result of infighting more than regulation.
People were given low salaries with the promise of increases when funding came through, but Zenefits didn’t make good on those promises when it raised new investments.
Zenefits is an example of the exact opposite of your point - financial and state regulators have little tolerance for companies that break regulatory laws, regardless of how fast they are growing. See also Sand Hill Exchange [1].
[1] http://www.bloombergview.com/articles/2015-06-19/bitcoin-buc...
Zenefits customers are not demanding their health insurance be sold to them by non-compliant, unlicensed agents.
Nobody wins in the Zenefits case.
Essentially, if you are growing fast enough you have plenty of money to be able to hire good lawyers and advisers and clean up and manage any mess that you create.
Another example is with VW and their diesel emissions.
I feel like people just have a difficult time saying they were wrong or pushing back and saying they can't do something. I am guilty of this myself.
I think boards should be held responsible for encouraging these kinds of risks, but let's be honest - by focusing VC returns on maximizing investment outcomes, the system is set up this way.
The system can be as rotten as you like, but in any particular case, at some point, someone said, "Let's start cutting corners."
Yes, but... Normally things like this build up gradually from "just one step" on something that is patently stupid.
And, let's face it, if you can get a certification from an online course, it's stupid, prima facie.
So, you need to get one more person online to file benefits. Get them certified. Okay, these certifications are stupid and any idiot can sit through these. Okay, let's get the same idiot to sit through each one. Okay, we're still not getting certified fast enough. Okay, hire more idiots to sit through this. Okay, but they'll have to learn this. Okay, let's put some programmers on this so we only need one idiot to do things on multiple sessions. Okay, now that we have the macro, we don't need the idiot anymore. etc.
If the feds weren't clamping down on this, everybody would be singing their praises like Uber and AirBnB.
It's all about the bandwagon, baby.
"Growth broke stuff. To increase revenue, the company moved beyond small businesses to customers with hundreds of employees — and the software struggled to keep up. Instead of pausing to fix bugs, Zenefits simply hired more employees to fill in where the software failed, including repurposing product managers for manual data entry."
From a different article about the downfall of Target Canada[1], which also suffered from trying to ramp up too fast:
"Getting the details from suppliers largely fell on the young merchandising assistants... “There was never any talk about accuracy,” says a former employee. “You had these people we hired, straight out of school, pressured to do this insane amount of data entry, and nobody told them it had to be right.”"
Don't underestimate the proliferation of data entry jobs, especially when there is chaotic growth/lack of a proper plan.
My first guess is that it was worse than this. The people doing data entry who took the time to do it right were likely showing up as doing worse on what ever metrics were being ran and were replaced by people who were fast but error prone. Bad metrics leading to bad optimizations.
The specific law that Zenefits violated was a law insisting that before selling insurance, your employees need to sit at a computer and click "next" for 52 hours. Once they've clicked "next" sufficiently many times, only then are they permitted to take the exam to determine whether they have enough knowledge to sell insurance.
Shouldn't this scandal also highlight the perils of a regulatory state?
Clicking "next" for 52 hours is clearly absurd, though I would take it farther and argue that no exam should be required to be an insurance broker at all.
I can see the benefits of requiring competency before being allowed to sell insurance to the public. Insurance is important. It's what you rely on to defray potentially millions of dollars in damages (up to and including the death of yourself or your spouse) when something goes horribly wrong. And it would be a huge travesty if you didn't actually have the coverage you thought you did because the unlicensed, untrained, and inexperienced agent that sold you your policy didn't correctly explain it, or didn't understand your needs.
1. Ethically, I think that if you choose to do business with an untrained, inexperienced broker, then the consequences are on you. In fact, there may be legitimate reasons to do so, which brings us to point 2.
2. If the members of a profession control entry into that profession, which is always the case with occupational licensure, then those members have a strong economic incentive to construct barriers to entry. More and more irrelevant requirements will be added over time. Certification protects against this tendency while still providing all of the supposed informational benefits of licensure. If certification requirements become too crazy and irrelevant, the price differential between certified and uncertified professionals will increase, and consumers will start to use uncertified professionals instead, forcing the certification requirements back down to sanity.
2. You know this licensing system did not come out of thin air? Got an example of a working, critical certification system?
