In January 2022, Holmes was found guilty on four charges of defrauding investors, and in November she was sentenced to over eleven years in prison. US Treasury Secretary George Schultz, media tycoon Rupert Murdoch and America's richest family, the Waltons, were among her backers. His family lived next door to the Holmes family for years, but they fell out when Theranos sued him over a patent dispute in 2011 (it was later settled). Published online: March 30, 2022. Brain Scans on the Witness Stand: Revolutionizing the 'Reasonable Person' Standard, Investing Responsibly: ESG and the Well-Intentioned Investor, The Stakeholder Podcast: Leadership, Inequality and Power, Weirdness at Work: Diversity of Perspective, Economic Inequality, Part 1: Where We Are and Why For example, as you grow from one employee to perhaps hundreds, you need systems in place to manage accountability. However, as discovered in 2015, the Edison machines were only tested a handful of times in spite of the hype and promise of how, revolutionary they would be as per the CEO. Harris has written extensively on the topics of executive compensation and other governance-related topics. Her first key connection was Don Lucas, a well-known venture capitalist (VC) in Silicon Valley, and he, as the Chairman of the Board of Theranos, introduced Holmes to his VC contacts. What were the consequences of overconfidence bias for Holmes and Theranos? These Sisters Quit Their Jobs Mid-Pandemic to Risk It All for Their Brand. Holmes and Balwani both pleaded not guilty and await trial as of June 2018. Create a culture and system that cultivates an environment of trust amongst your employees. Holmes showed overconfidence regarding the efficacy of her product that was not borne out by testing. The Theranos Story: Blood is Thicker Than Ethics. In March that year, Holmes. On June 15, 2018, Holmes and Balwani were indicted on multiple counts of wire fraud and conspiracy to commit wire fraud. Is that plausible to you? Harris speaks with the Batten Institutes Sean Carr about what it took to make an ethical stand and how increasingly complex technology will present challenges for ethical leaders. Theranos first CFO raised concerns early on, questioning Holmes when he learned the blood testing machine demos for investors were essentially fake. He complained to Holmes that the research results were tampered with and multiple quality control tests were failing. THERANOS: UNETHICAL PRODUCT DEVELOPMENT INTRODUCTION Ethical issues may occur in various functional business areas, such as marketing, research, development, HRM, production, and finance. On the stand, Holmes has repeatedly struggled to recall details, especially the part where she touted the technology while it kept failing. View more articles by Tiffany Ramsdell. When she got to Stanford University in 2002 to study chemical engineering, she came up with an idea for a patch that could scan the wearer for infections and release antibiotics as needed. of ethical issues for lawyers arose in the Theranos saga. 308 qualified specialists online. In an interview with ABC News for its 20-20 television show in May 2019, another former Theranos employee, Erika Cheung, pointed out the flawed quality controls at the company that had ignored problems with the process of analyzing blood. Holmes started the company when she was 19 in 2003 with a vision to disrupt healthcare with a blood-testing device she planned to invent. He and his family fought it spending between $400,000 and $500,000 in legal fees. Three years later, Carreyrou's byline appeared on a WSJ story detailing how Theranos would " soon cease to . This makes it clear, according to Carreyrou, that Holmes pushed out the product before it was ready for the express purpose of misleading investors. The Ethical Failures Behind the Boeing Disasters Martin Peterson April 8, 2019 7 Two Boeing 737 MAX 8 airplanes crashed shortly after takeoff, on October 28, 2018 near Jakarta, Indonesia and March 10, 2019, near Addis Ababa, Ethiopia. Authors Affiliations. The story of Theranos has dominated headlines for years now. How will you instill ethics in your company based on the lessons learned from The Dropout? Why Alex Murdaugh was spared the death penalty, Why Trudeau is facing calls for a public inquiry, The shocking legacy of the Dutch 'Hunger Winter'. Unethical products are those goods and services that any stakeholder believes may damage society. Deontology: Do Unto Others A second ethical theory that is also. The gender factor also played a role, as Carreyrou highlighted in his book: "There was a yearning to see a female entrepreneur break out and succeed on the scale that all . He found that the company did not even use its own technology in