It's so convenient for everyone if this is all on Conrad. Mr Sacks did an excellent job of throwing Conrad under the bus, but as COO for 16 months, a board member and with a desk adjacent to Conrad and a seasoned guy, it strains credulity that he didn't know. There's some schaudenfreude here (and an anonymous account) because these guys all acted like they were smarter than everybody else. I hope regulators do a real investigation and I suspect Mr Sacks will come out more culpable than he would have you believe.
My guess on this situation... You have a group of people sitting around the table saying, "If we do nothing, the value of the company goes to zero. We have to do something visible and credible." Conrad had to agree to jumping on his sword - as the largest shareholder, he has the most to lose if the company goes under. So he jumps on the sword, and lets everyone kick him while he's down, because it increases the likelihood that the company survives.
I have no real information though, so for all I know he could have been stabbed in the back instead.
This isn't about whether Sacks knows or had involvement - it's about how to repair the situation. Conrad had to be the fall guy and Sacks is the best replacement available: already hired, has leadership experience, knows the business, and has plausible deniability via Conrad.
It's interesting how Uber, Airbnb and Draftkings blatantly broke laws and won. They set the precedent that if you're growing fast enough, the laws will change to fit you.
Didn't work out that way for Zenefits. They seemingly lost.
I think the reason that {Uber, AirBNB, DraftKings} succeeded in flouting the law is that they operated in industries that are consumer-facing, and where the cost of regulation is obvious to consumers.
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.
Most Taxi regulations are good for the public not the consumer.
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!"
>Go back and you find people wanted to cut the number of Taxii on the roads.
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.
>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.
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.
"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."
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.
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.
I suspect it's not just for the consumers but for the image of the city. Cabs are one system that visitors interact with immediately, before nearly anything else. Grotty cabs make a bad impression.
I agree, but most consumers probably see them as harmful, and many consumers are dissatisfied with state-sanctioned monopolies on taxi service. The actual effect doesn't matter to the consumer, only the perceived one.
Exactly, but I'd phrase it a bit differently: when it comes to taxis and apartments, regulations are bad for you, the consumer, and good for the people in your community (taxi drivers, neighbors), while in insurance, regulations directly protect the consumer.
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.
For the most part I think you're spot-on, although it's worth emphasizing the nuance that not ALL taxi/hotel regulations are bad for the consumer.
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.
I would argue that many (most?) housing regulations are good for the consumer. My landlord has to provide me with a safe and structurally sound place to live, which is good for me. If my heat breaks in the winter he's obligated to fix it, he can't evict me and leave me on the streets on a whim, or turn off my water if I am late on the rent, etc. Laws around security deposits are usually good for the consumer as well. Nobody wants what is referred to as a "slumlord."
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.
This is a little simplistic. I won't argue that these regulations have morphed into things that are overall negative for the consumer, but the reason they where introduced in the first place is because you had instances of people actually being killed by unregulated nefarious actors. That is certainly negative for the consumer.
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.
Flamebait aside, is it that hard to see the material differences in the classifiers between your example of a "dis/favored class" and the classes discussed by the GP? Hint: one has classifiers that one can eventually overcome, and the other doesn't.
Regardless, comparing regulations imposed on modern industries to Jim Crow is nothing more than oblique tedious posturing that ignores the full picture of what Jim Crow laws were.
I'd be interested in hearing a principled argument why "right race" is a bad way to choose a favored class for rent seeking, but "politically connected", "nepotism" or "random chance" (as pron was advocating for) is a good way.
Further, suppose we brought back only the economic protectionism bits - would that change things and make Jim Crow somewhat more acceptable? If not, bringing up the "full picture" seems like a non sequitur.
Let me clarify the question I'm asking. Jim Crow makes me emotionally angry, more so than taxi regulations. But I don't have a reasonable principle to back that up. On a rational, rather than an emotional level, I can't actually justify why Jim Crow protectionism would be unacceptable but taxi protectionism is acceptable. Can you?