2. My understanding is that there are few government-mandated certification systems because they tend to gradually evolve towards licensure, due to political pressure from producer groups. There are many private certification systems that work quite well. The Good Housekeeping Seal of Approval is a private certification system for household products. Stores such as Target certify the value of the products that they sell in order to guard their own reputation. I'm hesitant to mention this because I don't know much about it, but I believe accountants are also certified rather than licensed.
This has been proven false time and time again. I know libertarian types like to pretend it, but you are not an island. You do not exist in a vacuum.
In all seriousness, I obviously don't think a test should be required to buy insurance, but I do think that government putting a little more effort into educating the populace on financial topics (including insurance) would do much more good than having brokers jump through silly hoops like the one under discussion here.
So given that it will never happen that everyone is an expert at everything, we need alternate systems to protect people. Like licensing and regulation. All you've got is an impossible pipe dream.
It's much better to train the specialized provider, because then each head has only to fit the knowledge required for their own profession. This is feasible and with much less effort. Slightly worse result, but there's no free lunch.
Actually, I'd be inclined to "citation needed" that. Brains are curious things.
Out of my personal bumhole, I'd suggest that if you want to ensure retention, you're far better off retesting frequently. A big-but-not-quite-as-big certification test up front, and monthly recertification tests that are much smaller, but still cover the entire space fairly well, strikes me as much more likely to ensure retention. One big test is too amenable to cramming, which I believe is scientifically demonstrated to work great for passing tests but causes the knowledge to disappear a few days later. Then, scrap the hour requirements entirely.
It sounds like you are saying that California regulators made a disastrously bad test that doesn't measure knowledge well, so therefore we should require people to click "next" for 52 hours in the hopes that knowledge enters their skulls even if we can't measure it?
The law they broke was selling insurance without the use of unlicensed brokers.
Sounds like a job for Homer's typing bird!
I suppose one way to estimate how onerous this requirement is (I agree that to the extent it is arbitrary that it is dumb) would be to compare how much compensation the insurance license makes available to how much compensation spending the equivalent time learning a skill like welding makes available.
(I think most people wouldn't be very good at welding after 50 hours of training and practice)
The social cost is 52 hours of productive output from moderately skilled employees. (Or moderately less - if learning the material takes 20 hours, then the waste is 32 hours assuming people can simultaneously learn the material and click.)
The right thing to do is simply make people take the test, and if the test isn't accurately measuring people's insurance selling ability, fix the test.
Of course a problem with bad regulation is that can have an enormous aggregate effect, but in this case I think we can reasonably assume that Zenefits didn't need to encourage employees to avoid this regulation in order to grow itself rapidly.
Again, note that we are discussing spending 52 hours clicking through a powerpoint before you are allowed to take the test to get the license.
How do you know that they passed the exam? They told you?
"Again, note that we are discussing spending 52 hours clicking through a powerpoint before you are allowed to take the test to get the license."
No, we are not.
The Macro functioned to keep a person logged into the course and prevented the person from being logged out for inactivity. The Macro did not advance through the required material or quizzes in the education course — the Macro only kept the person logged in. The Macro only pertained to the prelicensing education course and did not affect the broker exam taken later.
If you have even accusations of some other activity (let alone evidence of it), go ahead and post it.
Um, 52 hours * 50 states (insurance regulations are per state, normally) = 2500 hours. More than the number of work hours in a year.
That's a bit more than "modest".
The whole point of Zenefits was to consolidate the point of contact and thus reduce the expense through consolidation. That doesn't really work if you need a separate person per state.
Normally, I find myself staunchly on the opposite side of the argument from Zenefits; I think that Uber and AirBnB are being patently abusive in their actions. I find the fact that Zenefits was threatening the insurance industry, who are noted for being a huge bunch of assholes, far more palatable.
It goes to show that my views aren't as immutable or as charitable as I thought.
> (I think most people wouldn't be very good at welding after 50 hours of training and practice)
You'd be surprised. That's the right range for basic functionality for a lot of things. Even a Language 101 class is only about 100 hours, and you can normally ask for the bathroom and find basic directions afterward.
You'd be surprised.
Would I? I was talking about employability, not avoiding wet pants during a 2 week visit. I think if it were much worth employing someone to weld after 50 hours of training, we wouldn't have industry screaming about welders (maybe it's regulation requiring industry to only hire well trained welders?).