tests and often relied on older technology from other companies. Related: The Career Rise and Fall of Theranos Founder Elizabeth Holmes. The original Theranos laboratory, in Palo Alto, 2014. At one point the company reached a valuation of $4.5 billion. His work has been cited byThe New York Times,The Wall Street Journal, theFinancial Times,Newsweek, NPR and CNBC. Thanks in large part to the information from Theranos whistleblowers, John was able to publish his report in The Wall Street Journal, revealing that Theranos was not using its own technology to run the majority of its tests due to the inefficiency of its own technology. One of the major issues, through the life of the company and that sprung at around 2015 was with massive management, incompetence as the CEO and the company exaggerated the capabilities of their proprietary, technology. Ethics is much like that. He disclosed problems in the companys equipment and testing methods. The BBC is not responsible for the content of external sites. This was the aspect that was sure to outrage the public the most, and Holmes and her lawyers seemed willing to stop at nothing to prevent the exposure. A documentary and six short videos reveal the behavioral ethics biases in super-lobbyist Jack Abramoff's story. The downfall of Theranos was triggered in part by two whistleblowers, Erika Cheung and Tyler Schultz. Under scrutiny, the company faced lawsuits from investors, pharmaceutical partners, and the state of Arizona, where it provided blood-testing directly to consumers. Your employees are your first line of defense. Everything you need to know about the super-secret, controversial blood testing company. "I knew she'd had this brilliant idea and that she had managed to convince all these investors and scientists," said Dr Jeffrey Flier, the former dean of Harvard Medical School, who met her for lunch in 2015. At the end of the day, ethics is a "personal" responsibility -- and can (and should) transcend any business or investor mandates. Often, the overconfidence bias is related to the overoptimism bias, an unrealistic expectation that things will turn out well. Scandals Illustrated No matter how far afield an organization, association, executive or athlete has strayed from ethical behavior, life has a way of guiding us back to the truth. Theranos' actions were unethical to a stakeholder theorist because they did not consider several stakeholders prior to taking destructive actions. Theranos CEO Elizabeth Holmes promised to revolutionize blood testing technology, but behind all the hype was a massive fraud. University of Virginia Darden School of Business Professor Jared Harris worked with Theranos whistleblower Tyler Shultz to develop a series of cases that reveal how the advanced nature of the technology allowed the ruse to go on so long and the high cost Shultz paid for his part bringing down the house of cards. VideoRussian minister laughed at for Ukraine war claims, The children left behind in Cuba's mass exodus, Xi Jinping's power grab - and why it matters, Snow, Fire and Lights: Photos of the Week. Fear a Culture of Fear. . Behavioral economist Hersh Shefrin has suggested that Theranos investors overconfidence caused them to let themselves be conned. 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She connected to former Secretary of State George Schultz and wowed the ninety-something year old, who then opened up even more well-known and respected connections to join him on a Board of Directors stacked with stars from the political and military worlds. She wasn't interested in my expertise and it was upsetting.". From the initial excitement of a revolutionary biotech startup, to the sudden suspicions and accusations, to the jaw-dropping exposure of a multibillion-dollar fraud, the journey of Theranos has been nothing if not captivating. In 2015, the FDA, offered redacted forms showing that the companys equipment did not meet the intended needs. www.stevenmintzethics.com Notably, several employees were fired from Theranos for asking too many questions . For the latest Darden thought leadership and practical insights, subscribe to the Darden Ideas to Action e-newsletter. I understand that the data I am submitting will be used to provide me with the above-described products and/or services and communications in connection therewith. In 2014, Elizabeth Holmes, then 30 years old, was on top of the world. The only problem? So, it is a personal failure of the leaders of these companies. 