Theranos and the wake-up call for ethics

2 minute read

If you have been following the story of Theranos, a $9 billion blood testing company that was built on a lie, you have probably come across the newly released documentary, The Inventor, and podcasts detailing the scandal. While there are many lessons and takeaways (for example, the fact that the pressure to succeed and oversell is a reality for many startups), the deep, dark game of deception played by Theranos should be a wake-up call for investors and boards everywhere.

In the podcast, The Dropout, co-workers discuss how founder and former CEO Elizabeth Holmes had carefully crafted her image and deceptively ran the company. She adopted Steve Jobs' iconic turtleneck sweater and allegedly faked her deep baritone voice. Co-workers would catch Holmes occasionally falling out of character and speaking with a higher pitched voice after drinking.

Holmes knew what she needed to do to get noticed. As research suggests, when men or women, deliberately lower their voices, they are perceived as more dominant. She composed a board of government veterans instead of doctors or scientists, knowing that they wouldn't challenge her on the feasibility of the technology. She also made sure the board didn’t have a regulatory or oversight function, giving it merely had an advisory role, which made it ineffective at detecting the massive fraud that was occurring right under its nose.

Theranos claimed they were working on a device that could perform a traditional blood test with just a single drop of blood, analyzed almost instantly. However, due to the complex machinery required to perform a blood test, including robotic arms and needles, it was physically impossible for it to work properly in such a small box. This led to wildly inaccurate testing results, and people being falsely diagnosed with serious diseases. Holmes and her team then worked on creating an illusion – diluting the finger prick blood tests and manually running them on common, commercially available Siemens machines in a secret basement lab. One employee recalls her experience, saying “I don’t feel like I was scammed. It started off as one lie, and snowballed into this really crazy situation.”

Holmes created a culture of paranoia so that her own staff couldn’t piece together the puzzle of the lies. Although few questioned the ethical ramifications of their work, given Holmes' celebrity-like reputation at the time, many employees began to feel as if they were the ones missing something. She would prevent teams from communicating, leading to duplicated work and misdirected initiatives. This exacerbated the problems with the devices and stunted progress.

Theranos has become a case study, leaving directors and investors alike contemplating the red flags others may have missed. According to an article by Inc., investors and potential board members should verify company claims with external sources, audit financial statements, discuss what process of due diligence others have done before joining, and conduct a character check by talking with the CEO’s former colleagues or investors.

While Theranos was a wakeup call for companies in the Valley, reflecting on the ethical consequences of the “move fast and break things mentality”, it ultimately serves as a warning to investors and board members about the destructiveness of unethical behavior left unchecked.

This work has been funded by Viewpoint Foundation.