Roughly because the evidence indicated that those regulations were intended not to protect whites from black competition, but ALSO and perhaps more importantly to preserve a economy in which "white trash" was prevented from forming meaningful economic relationships with blacks.
The whole point about any form of cronyism is to prevent people from engaging in trades they otherwise might.
Further, suppose we brought back only the economic protectionism bits - would that change things and make Jim Crow somewhat more acceptable? (As asked in my second paragraph.)
Suppose we literallytook some sort of randomized occupational licensing. I.e. suppose we have a cutoff of 10,000 taxi drivers, selected via shuffle(applications)[0:10000]. Now suppose we replace that random process with a racist one - first we allocate the 10k slots among white/asian people, and allocate the remainder among non-Asian minorities. Would that be morally acceptable and have the positive economic effects that pron claims?
Why is the first process morally acceptable and economically beneficial but the second one isn't?
if we have meaningful group identities. protectionism established by preventing dis favored groups from entering a market causes both the general harm a random allocation would from inefficiency AND the additional inefficies imposed on the targeted minority.
Asking society as a whole to bear a cost of inefficiency in exchange for some safety is less bad than imposing both that and the additional cost on a non-consenting minority.
For a methodological individualist it'd be harder to make a case.
In both cases the costs are imposed on a non-consenting minority - in the first case the minority is chosen by math.random(), in the second case the minority is chosen by genetics.
It sounds like you want to appeal to some principle that certain minority groups (those with "meaningful" group identities) deserve special moral consideration? Supposing that nerds or just some protectionist lottery victims created a "meaningful group identity", would that make them deserving of protection?
You are right that for an individualist (which I am), this is a lot harder. So I simply wouldn't share your moral conclusions, but I'd at least understand where you come from.
Your implication about economic protectionism being a net drain on society regardless of the classifiers could have been made without using a ridiculous example such as Jim Crow -- the non sequitur of Jim Crow lies not with my response, but with yours.
I can't and won't argue that "politically connected", "nepotism" or "random chance" are the best way of doing things, but "ambition", "ability", and "intelligence" play a non-negligible (at least non-zero) role in how much prosperity one can achieve in the taxi, real estate, etc. industries. Under Jim Crow style regulation, "ambition", "ability" and "intelligence" have zero impact on whether or not one can achieve one's fullest potential. "Right race" (a.k.a "random chance") is the only way to end up maximally successful under Jim Crow. Your argument that modern regulations are akin to Jim Crow falls flat with respect to how fungible the upward mobility is in the face of regulation.
If you look at it systemically, the puzzle disappears. It's not hard to see that the system Jim Crow laws were part of was more harmful than the system taxi regulations are part of, however one dislikes taxi regulation.
Feelings like the one you describe are often better at giving us information about systems than an analytic view (e.g. measuring comparables, in this case comparable regulations). Emotion can be irrational and take us further from the truth, but it can also take us closer. It's a question of the quality of the emotion, and one can learn to distinguish these things.
As I asked in my second paragraph, what if we got rid of the system but brought back the racist protectionism only? Would that benefit the community and all the other good things that are suggested above?
Being very concrete, I'm suggesting that we take any protectionist system which uses a random number generator (e.g. first 10,000 people to apply get a sweet gig, everyone else is screwed and forbidden from economic competition) with a different random number generator (whether a person was born $rightrace). Nothing else.
My emotions say the same thing about non-systemic racist protectionism, although your proposed solution suggests this should be ok. So I don't think your solution works.
This is a trivializing form of argument. You can't abstract things out of their original contexts like that without destroying their meaning—at least not at any level higher than, say, the lambda calculus.
Why can't you? Are you suggesting that reason doesn't apply to morality or the real world?
By abstracting in this way, we have a way to determine whether the principles we claim are important really are. In the case we are discussing, it seems like some other fact or principle from the original context is important. Which one is it, and why?