30 videos - one minute each - introduce newsworthy scandals with ethical insights and case studies. Many investors backed the company based on the promise of the technology. However, the claims later proved to be false. But start-ups have potential pitfalls that may differ from well-established companies. The history of the company and its eventual downfall and, current vindication and trial of the founder, Elizabeth Holmes, is marred with ethical concerns, and issues. Holmes' company raised $6.9m in early funding soon after its foundation, gaining a $30m valuation. They offered testimony from more than 130 people on her behalf, including Senator Cory Booker. One of the massive ethical issues involved the CEO and founder Elizabeth Holmes, who, apparently had almost total control of the company even in the presence of the board members, whose fiduciary and oversight duties were an epic fail as a result. But by 2015, the seams were coming apart, and within a year, Holmes was exposed as a fake. The defendants' represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that the company was expected to generate approximately $1 billion in revenues in 2015; when, in truth, Theranos would generate only negligible or modest revenues in 2014 and 2015. They were concerned about the false results that would be given to the oncology patients in this trial and wanted to cancel the plan. She was raised in a comfortably well-off family in Washington DC, and was a polite but withdrawn child, according to people who knew her. The company offered a solution to a longstanding problem - the arduous, expensive and time-consuming process of carrying out blood-based diagnostics. The "next Steve Jobs", said Inc, another business magazine that put her on the cover. The story of Theranos is a cautionary tale where one lie leads to another and before you know it the story snowballs out of control and coverups ensue. "She just stared through me," Dr Gardner told the BBC. Fears of excessive interference cloud proposal for protecting children whose genomes were edited, as He Jiankui's release from jail looks imminent. When Holmes took the stand at her trial, the media was quick to say that she refused to accept full responsibility for her actions and tried to place the blame on others. Courtroom observers have described that her early, emotional, passionate defense has given way to robotic, dry responses. In 2018, the FDA warned the public about using lab-developed genetic tests that didn't undergo its review, noting that many rely on . The core values of EIE are beliefs in service and community, innovation, integrity, transparency, diversity and inclusion. While existing technology required one vial of blood for each diagnostic test conducted, Theranos claimed to be able to perform hundreds of tests (supposedly over 240) ranging from cholesterol levels to complex genetic analysis, with just a single pinprick of blood. She was able to raise hundreds of millions of dollars until Tyler Schultz blew the whistle. The Inventor: Out for Blood in Silicon Valley; a documentary produced and directed by the Oscar-winning Alex Gibney was released in 2019 and a feature film is in development. Why or why not? Blood could be diagnosed easily without the need for many vials of blood drawn from patients veins or expensive lab work. https://www.nytimes.com/2018/06/15/health/theranos-elizabeth-holmes-fraud.html, Web Privacy Policy Tyler Schultz is an advisor for Ethics in Entrepreneurship, and CEO and co-founder of medical diagnostic company Flux Biosciences, Inc. 7. During the trial Holmes accused her ex-boyfriend and business partner, Ramesh "Sunny" Balwani, of emotional and sexual abuse at the time of the alleged crimes, impairing her mental state. You will research each company to establish the facts of each situation. The labs didn't run according to regulations and guidelines set out by health authorities. While blame for this blow up ultimately lies with WeWork's management, and its complicit investors, a lack of ethics in investment banking played a large role. It claimed to having devised blood teststhat required only exceedingly small amounts of blood and could be performed very rapidly using small automated devices the company had developed. How did Elizabeth Holmes and Theranos demonstrate overconfidence bias? https://www.wired.com/2016/05/everything-need-know-theranos-saga-far/, The Theranos mess: A timeline How might that have worked? She has maintained that (according to the AP, December 7, 2021): Theranos was on the verge of perfecting a blood-testing technology that she began working on in 2003 after dropping out of Stanford University to start the company., When I testified, we could do it, I fully believe we could do it, said Holmes. Early in 2015, Carreyrou got a call out of the blue, from Dr. Adam Clapper, a pathologist who often blogged about scams in the laboratory space. You need to learn to delegate, but also keep in mind that you have ultimate responsibility for your company's actions. Video, Russian minister laughed at for Ukraine war claims, convicted by a jury in California on four counts of fraud, AOC under investigation for Met Gala dress, Mother who killed her five children euthanised, Alex Murdaugh's legal troubles are far from over, The children left behind in Cuba's exodus, US sues Exxon over nooses found at Louisiana plant, Biden had skin cancer lesion removed - White House. 