An Open Letter to Zenefits

By Bradley Tusk  |  March 9, 2016

It’s clear that a culture of ignoring both regulations and regulators existed at Zenefits, but it is to their great credit that they are taking firm steps to solve the problems at hand. With that said, over the long haul, addressing the immediate problems is only the tip of the iceberg. While their main focus today is likely restoring a sense of order to the company, they are obviously going to continue to grow, innovate and disrupt an old line, inefficient model with a better approach and this means, unless they take the right steps, the bumpy ride is not yet over.

They are undoubtedly going to face regulatory and political challenges in states across the country over the months and years ahead. Some will be legitimate. Many more will, sadly, be nothing more than attempts by their competition to slow your growth and progress. What they have ahead of them as a company is a bitter reminder for everyone of how important it is to properly define which is which.

Regardless of the current changes that have been put in place at Zenefits, regulators will use the past several months and any Zenefit transgressions as an opportunity to investigate all other parts of their business model vs. every part of the law, no matter how esoteric. Meanwhile, entrenched interests are not going to shake their hand, smile, and say “let the best company win.” As we’ve seen with taxi medallion owners, auto dealers and hotels, it’s just the opposite — many will do what every entrenched interest does: concoct every imaginable new requirement, rule and process to stop them from succeeding.

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How does Zenefits comply with clear rules and regulations, show the world that under new leadership, it will be different and better, and while not surrendering to every individual roadblock erected to limit their growth and activity in state after state? Fortunately, they are on a well-trodden path, and the following examples may help.

(1). There’s a difference between regulation and regulators, and knowing what drives the decisions of the latter is critical: Unfortunately, regulators are all too often political in their approach. This, coupled with having the freedom to espouse their own views about innovation and regulations means there is not as much consistency as there should be. The bottom line: every regulator behaves differently therefore it helps to know exactly what moves them and why. In the recent battle between Uber and New York City over limiting the growth of drivers, two things were abundantly clear: the TLC and New York City Council were initially acting at the direction of the Mayor’s office. But why? Were there genuine policy concerns? Perhaps. But they were also acting in response to pressure from a major political supporter of Mayor de Blasio, specifically taxi medallion owners. It was clear that appealing on the policy facts, no matter how favorable, were not at issue. The only way to win, was to shed light on a small group of major campaign donors who were attempting to hijack the law to further their own interests. By taking this issue to the public, and mobilizing riders (who loved the service) and drivers (who based their livelihood on the service), Uber was able to generate enough pressure to get the proposal withdrawn.

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Although there should be a more consistent approach to regulation that encourages new businesses to flourish, there is no one size fits all approach that works. The better startups fully understand the perspective, views and biases of each regulator, the better they will be positioned to comply with the law without being subject to constant harassment from their competitors.

(2). Who are your allies? It’s hard to win when it’s you vs. the world. But it doesn’t have to be that way. When problems arise in each state, and when startups start facing new anti-competitive roadblocks, they need help pushing back. This seems obvious but rarely do startups — even well financed machines — have the capacity or wherewithal to focus on building a coalition of supporters in key markets that will mobilize on their behalf. In the case of Airbnb, which has faced barriers to their business model in cities large and small around the world, that meant mobilizing their hosts. Especially since the defeat of Proposition F, Airbnb has made a concerted effort to put a human face to their business, highlighting hosts who have been able to keep their homes as a result of home sharing. More importantly, Airbnb has led the charge to organize hosts into a meaningful political force, connecting as many as tens of thousands of voting residents in their cities to each other and giving them the tools to mobilize independently when called upon.

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Zenefits is incredibly well positioned in this respect. Since many of their customers are small businesses, they can be rallied to defend the company in different ways, even if it’s mobilizing customers to email, call or tweet at regulators and elected officials. There may be no more media friendly or potent political force in the United States than hundreds of thousands of small business owners, airing their frustrations and rising costs due to ill-conceived regulatory restrictions. These problems typically can’t be solved alone with lobbyists or lawyers. It is instead imperative to demonstrate real support from real people.

(3). Be a consistent image beyond just smart first steps. Zenefits first set of choices and even their new motto are all good steps. But everyone is contrite when they get in trouble and everyone pledges to act with integrity. Zenefits needs to prove that. There’s a reason why big companies engage in public-private partnerships, CSR initiatives, and other activities for the public benefit. This could mean working with local elected officials on new public policy initiatives, as Goldman Sachs has done with social impact bonds, or AT&T has done with free wi-fi in public parks. It could mean engaging local non-profits or community groups to provide free advice and products, as Google (and many, many other tech companies) has done with Google for Nonprofits. It could mean a board of advisors who are experts in good government, business ethics and regulatory compliance, as Uber and FanDuel have both done. A strong first step with nothing consistent behind it will ultimately both fail and undermine the seriousness of your attempts to change course. It is also, simply, the right thing to do as a good business citizen.

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The line between appropriate regulation and obstructionism isn’t always clear. Neither is the line between legitimate concerns and regulatory capture. And the task of applying outdated regulations to modern innovation can be legitimately difficult. Ignoring the rules should never be an option. But surrendering to every roadblock thrown up by the old line competition shouldn’t be either. Once they complete the first task of restoring order at Zenefits, tackling these challenges is the next frontier. It won’t be easy. But they are off to a good start.