If we can't figure it out, maybe we should consider the possibility that our emotional/cultural baggage is misleading us. At the very least we should have less confidence in our beliefs than before.
Your critique seems very anti-intellectual to me - the claim that you can't reason about things outside their context seems like a cheap appeal to retreat back to our emotional conclusions. Am I understanding you wrong?
> I'm suggesting that we take any protectionist system which uses a random number generator
You're right, if you take any complex enough formula, and hide most of its variables and consider just the result modulo some number, it would look like a random number generator... And I think understand now why it may be hard for some people to see the variables, or why they'd insist on considering only some of the digits. What was the saying? "It is difficult to get a man to understand something, when his ideology depends on his not understanding it". But it goes beyond that. I really think that any interaction that is based on exercising judgment or negotiating a contract -- things that underlie most human interaction -- seems arbitrary to you. You need rules that can apply universally and without judgment. To you, judgment means too many variables that break the elegance of a simple formula; moreover, those are variables whose values are often hard to estimate precisely enough, and so the result can sometimes go either way, which to you seems like it might as well be random.
And maybe I was wrong, and it's not about your choice of axioms, but that, like colorblind people, some things about human interaction escape your perception, and you fail to see why people would "randomly" favor one grey wallpaper over another.
> your proposed solution suggests this should be ok
Yes, I too am puzzled as to why dang is so much in favor of non-systemic racism.
> But I don't have a reasonable principle to back that up.
Sure you do. Just try to find your hidden assumptions and axioms, and try to come up with alternative ones. Remember, for every reasonable assumption, the opposite assumption may be just as reasonable. In this particular case start asking yourself what does a "favored class" mean? Who favors it? Why? How is the class formed? What does "protection" mean? From what? To what end? Why is that end desirable (or not)? And every time you deem something good (or bad), keep asking yourself why, until you get to your personal set of axiomatic values[1]. Of course, when coming to a question of fact ask yourself, am I sure this is a fact, and if so, are there possibly other pertinent facts that I may be unaware of?
> Can you?
I can easily, but I could also come up with a reasoned argument to support your point of view[2]. The result in this case, as in many others, is fully determined by your choice of axioms.
I could fully argue both sides of any ethical debate, but I support the one side whose required axioms coincide with mine. I would like to believe that my personal choice of values (which has changed considerably over the years) is at least partly a result of my effort to study society in earnest (i.e. semi-professionally), and my values are almost universally shared among those who have spent years studying society, while those with opposing values usually have not. So I can only hope that my values are supported by some measure of external "truth", but, of course, I can't say that they are objectively more "correct" than yours.
BTW, I'm not advocating for randomly chosen favored classes, but for protecting all groups that are disadvantaged by our current choice of economic structure from further unfair harm which said economy may inflict on them.
[1]: And don't just say "freedom", because freedom alone is a self-contradictory value (there can be one completely free person, but not two) that must be further qualified by other values. So if you think freedom is your only axiomatic value, try harder and you'll find more.
[2]: Pretending, of course, that you'd chosen a better example than Jim Crow, where members of the favored class were former chattel slave owners who "protected" themselves from treating as human the multitudes of victims they had violently abducted and robbed (and raped and killed) for two centuries to enrich themselves. But I think I can see past that poor choice of an example to understand what you're getting at.
Well, that's a tradeoff. If the number of medallions is kept up with demand (as is the case in many places), I'd argue that some mechanism to protect the livelihood of those who can't obtain better jobs is a net positive, as it allows the less fortunate to get ahead, especially in an economy where decent blue-collar jobs are getting harder and harder to come by. It's not like taxi drivers are fat cat millionaires who get rich off the back of poor consumers.
Generally the medallions are owned by someone else invariably rich (or lucky to get it early) and then rented out to the taxi drivers. The taxi drivers start doing shady things in order to pay the rental costs and earn a living. Then various sides get into the game of how many medallions should be available in the market to play with the supply/demand curve and maximize their own profits.