Separate issue.
Yeah, the industry is screaming for welders, machinists, etc. Yet, the salaries aren't going up, hmmmmmmmm.
Perhaps they don't actually have a shortage of welders, but, instead, have a shortage of cheap welders.
I have yet to see any companies subsidizing the education of these folks. That's the true sign that they're really serious about it.
This is true.
I don't see the insurance training as how-to-do-one's-job, however. More akin to how not to do it. Financial health and safety training.
A welder receiving 50+ hours in health and safety at the start of their career, among other trainings, seems reasonable. As does 1 hour health and safety training and sharing each week with the team. An equivalent requirement in finance does not seem unreasonable, given the damage that can be done by being unaware of (once you know them) basic concepts in mis-selling, fraud, money laundering and a long list of identifying black-market financing organisations.
The guy running my corner grocery store decided to set up a sit-down cafe without getting a city license. The folks running a nearby office suite are in no hurry to put in city-mandated sprinklers. Business founders/owners like to get things done without asking permission. That's how they roll. Trying to invoke unicorn valuations, VCs, etc. is silly. It's a classic case of finding an exciting anecdote and trying to attach causality theories after the fact.
The guy at the corner grocery store isn't discussing my employee's private medical records with me in between slamming down hits on the beer bong.
TL;DR VC capital is very very different from a bank loan.
Yes, these guys (Zenefits) were, in one area, dishonest and cheated. But it's not like Cigna, PacTel, BoA, Citizens and zillion other companies are paragons of virtue. Nevermind Volkswagen.
[1] https://en.wikipedia.org/wiki/Accounting_scandals
[2] https://en.wikipedia.org/wiki/List_of_corporate_collapses_an...
This isn't to say that Zenefits hasn't made a huge misstep for seemingly little benefit (bypassing a 56 hour course?), but I wish there was some discussion of the absurdity of the law that was broken alongside the bashing of Zenefits for breaking it.
Unlike many other consumer products you really don't have any idea what you're buying until after you've bought it. Making an incorrect or misled choice in health insurance is sufficient -- literally -- to completely ruin your life financially in a matter of hours, or cause unnecessary death via untreated illness.
If you want to claim that you can read a health insurance policy binder and understand it be my guest. I am a frequent writer and editor of technical literature and capable of writing code and I have a pilots license and I find health insurance policies almost incomprehensible.
We make sure that you don't get a bad haircut by requiring licenses for barbers. You can't fix my sink or chimney without licensing. We require licensing and testing to act on someone's behalf in the legal system, and in nearly all sales of securities, and of financial products, of which insurance is one mind you.
If Zenefits wanted to make an in-public argument that these rules are not necessary they were free to do so. I would have disagreed, and I'm sure others would have shared my opinion. Maybe they could have won the argument.
They didn't do that. They aren't righteous crusaders passionate about consumer choices and regulatory issues, they're opportunistic business people who broke the law and committed fraud instead of following the rules or working to change them.
Zenefits employees did pass the exam, and they possess the knowledge you believe is necessary. It's just that the law requires 52 hours of clicking before you are even permitted to take the exam. Why do you think this is a good law?
The requirement isn't "clicking next for 52 hours" it's spending that amount of time studying an online course. You're required to actually pay attention for 52 hours and then certify that you did.
For another example, the requirement inherent in a multiple choice exam isn't a matter of "filling out a semi random sequence of the letters A, B, C, and D" it's knowing the answers to the test.
The filling out the letters is a signal that you know. Signals aren't perfect, in that example if you don't know but copied answers from someone else that's cheating and the signal would be unreliable then, and you've subverted the actual intended requirement.
The requirement in this case is spending about a week of your life actually studying this material and the clicking of the next button as well is a signal that you did it.
Don't confuse the means with ends. You could have argued that the amount of hours spent studying the material is also a useless metric. But that's a more nuanced argument that you haven't made, and one that has defensible positions on both sides.
Clearly clicking next isn't a meaningful requirement, but so what, it's not actually the requirement. Spending time studying is, and they cheated and lied about it.
But lets take your claim as a premise; why is it important that a person spend time learning? Suppose two people know the material equally well, but one of them learned it faster than the other. Why is that a good regulation? How does it benefit consumers to make it illegal to learn things fast?