3. When they attempted to convey their concerns to Holmes and the management team, they were shut down. https://www.forbes.com/sites/matthewherper/2016/10/08/bad-blood-the-decline-and-fall-of-elizabeth-holmes-and-theranos/#20622504c335, SEC charges Theranos with massive fraud, CEO Holmes stripped of control The only problem? Carreyrou said that hed worked on many stories before involving whistleblowers, but never encountered a situation where the accused organization counter-attacked so aggressively. All rights reserved. Theranos accused him of leaking trade secrets and violating the agreement. But the excitement of investors and the promise of the technology did not translate into success. Theranos' revolutionary claim that won over investors was that it could accurately run tests using a small amount of blood taken from a poke in the patient's finger, instead of a syringe full. With a few drops of blood, Theranos promised that its Edison test could detect conditions such as cancer and diabetes quickly without the hassle of needles. Just three years later, in 2010, the company was valued at $1bn. Testifying in her own defence, Holmes admitted to mistakes in Theranos' operation, but continued to maintain that she never knowingly defrauded patients or investors. The article brings the attention of regulators to potential fraudulent actions at the company and Holmes is hit with a two-year ban from owning or operating a certified clinical laboratory. For example, some virtuous traits that one should . Identify and discuss the legal issues associated with each company. The grant is used to instill a deep and unwavering ethical foundation through course curricula, events, and community collaboration. The Theranos saga encompasses many discrete areas of law. The defendants represented to investors that Theranos would generate over $100 million in revenues and break even in 2014 and that the company was expected to generate approximately $1 billion in revenues in 2015; when, in truth, Theranos would generate only negligible or modest revenues in 2014 and 2015. The literature on ethical issues and challenges in the research stage of the overarching research-and-innovation process is substantial. peers reviews to ensure that they met the intended purposes. By 2007, Theranos's valuation hit $197m after it raised another $43.2m in early-round funding. But three months later she was arrested, along with Mr Balwani, on criminal charges of wire fraud and conspiracy to commit wire fraud. The limited series follows Holmes from her time at Stanford University, to her decision to drop out of college and use her tuition money to fund her start-up. You need people who align with your company's values and who have proven themselves trustworthy of adhering to those standards. The culture of the company was such that it hid important information from the public, pharmacies, medical professionals, and the government. At first, Holmes vehemently denied the claims made against her and the company. The jury found her not guilty on four other charges and failed to reach a verdict on three more. He was fired on the spot for not being a team player.. Three months later the company officially shut down following investigation by the FBI, leaving thousands of former employees, many of whom John found to be talented people with integrity, unaware of the companys fraudulent activity, uncertain about their future. This signals a weakness in her leadership style and portrays her in a negative light. What harms were caused by Theranos and Holmes making false and misleading statements? Opinions expressed by Entrepreneur contributors are their own. He recently publishedThe Strategists Toolkit,a primer on strategic thinking, with Darden Professor Mike Lenox. 