I think Uber is owned by someone much richer than any taxi company owner, and the difference is that the shady things in Uber's case are done not by the mistreated employees but by the owners themselves (often against their own employees), and they don't do it to earn a living. I am not saying taxi company owners are saints, but Uber is by no means better.
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...
I don't very much care for Uber. I don't want them to have a monopoly in the taxi market. Hopefully a more open taxi industry with competition allows for improved quality.
If Uber ultimately goes public, then the owner will be society. The medallion owners largely were individuals who had the access to credit and leveraged in as the values rose.
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.
> If Uber ultimately goes public, then the owner will be society
thats a ludicrous reductionism as to what "publicly traded" company actually means and it discredits the rest of otherwise reasonable argument to say this.
From failing operations in Venezuela to gigantic state operated industries in China, I see a lot of examples of nationalized & government operated companies where the end beneficiaries are the insiders who get to re-allocate wealth to themselves at the expense of the rest of their citizens.
> If Uber ultimately goes public, then the owner will be society.
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.
Sovereign wealth funds, pension funds, both public and private, own immense quantities of stocks in publicly traded corporations. If the trend of give-everything-away philanthropy continues, even the most tightly controlled corporations should continue to spread out through society.
If Uber goes public, nothing significant will change. The same creepy people will be in charge, the CEO will still be the same guy who's advocated breaking laws and sending PIs to stalk reporters.
I guess that depends on the values you hold, doesn't it? For many of us, there are some values that occasionally trump that of unrestricted competition, and many of us believe that sometimes free competition reduces freedom rather than increases it.
Or even more accurately, many of us think that it is possible to conceive of things worse than rent-seeking, and so in some circumstances it is possible that a reasonable amount of it may be the lesser of two evils (just as accepting killing in self defense is not the same as "supporting murder"). Others, of course, may believe that there can be nothing worse.
The other difference is the consequences of the laws being broken. Insurance industry laws are much stricter in enforcement than rental or auto laws. Lawmakers may look the other way on taxi or rental regulation, because they realize there's a market shortage. They're much less willing to look the other way on insurance (or any financial services) fraud.
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.
They are also backed by the financial industry and are considered financial and legal instruments.
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.
It's more the 'unions' than the 'regulations'. It's in the best interest of any union to keep prices inflated artificially by utilizing government regulations, like the medallion system.
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.
I dont think that Draftkings blatantly broke laws. The Unlawful Internet Gambling Enforcement Act of 2006 specifically excluded fantasy sports in the definition of gambling.
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.
Indeed, DratKings and Fanduel realized you could create a new type of fantasy sports competition that was still explicitly legal but also allowed for regular, compulsive gambling. It was actually quite clever. The fantasy sports gambling exemption was conceived for year long fantasy sports contests where typical participants bet small sums annually rather than casino like contests that allowed people to bet repetitively.
There is massive difference between aggressively renovating an outdated industry and committing fraud.
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.
I don't think Uber and Airbnb have won at all. There is still tremendous push back against them, neither are public companies, and Uber specifically is burning cash at a tremendous rate.
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.
You might enjoy this post from Stratechery that discusses how strategy related to startups and regulations might be different for a Zenefits compared to an Uber:
Not to defend breaking the law/rules in any case, but there's a big distinction here.
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.
They voluntarily admitted to it. Considering the macro just prevented auto-logout, would that even have ruined them? Im betting they could have quietly stopped using the macro once it was identified as a problem and gotten away with it.
I wonder if this is really just the result of infighting more than regulation.
Yeah the hack was just a pretext. The explanation for why everybody hates the former CEO isn't difficult to find in TFA:
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.
I don't think Draftkings or Airbnb have 'won' - they are both facing significant legal challenges in various states (and in the case of Airbnb, globally) - it's not clear that either of them will emerge with a viable business.
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].