I know a former algebraic geometer (lots of category theory) who learned Haskell very rapidly. Would it benefit consumers of his services to pass a law saying he needs to learn Haskell at a slower rate comparable to a RoR hipster without a math PhD?
https://govt.westlaw.com/calregs/Document/ID813F6A0622011E4A...
> why is it important that a person spend time learning? Suppose two people know the material equally well, but one of them learned it faster than the other. Why is that a good regulation? How does it benefit consumers to make it illegal to learn things fast?
I don't know. But I do know that basically every educational institution requires some level of engagement measured in time. You can't just pass tests to get an undergrad degree or a PhD either. The requirement to spend actual time is hardly cruel and unusual.
I also know that the requirements were clear enough to be known to Zenefits and they willfully evaded them.
What is the difference between a Harvard graduate in Economics and someone who attended and completed all the requirements for an Econ degree but was short one art elective class and never got a degree? Should he just fudge his job applications since the art class isn't important?
What's the difference between someone assigned 100 hours of court ordered community service who did it and someone who went back to court with forged paperwork saying they did it?
In all the examples, and Zenefits as well, the difference is that the person is committing fraud, is lying, and is not ethical.
Cheating on requirements isn't the same as arguing to change the rules, regardless of how confused you continue to pretend to be about it.
Yes you can. Almost every school has a procedure for taking a test or convincing a professor that you have the knowledge the class provides. You still pay the cost of the course, but do not actually attend it.
Getting my degree many, many years after entering the field, I skipped a huge swath of undergrad classes this way. Stuff like non-computer related classes was all that I needed to do 'in person'.
In other words, I skipped 'pressing buttons' for a large chunk of time due to fact that I knew the material and could prove it.
The main difference to the above being that the school recognized that it was possible for a student to understand the core material completely without taking the class, and the above rules do not admit that possibility.
So would you say you had experiential learning in the subject matter of the classes you were being allowed to skip after demonstrating both evidence of this experiential learning and the attendant competency?
Testing out of a course due to earned knowledge is different from passing a multiple choice exam with Cliff Notes awareness of the material.
Some of the classes did just have multiple choice tests that would have been easy enough to 'Cliff'. Though it's not really relevant to larger discourse.
That still doesn't change the facts of the original situation. The test is the determining factor of whether or not they 'completed' the course. Indeed, someone who 'Cliff'ed the notes, and passed the test, and watched Netflix on a second screen while pushing all of the right buttons would still be accepted. Which is the ultimate failure here. Either the time limit is necessary and can't be skipped (due to the physical limitations of some inherent process), or the time limit is artificial and the actual possession of knowledge is sufficient.
Who is served by putting an artificial time limit in place that does not actually prove knowledge of the material?
heating on requirements isn't the same as arguing to change the rules, regardless of how confused you continue to pretend to be about it.
Try to pay attention. Above you said that you'd argue against changing the rules. I asked you to justify that, and it sounds like you don't have much of an argument beyond "well universities do it too".
Please don't be uncivil. This comment would be fine without that bit.
No it doesn't, and by saying that, you're telling the rest of us that you don't actually understand what's going on, but you want to seem "edgy", and "disruptive".
A policeman can be strongest, but a sexual harassment case will disqualify him.
When I see a broker license, I know I'm dealing with a knowledgeable, honestly practising professional. Can't say that about Zenefits anymore. They must lose license.
EDIT: You can give credit to any kind of cheating with the reasoning you gave. Why is SAT I verbal section important in a student becoming an electrical engineer? He should be allowed to cheat, according to you?
I think a person should be allowed to take the SAT without actually being obligated to click "next" for 52 hours. If they don't know the material they'll get a low score.
Unless you're asking every person to recite the whole textbook, the only way to be sure is an attendance policy.
What exactly do you believe that clicking "next" repeatedly tells you about a person's behavior?
(Again, remember that the question is why 52 hours of clicking is a good law. If a person didn't click for 52 hours when the law didn't require it, that would not be evidence that they are willing to violate unjust laws.)
It isn't. It's 52 hours of study, everyone is latching onto "clicking" to make a disingenuous point. Almost every exam you take is intended as an assessment of your knowledge, not "are they able to recite answers to 10 questions in a 2 hour period inside an exam room"
the state wants you to make sure you read everything and that you can answer questions about it. It doesn't seem like a stretch at all, especially considering people run their livelihoods based on that license. It's a license to conduct a proper practice and a career.