58 animated videos - 1 to 2 minutes each - define key ethics terms and concepts. These whistleblowers put themselves in great personal, professional, and legal risk, said Carreyrou. Theranos's business model was based around the idea that it could run blood tests, using proprietary technology that required only a finger . By And it is worth noting that a recent survey conducted by Herbalife Nutrition for National Small Business Week found that 84% of small business owners and employees viewed "making mistakes" as an opportunity for growth. Now They're, Warren Buffett and Partner Charlie Munger, The Viral Brand Behind Soaring Searches for 'Female Body Hair', The Career Rise and Fall of Theranos Founder Elizabeth Holmes, Your Startup's Core Philosophy Is The Secret Weapon For Long-Term Success, Not Only Thriving, But Working to End the Cycle of Poverty in South Africa, Reveal Their Best Business Advice for 2023, Still Gets Up Close and Personal After Its $310 Million Sale, 8 Tips Introverts Need to Network Effectively, Find Out Which Brands Have Ranked on the Franchise 500 for Longest, Carnival Cruise Wants Passengers to Have Fun in the Sun But Do This, and You'll Get Burned With a New $500 Fee, Amazon Employees Are Fighting on Slack About Returning to the Office, Man Arrested After Trying to Smuggle Explosives on U.S. The defendants made numerous misrepresentations to potential investors about Theranoss financial condition and its future prospects, including that its patients blood was being tested using Thermos-manufactured analyzers; when, in truth, they knew that the company had purchased and used third party, commercially available-analyzers. This case covers the rise and fall of Theranos, the company founded by Elizabeth Holmes in 2004 to revolutionize the blood testing industry by creating a device that could provide from a small finger prick the same results and accuracy as intravenous blood draws. Simply by using a pin prick, blood could be analyzed quickly for diseases. She likely also suffered, as many people do, overconfidence in the ethicality of her own character, which was just as great a flaw. 1 However, scholarly interest in such issues and challenges in the entrepreneurial stage of that process has been minimal. They revealed lies to board members, a culture of intimidation and secrecy, technology that repeatedly failed quality assurance and crucially, results sent to real patients that were fundamentally incorrect, upon which life-changing medical decisions were being made. . Now, she is on a witness stand fighting for her life. Lack of Transparency. They made this decision, of course, to continue to solicit funding, even though they were now unquestionably not delivering on their promises. The FDA estimated the cost of misdiagnosis at nearly $800,000. The Inventor: Out for Blood in Silicon Valley is the latest documentary from Oscar-winner Alex Gibney, director of Taxi to the Dark Side. Theranos chair, CEO, and founder Elizabeth Holmes. Test results could be delivered to a patients phone in hours, and a single test would cost less than half of the reimbursement rate of Medicare and Medicaid. Cheung said she raised these issues directly with Balwani who reacted by saying, What makes you think that we have problems? For twelve years, Holmes essentially ran a Ponzi scheme by attracting investment funds from primarily venture capitalists that saw it as a unique opportunity to cash in on the boom in Silicon Valley. If so, how might it affect her judgments and actions? Web Accessibility, Copyright 2023 Ethics Unwrapped - McCombs School of Business The University of Texas at Austin, Being Your Best Self, Part 1: Moral Awareness, Being Your Best Self, Part 2: Moral Decision Making, Being Your Best Self, Part 3: Moral Intent, Being Your Best Self, Part 4: Moral Action, Ethical Leadership, Part 1: Perilous at the Top, Ethical Leadership, Part 2: Best Practices, Financial Conflicts of Interest in Research, Curbing Corruption: GlaxoSmithKline in China, https://www.vox.com/2015/10/20/9576501/theranos-elizabeth-holmes, https://www.forbes.com/sites/petercohan/2015/10/16/theranos-is-made-for-hollywood-silicon-valley-scandal/#104196ea86ee, https://www.vanityfair.com/news/2016/09/elizabeth-holmes-theranos-exclusive, https://www.wired.com/2016/05/everything-need-know-theranos-saga-far/, http://fortune.com/2015/10/31/theranos-timeline/, https://www.forbes.com/sites/matthewherper/2016/10/08/bad-blood-the-decline-and-fall-of-elizabeth-holmes-and-theranos/#20622504c335, https://arstechnica.com/tech-policy/2018/03/sec-charges-theranos-with-massive-fraud-ceo-holmes-stripped-of-control/, https://www.wsj.com/articles/theranos-has-struggled-with-blood-tests-1444881901, https://www.newyorker.com/magazine/2014/12/15/blood-simpler, http://fortune.com/2014/06/12/theranos-blood-holmes/, https://www.sec.gov/news/press-release/2018-41, https://www.forbes.com/sites/hershshefrin/2018/04/14/the-theranos-con/2/#7cb4245a974a, https://arstechnica.com/tech-policy/2018/06/disgraced-theranos-founder-elizabeth-holmes-indicted-on-criminal-charges/, https://www.nytimes.com/2018/06/15/health/theranos-elizabeth-holmes-fraud.html. The technology never worked; never remotely worked. Once you have established the facts surrounding the decisions made by Theranos and Zenefits: Identify and discuss the ethical issues associated with each company. The company owed at least $60 million to unsecured creditors. I was encouraged to see evidence that it's possible to have a good outcome from a bad situation. In hindsight, the Theranos Board was a big red flag, said Carreyrou. 