I'd keep Zenefits in the winner column. In fact, after they clean things up, which will be relatively easy (compared to achieving hypergrowth), they will be in better legal shape than the others.
> They set the precedent that if you're growing fast enough, the laws will change to fit you.
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.
It seems like a recurring theme in these "scandals" is that if you put too much pressure on your executives, they end up either quitting or doing something they shouldn't be doing in order to keep up with your demands.
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.
It's because VCs would rather their investments would take risks then not. With risks, at least there is a chance you will accomplish great things (and there is only a chance you will get caught if your risk wasn't fully above the board). But if you don't take risks, there is no chance of accomplishing great things.
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.
"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.
>“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.”"
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.
I wonder why "The Macro" doesn't also highlight the perils of clueless regulators imposing moronic laws on HR departments.
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 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.
Insurance is important, but that doesn't mean a license should be legally required, for a few reasons:
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.
1. I was just stating my opinion. If somebody wants to go to an incompetent insurance broker, or do dangerous drugs, or jump off a cliff, I think that should be their right since those decisions don't significantly affect anyone else. Again, just my opinion on an ethical matter, a reasonable person could disagree.
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.
"I was just stating my opinion. If somebody wants to go to an incompetent insurance broker, or do dangerous drugs, or jump off a cliff, I think that should be their right since those decisions don't significantly affect anyone else."
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.
I think you're wrong. I think that all evidence shows us that it's much more effective to educate the consumers of a good/service than to educate the producers. An educated and informed public is the most powerful force there is in guaranteeing a quality product.
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.
You cannot realistically expect every person to know the ins and outs of every product. I cannot be an expert on insurance, mortgages, food safety, automobiles, mechanics, etc., and it's ludicrous to say that everyone should be. You know how dumb the median person is? Half the people are dumber than that.
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.
The problem arises when you ask yourself the question: "Where does this customer education stops?". Of course it is better to have a public competent in buying insurance, food, housing, financial products, health treatments, etc... But you are requiring to put an amount of knowledge into every head that simply cannot fit.
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.
As long as the insurance agent selling you a policy has adequate insurance to cover any liability that arises due to their lack of training and experience, it's all turtl^H^H^H^H^Hgood.
But isn't it reasonable to require studying materials for a certain time? I mean, the goal of s course isn't to pass the exam, it is to gain knowledge on a complex matter. Spending 50 hours studying something will definitely lead to better retention and understanding than 20 hours, even if 20 hours would be enough to pass the exam.
"Spending 50 hours studying something will definitely lead to better retention and understanding than 20 hours, even if 20 hours would be enough to pass the exam."
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's quite possible for a person to study for 50 or 100 or 1000 hours and not possess that knowledge, or to study for 3 hours and know it well. People learn at different rates. That's why we have exams - to measure if the person actually has the knowledge.
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?
Presumably, if the exam is well-designed, you can't pass it without understanding the material, which you could learn over however many hours you like. Requiring both an exam and a mandatory number of hours seems redundant.
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)
All you propose measuring is the individual benefit to sitting through training. That's a terrible way to measure the social cost of a bad regulation.
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.
Yeah, I agree it isn't a particularly useful measure. But it was mostly aimed at evaluating whether the regulation in question is perilous or not.
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.
And what's the social cost of unlicensed, untrained people selling insurance? What's the societal cost of people who have not studied selling insurance that they might not understand?
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.
Have you not read any of the articles? The cheating on the time is just one issue. They had unlicensed brokers selling insurance in two states, which is an actual crime.
Welding isn't some mystical craft. Most people would be competent for many welding tasks after that much actual time spent welding. If the "training" consisted mostly of clicking "Next", however...
As an aside on the subject of welding, with less then ten hours' experience I could weld together two plates of steel (about 3mm thick) such that they withstood having the crap beaten out of them for a hour with a hammer with no visible issues at the weld. Sure, it's a very simple weld in easy circumstances and matching materials, but as you say, it wasn't anything mystical.
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.