Besides, the "redundant" requirements just caught a person trying to cheat -- Zenefits. So you cannot even claim they aren't working.
Certification also amounts to delegating due diligence. Licensure goes a step beyond that by actually forbidding voluntary exchange in certain cases. You are not just delegating due diligence, you are delegating your freedom to make your own choices.
> or to figure out if a "certification" actually means anything or is some bullshit anyone can hand out.
You still have to do legwork to figure out if a license is just bullshit. Because licensure is almost always controlled by members of the given occupation, there is a tendency for more and more bullshit to creep into licensure requirements over time, stuff that has nothing to do with actual competence, because it creates a barrier of entry into the occupation. Friedman has countless examples in his book.
It's also the signal to customer that the guy they are dealing with did not simply pass a test, but is actively practising the profession in a manner he is supposed to.
If this is your point, sorry but your argument doesn't follow. There's nothing against the certification authority requiring 52 hours of training. And there's nothing against Zenefits cheating if they believe a certified expert is better than an uncertified one (and this is the argument underlying Mr. Friedman discussion).
Certification vs. Licensing is a complex discussion topic, I tend to prefer certifications over licensing, but this is definitively not the point with Zenefits.
On the other hand, Zenefits might not have bothered with certification since it wouldn't have been legally required, or the requirements might have been less silly if certified professionals had to compete with non-certified.
You have to prove this. Also, you have to consider a problem in the way the market works. Insurance brokers are paid by insurance companies through referral fees, not by the final user. If you know something about economy, this should ring a bell: "moral hazard." Or we change the way the market works, but there could be unintended consequences or external regulation is required to ensure the market is fair.
You can outlaw certifications over a year old, but you cannot take the earned certification away. Besides, you cannot take them away mid-year for malpractice. Once you're certified to pass something, you have passed it. You can't go back in time and unpass it.
The main reason I oppose licensure is that producer groups (e.g. insurance brokers) will exert political pressure to add more and more irrelevant requirements in order to obtain a license. Take barbering for example: in many states in order to become a barber, you need to complete hundreds of hours of theoretical instruction in the anatomy of the face and head, the elementary chemistry of sterilization, the histology of hair, etc. Just to cut hair!
In addition, the professional activities that require a license tend to gradually expand due to political pressure. Doctors spend a lot of time doing things that could be performed by a skilled technician, and the result is unnecessarily expensive medical care, and some people not having access to care at all.
Wasn't there just recently an article here complaining about the quality of academic accreditation, or in other words about how those certifications were simply bogus?
Let's say you buy insurance. Let's say that after paying premiums for a couple of years, you come down with some dread disease. You contact the insurance company to tell them that you need $737,248.44 or you'll die from your dread disease. They say, "LOL. We don't do that. So sorry." You visit your broker and he says, "I didn't know! I just printed up a certificate and hanged (hung?) out my shingle. Guess you're out of luck."
Lawsuit time? Hm. I suppose your estate would still have standing to sue. Unless we've got tort reform as well as licensing reform. Anyway, the neat part is there isn't any consequences to the broker. Sure, you could hit him with fraudulently claiming to be certified, but there are all these other people doing the same sort of thing without any certification at all, so it doesn't sound like a major crime. And of course, we're talking about employment benefits, so you aren't the one picking the broker, your employer is...
Here's the question: How would any approach to avoiding that situation not involve something that strongly resembles licensing? (Here's a hint: what is the difference between pulling someone's certification and pulling their license?)
"The only justification for licensure over certification is a paternalistic one: consumers are simply too ignorant to choose their own insurance brokers, even if some are certified and some are not. As Milton Friedman said in Chap 9 of Capitalism and Freedom, this argument "amounts to saying that we in our capacity as voters must protect ourselves in our capacity as consumers against our own ignorance.""
Actually, that's a pretty fair description of what is going, how it's supposed to work, and why. Here's another quote for you: "The doorstep to the temple of wisdom is a knowledge of our own ignorance," which may or may not be Benjamin Franklin. But I suppose the idea that one may not know something, and that the something might be important, is unappealing to many people. Stop and ponder for a moment how much trust you put into the people around you on a daily basis. And most of them don't even have an incentive and opportunity to screw you.