1. Dr Flier ended up inviting her to join the medical school's Board of Fellows, which he regrets, although she was removed when the scandal broke. Step 3: Ethical or Legal Issues. . Theranos' proposed blood analysis machine, the Edison, could conduct these medical tests for you directly in your home. Looking from the Virtue Theory part of view, Theranos had violated some ethical issues. . Theranos even threatened to sue John himself who became a perceived enemy to the company, with some Theranos employees even chanting Fuck you Carreyrou. Theranoswas aprivately held health corporation that was touted as a breakthrough technology company. Read on for the full story to date and what is set to unravel next. Related: Seven Elements of a strong work ethic. It's a true story that documents the dramatic rise and fall of Elizabeth Holmes and her biotech start-up, Theranos. ">, Investing Responsibly: ESG and the Well-Intentioned Investor The reaction from Theranos was astonishing. At the time Ms Holmes was said to be the world's youngest self-made female billionaire, Russian minister laughed at for Ukraine war claims. He also co-authored the recently published paper Model-Theoretic Knowledge Accumulation: The Case of Agency Theory and Incentive Alignment in theAcademy of Management Reviewand a forthcoming paper titled A Comparison of Alternative Measures of Organizational Aspirations for theStrategic Management Journal. The man, identified as 40-year-old Marc Muffley, was scheduled to fly on Allegiant Flight 201 from Lehigh Valley International Airport to Florida's Orlando Sanford International Airport. She already settled with the Securities and Exchange Commission (SEC) for a $500,000 penalty and 10-year ban on serving as an officer or director of a public company. With the fraud exposed, Elizabeth Holmes drew harsh criticism from the media and public, but never showed any signs of regret, remorse, or even responsibility. So many stereotypical Silicon Valley men have used the fake it til you make it mentality to climb to the top, and Holmes felt entitled to do the same. Other allegations include: Tyler Schultz claimed to know something unethical was going on and could have major repercussions on the company. Before long she had developed a pattern, befriending older man after older man to believe in and champion her. Phyllis Gardner, an expert in clinical pharmacology at Stanford, recalled discussing Holmes's skin-patch idea and telling her it "wouldn't work". Revelations in the press, inspections by regulators, punitive measures, bankruptcy, the closure of the company and indictment of all those responsible followed. The event was moderated by Melanie Kay, DFEI Director at the CU Law School, with over 400 attendees joining either in person or via live stream in Boulder. Third, ethical crises are preventable when people recognize ethics are an essential and structural part of research practice. He told HBO in a documentary that if a hundred people who had syphilis came and got tested on the Theranos devices, the company would only tell 65 of them that they had syphilis and told the other 35 that they were healthy: no need for medical intervention. Not all advice about branding is worth listening to, but how do you differentiate between the good and the bad? More information around the downfall of Theranos was revealed in the trial, with prosecutors accusing Holmes of destroying evidence in Theranos' final days in business. ">, Weirdness at Work: Diversity of Perspective for only $13.00 $11.05/page. The Theranos case demonstrates what can happen when corporate governance barely exists and there are no independent directors or an audit committee to provide checks and balances on top management. The corners that were cut became bigger.. Her idea is to revolutionize healthcare by making . In July of that year, the company . What will the jury decide? https://www.newyorker.com/magazine/2014/12/15/blood-simpler, This CEO is out for blood Abstract. ">, EPIC: An Effectuation Boot Camp for Startups in Bangalore They failed to conduct effective research and. Operating largely in a cloak of secrecy, the company could never validate its claims about its blood sampling technology, and many of its lab results went unchecked. Erika Cheung took the challenges she faced at Theranos and channeled them into a non-profit organization called Ethics in Entrepreneurship.