Do all states have the 52 hour requirement? Do they require someone that has obtained a resident license in another state to do as much work as someone who has no license?
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?).
> I think most people wouldn't be very good at welding after 50 hours of training and practice
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.
Rhetoric aside, isn't this really just another example of "... Highlights Perils of Hard-Charging CEOs"? It's that simple. We can wander far from fast-growing startups and find the same kind of conduct anywhere in business.
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.
It's FTFA: "There was a laxity about rules and decorum. Zenefits offered beer kegs in its offices, and in the Scottsdale, Ariz., office, people freely imbibed during the workday."
Except that, taking VC money at high valuations is a huge factor in options open to the CEO and/or founders. All that money comes with a lot of obligations, hyper-growth being the biggest one of them. VC money and valuations are absolutely part of this equation.
You're totally right about VC obligations ... but that burden exists with any kind of financing. Let's suppose my grocery store guy has a $300,000 loan from Bank of America, with interest due every month. He needs to meet payroll, buy his supplies and service his debt. He's getting sweated by his financial backers just as much. Maybe more so.
A bank loan doesn't come with board seats a large equity stake in your company and is not premised on fast growth of the existing business. If the business owner decides that the current size of the business is just right to keep everyone in the company employed and make the loan payments, they're good. A VC backed company doesn't have that option.
TL;DR VC capital is very very different from a bank loan.
Being good at starting a company and raising funds is no guarantee of being any good at running a company. Add to that growth from 15 to 1600 in two years is also likely to be a massive failure. Add to that insane pressure from investors to do the impossible (that you promised). I've seen a lot of people crumble at a much smaller size.
Come on now, NYT, there is virtually no evidence of corruption at startups being any worse than any other business or human endeavor. NYT, you're just spreading FUD because people look to you for guidance and you need to respond to their fear.
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.
Alternative title: "Zenefits Scandal Highlights Perils of Excessive Occupational Licensure". What exactly is the purpose of requiring a license for selling insurance? If consumers desire some assurance of quality in their insurance brokers, then certification, not licensure, would be sufficient. 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."
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.
I don't disagree with anything you've said here; I wasn't trying to say that insurance is unimportant or simple. My point is that the only justification for licensure over certification is a paternalistic one, and I would say the same thing about both barbers and medical doctors. Maybe I don't have enough space to make a convincing argument here, if you're curious I definitely encourage you to pick up Milton Friedman's Capitalism and Freedom and read chapter 9; it's a pretty entertaining read.
Since you would have disagreed, can you explain why you think 52 hours of clicking "next" is a necessary step in becoming a broker?
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.
What the law actually requires is clicking for 52 hours.
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?
I'm going to go out on a limb and guess you have no idea what the law actually requires in detail. It's ok neither did I. Here's an example of what it looks like, there is a lot more on the linked pages, which collectively comprise the actual requirements:
> 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.
You can't just pass tests to get an undergrad degree
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.
Getting my degree many, many years after entering the field
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?
Academic institutions are paid by the credit or by the year. Of course they will insist on receiving a minimum amount of money before giving out the precious certification.
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".
"What the law actually requires is clicking for 52 hours."
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".
It's not an exam to pass. A license must be earned continuously by practising within law. A license would be taken away even if you have the best knowledge but are even slightly off on ethics of practice.
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?
Scroll up: the question is not whether Zenefits should obey dumb laws. CPLX said he would argue that the law in question isn't dumb.
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.
This is not SAT unfortunately. Your score and your behaviour are both needed for a license. Besides, in situations like these attendance policy is important. You can't test every single edge case possible on a test. The state has to answer if a license holder says "I did not know X." As a taxpayer, you would question why the hell does a person who does not know X has state license to practice?
Unless you're asking every person to recite the whole textbook, the only way to be sure is an attendance policy.
Attendance policies and requiring 52 hours of "next" clicking also don't ensure that a person knows all the edge cases.