Now, about the 50-odd hour spree of next-clicking...
History is path dependent, and any optimal solution to a problem (or apparently optimal, on theoretical economic grounds) may not be reachable given the previous states of the system.
Have to click next for 50-hours? Probably because the real, physical class takes 50-ish hours to cover the material.
Why have a class at all? Why not just have an exam? (Anyone here familiar with the various industrial certification exams around? Trust 'em?) The exam is also likely pretty simple, otherwise you have no brokers and the insurance sales system becomes very expensive. (Has anyone reading this passed the bar?) So consider it from a liability standpoint: with a class and an exam, a "reasonable person" can be "assured" that the broker has been exposed to the appropriate information and has understood it adequately.
"Hey Bob, you getting logged out all the time? No, I made a macro"
"So here's the training course newbie, and if you start getting logged out all the time there's a macro on the file share you can use to block that."
Obviously they could be evil scofflaws, but this kind of violation can easily happen gradually in a frog-boiling way.
It's interesting to note that the essay only includes discussion of law as it relates to defending startups from incumbents, not as a caveat to the advice: "The good news is, if you get growth, everything else tends to fall into place." Is it the case that Zenefits merely failed to grow fast enough to present a more credible threat to state prosecutors?
1) Sacks was COO when all of this happened. These were specifically lapses in policy and operations. Are you sure he is immune to the repercussions?
2) "[H]uge and growing" as of last year. Every one of these articles discourages new companies from signing up and talented people from joining the company. Trust is a tremendous factor in health insurance, especially when there are many other options on the market.
If I have other options, why go to a company under investigation with a horrendous culture?
3) Based on the state of their operations (poor), company culture (dismal), and customer feedback (even worse), I would push back on them being "well-positioned."
$500 million can buy you a lot, but if culture, brand, and operations were that easy, Comcast could turn itself into a modern company in a few months.
2. Zenefits now has a PayPal CEO, exec staffer and board member plus the backing of A16Z. It is an attractive to place to work and obtain services from.
3. I think those things will come around (if they are even as bad as you opine).
Comcast is a 50 year-old, former monopoly, $140b company. SO not only a bad comparison but a terrific outcome.
These startups have market caps that are larger than thousands of public companies that go through several laws and openly disclosure their financial information.
Not only does this lack information hurt shareholders that are not "part of the club", but also stakeholders that rely on the company in other matters.
http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2674420
"Regulation of unicorns should recognize that outsized power."
Consider that the people & companies investing in pre-IPO U$1B companies are extreme expert investors. They take the risk on.
Now if we're talking about post IPO, then actual financial regulations kick in and market-traders are afforded the protections that they have now (which is still sometimes significant)
Imposing additional regs on a 'privately held' company simply because they accepted enough money to give them a U$1B valuation punishes them for growth.
Additionally, valuations are sometimes voodoo calculations for example (and someone else can check my math) but is someone gave me $1 for 1/10,000,000 of my company, wouldn't that be a billion dollar valuation?
Obviously not a credible one - but - where's the line? $1M for 1/1000? It's still not a billion real dollars.
If you look at linkedin's valuation it's based on current potential for future revenue. But revenue that is like 10 or 20 years in the future. (reference: my foggy recollection of Peter Thiel's lecture in Sam Altman's startup school)
Maybe I'm confused as to how valuations actually work.
Also, stating that `U$1B companies are extreme expert investors` is certainly an overstatement. What often happens is not even reliant on expertise or due diligence, but networks and insider "games".
And regular employees getting paid in options.
"Imposing additional regs on a 'privately held' company simply because they accepted enough money to give them a U$1B valuation punishes them for growth."
No, it doesn't. It shows an acceptance of reality.
Ahhh... That makes more sense to me.
> No, it doesn't. It shows an acceptance of reality.
Fair point. Consider my mind swayed.
I'm not sure valuation is the right meter stick, but as another point in the thread, total $$ raised might be closer to the right answer.
There is probably something there.
How to set the bar would be an issue.
I don't think that regulation would fix anything. And as some people have already mentioned, AirBnB or Uber, have blatantly broke the law and they keep growing and breaking even more laws in various countries.
In the end, what's urgent isn't regulation on their specific industries, but on their practices and obligations as private companies with a massive market capitalization.