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.)
the question is why 52 hours of clicking is a good law
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"
It doesn't matter. The requirements of license seem to be 52 hours of mandatory study/attendance and passing the exam. Zenefits clearly cheated on one of the requirements.
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.
The question we are discussing in this thread is whether or not it's a dumb law. Your comment simply reiterates that the law exists, which no one disputes.
52 hours of study to start a whole new career do not seem redundant to me. Specially when the field is highly sensitive, legal repercussions are huge, collateral damage arising out of wrong communications can be millions of dollars.
Besides, the "redundant" requirements just caught a person trying to cheat -- Zenefits. So you cannot even claim they aren't working.
Milton Friedman's argument is wrong. Licensure requirements are voters delegating due diligence to a trusted body because they acknowledge their own ignorance. I have neither the time nor the inclination to carefully read an homeowner's insurance agreement to see if someone is trying to screw me, or to figure out if a "certification" actually means anything or is some bullshit anyone can hand out. As a voter, I'm happy to put someone else in charge of doing the leg work, so I can buy insurance, buy groceries, eat at a restaurant, etc, and be assured my interests are at least minimally protected.
> Licensure requirements are voters delegating due diligence to a trusted body because they acknowledge their own ignorance.
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.
The reason for license is that it can be taken away. In cases of malpractice of selling crap for brokerage, you can't simply uncertify a person. But you can take away their license.
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.
Maybe I should have defined what I meant by certification. The only difference between a license and a certificate is that you must have a license in order to legally practice, while a certificate is optional. There's no reason that a certificate couldn't be taken away just like a license if, say, someone fails an annual test.
Sorry, but I've troubles following your argument in this case. What you are basically calling for is one or more certification authorities that certify that person A is capable of performing a certain task. Am I right? This would replace required license. The difference is basically that licenses are mandatory, certifications are optional, and that (but I infer this from your Friedman's quote) certification authorities could compete.
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.
Ha, maybe I just used this as an opportunity to complain about licensure; it's true that if Zenefits had cheated in order to get a certification it would still be illegal, and Zenefits would still have had a (smaller) incentive to do so.
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.
> 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.
No you can't take away a certification. You can make it certified every year. But a certification exists to certify that you tested OK in 2014, for example. You can't take that away because you can't say he did not pass the test.
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.
True. I think we both generically seem to be saying the same thing. The disagreement seem to be on the topic of whether it should be compulsory or not. I do believe that it should be regulated and compulsory. It's much simpler to teach 300 million people to just check for a license than to teach them about how to vet your broker.
Checking for a certification should be just as easy as checking for a license. The brokers with certifications are damn sure going to let you know they have one!
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.
No, that's not an alternative title. Do NOT go around excusing their behavior by claiming they were forced to by "excessive licensing". They knew exactly what they were doing. The responsibility is entirely, solely, 100% on them, and no one else.
"Alternative title: "Zenefits Scandal Highlights Perils of Excessive Occupational Licensure". What exactly is the purpose of requiring a license for selling insurance? If consumers desire some assurance of quality in their insurance brokers, then certification, not licensure, would be sufficient."
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.
It sounds like you might be in favor of certification, as long as a few conditions are met. There definitely should be a steep penalty for falsely claiming to be certified (felony fraud?). You also shouldn't be able to just print out a certificate and hang it up on your wall, just like you shouldn't be able to print out a license.
It does seem to be low scale cheating but a culture of writing and distributing internal software to cheat on tests required for certification sounds toxic.
Someone correct me if I'm wrong, but I believe they were cheating on the broker license course, not the exam. It would be similar to skipping a class with an attendance policy because you already know the material.
It still shows an incredible amount of unethical behavior, and more of this pattern of "I'm a startup! I'm special! The law shouldn't apply to me!" Special snowflake syndrome, just exhibited by a company.
And unlike skipping a class, the people negatively impacted by the cheating aren't the student. That in itself is a vary significant difference, without considering the fact that they sell health insurance.
We don't know how formally it was distributed. "Oh crap this is frustrating, I keep trying to do the course while I work and it keeps logging me out. Maybe I can whip up a macro..."
"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.
If we are to use this [0] definition, then "Hypergrowth at" can be omitted. It seems like a better title would include "in highly regulated industries."
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?
This article is terrible. The takeaway is the hypergrowth ultimately overcomes. Cleaning up the mess will be comparatively easy. Zenefits flouting regulations was silly and didn't appear to be necessary. With Sacks at the helm, a huge and growing business and $500m in the bank, Zenefits is very well-positioned.
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.
1. Sacks has a sterling reputation (and a JD from U of Chicago). He's immune.
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.
Regarding unicorns (> U$1 billion valuation), the U.S should implement certain regulations.
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.
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.
Sure, valuations are "tricky", but you could still impose regulations on the amount of invested capital (e.g. only regulate after >U$200M is invested).
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".
"Consider that the people & companies investing in pre-IPO U$1B companies are extreme expert investors"
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.
Enron was a public company, Lehman was a public company in the financial sector (even more heavily regulated), Volkswagen is a public company...
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.
These are just anecdotal examples. Hundreds of unmentioned public companies have faced hurtful consequences that unicorns didn't have to worry about.
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.
The thing with regulation is that you have to fund the agencies that enforce them. If you keep with the Republican, "free market! Anti-regulation" thing of defunding these regulatory agencies, then of course they're going to be flaunted.
A third of the 173 unicorns in Fortunes 2/1/16 list are Chinese. I only recognize a few of the big name ones.
If you thing the US has accounting and valuation issues, wait for the Chinese unicorns to pan out.
It is unfortunate that the public doesn't know much about insurance or how it's regulated. While what Zenefits did was wrong in several cases, there are some important things to understand:
- This macro program didn't have anything to do with whether an agent would/could pass an insurance exam. That's separate and in order for someone to practice, they need to pass the test.
- If this training program were so critical to understanding and effectively selling insurance, why wouldn't all state adopt it?
- The unfortunate fact is that the details you must study and know to pass the test have very little do with how you will sell insurance. The study packets, courses etc. do not prepare you in any way to sell these products better. Actually a lot of the test talks about annuities and things completely unrelated to medical insurance.
- The licensing issues largely relate to non-resident licenses, not the actual resident license where the test is required to pass. It's a common practice in brokerages across the US to get licensed when business is closed or about to be closed in the different state.
- If you want a comparable, lawyers obviously have to pass the bar to practice. But they can actually practice legal advice before ever passing the bar as long as they are working under a licensed attorney. This is how many pro-bono cases are worked by students in law school etc.
So what will Zenefits eventual business model look like if they survive this ?
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:
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.
The most telling quote for me was “The two men also differed over whether to address employee morale by re-pricing stock options to the new lower valuation, according to people familiar with the matter. Mr. Conrad favored the move, but Mr. Dalgaard believed it would train employees to expect a re-pricing any time the company’s fortunes changed.”
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.
At the center of this 'scandal' is a program that prevents auto log-out during license training.
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.
At the centre of this scandal is a company selling insurance with unlicensed brokers.
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.
I worked with mortgage brokers for a while. They had a big exam, all complicated and they were supposed to be able to advise.
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.
Your comment just drips with enlightening anecdotes and interesting exposition explaining how picking health insurance is so much more complicated than all the other financial advice that today is basically little more than:
1. Mortgage brokerages are not financial advice brokerages. A mortgage broker finds the best deal for the consumer, usually for products that are more or less the same.
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.
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.
I don't understand what all the outrage is about. The online training keeps you logged in for a period of inactivity that COUNTS towards your 52 hours, which is perfectly legitimate. All they did was create and use a tool which extends this period of inactivity. How in the world is it that this is outragous in any way? This is a very minor fault, certainly not worthy of all the sensationalism that NY times has created, once again.