You could say the same about Zenefits.
In a B2B business especially, follow very closely and to the letter.
I don't think they can be an insurance broker; customers would have to be incredibly stupid to buy insurance from them.
If they are going to be an HR software company, then do they even deserve that kind of valuation, as their current valuation seems to be base on an expectation of hypergrowth. HR s/w companies rarely have hypergrowth , what with SAP and Oracle owning large chunks of the enterprise market.
'Some investors said Mr. Dalgaard was as instrumental as Mr. Conrad in pushing for steep revenue targets, and that both men’s ambition pointed in the same direction — toward hypergrowth.'
(in fairness, later on, the article says this:
Another person familiar with the board disputed this, saying Mr. Dalgaard, who formerly ran the cloud software company SuccessFactors, was among those asking Mr. Conrad to restrain Zenefits’ growth plans and fix the culture. )
This is the same person that had a glowing profile written about them in the NYT:
http://www.nytimes.com/2015/10/18/business/lars-dalgaard-bui...
With this beautiful paragraph: 'I learned so many things from my dad, but in particular he taught me about ethics and that there is no easy way to get to your goal. You’ve got to be like Lambeau Field in Green Bay and build for bad weather. That’s basically the only way to achieve any type of success.
But you often see with some companies, particularly start-ups, that they’re telling themselves and others a bit of a story, and not being honest about what the real issues are. Instead of taking all that energy and focusing on the core outcomes, they’re just glazing over it and hoping it will be O.K. There is no such thing as a quick fix.'
There's no way to know what the real truth actually is - but, wow, that's quite a contrast between the two articles.
So the “we support founders” mantra may also mean we support founders and ourselves at the expense of employees. Despite all Conrad’s miss-steps, such as the ill-mannered Quora response, I now have a new respect for him. At least he was trying to fight for the employees. Sad to see a16z in this light. With fantasy valuations crashing to reality, repricing options should become the standard. Or you can follow the current SV playbook and hope employees don’t really understand what’s going on with equity.
Being licensed: Sitting at a computer for 52 hours and clicking on it before passing an exam.
What a waste of time. Pretty much an entire week and a half of full time staring at a screen to get a license to sell insurance. They were just skating bureaucracy, plenty of companies do this.
That means people advising others on what insurance to buy where their health is concerned who didn't know what the hell they were doing.
The software made to skirt the licencing requirements is only a subset of the overall issue.
Frankly, I'm getting a little tired with the group of commentators on here that think its a-ok for a company like zenefits to tell people "Sure, you're covered for that in this policy" when they frankly have no idea if that is the case.
Selling insurance advice without a license is exactly like selling financial services advice without a license. And both actions are illegal for very good reasons.
What they actually did was put 5 figures into a computer and pick the mortgage nearish the top with the biggest commission.
I have no idea how complicated health insurance is in the US as I'm from the UK but I'm willing to bet £100 that's what 90% of health insurer brokers do too.
Exactly.
Put client's answers in brokerage program
Choose highest commission in top 10
Recommend product
2. A financial planner or investment advisory is about helping a client gauge what product works best for their particular situation, and being able to communicate the very real downsides of certain courses of action.
3. An insurance broker acts in a very similar way to #2, in that there are some very real concerns that may not be obvious to the layperson that the broker should be providing advice on. For example: what a health insurance product covers, and why (for example) not providing coverage for children in your female dominated company could result in very real losses to your employees, and by extension, you as a company.
>Put client's answers in brokerage program; Choose highest commission in top 10; Recommend product
..is PRECISELY the type of thing that licensing is designed to protect the consumer from.
Group health insurance is extremely complex, particularly in the US where it is really the ONLY health insurance a person has. These are people's lives we're talking about here...you can't wait until you HAVE cancer to find out that your plan doesn't cover it.
The only thing this entire thread is showing is exactly why not having licensed, knowledgeable professionals advising on insurance is a very real concern.
Imagine Google starting today with a protoversion of PageRank.
when you're trying to be a billion dollar company, you have to take big risks. in that context, the risk of getting caught for breaking the law becomes palatable.
when you're trying to create a stable, profitable, but more modest sized company, that risk becomes a threat to your business.
it's a big problem when these types of risks start to make sense from a business perspective, because it's the public, not the people that create this environment, that end up suffering.
Zoolander much?